Oxford Lane Capital Corp (OXLC) 2018 Q1 法說會逐字稿

Good morning, and welcome to the Oxford Lane Capital Corp. First Fiscal Quarter 2018 Earnings Release and Conference Call. (Operator Instructions) Please note this event is being recorded.

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

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

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

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 Oxford Lane Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. I'd 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 to Jonathan.

Bruce, thanks very much. At June 30, our net asset value per share stood at $10.18 compared with a net asset value per share at March 31, 2017 of $10.20. We generated a total return of approximately 3.7% for shareholders during the quarter ended June 30. That figure represented the change in Oxford Lane's book value per share plus distribution paid to our common stockholders.

For the quarter ended June 30, we recorded GAAP total investment income of approximately $17.9 million, representing an increase of approximately $600,000 when compared to the quarter ended March 31, 2017. The June quarter's GAAP investment income from our portfolio was produced as follows: approximately $17 million from our CLO equity investments and approximately $900,000 from our CLO debt investments and from other income.

Oxford Lane also recorded GAAP net investment income of approximately $9.8 million or $0.42 per share for the quarter ended June 30, 2017, compared with $9.8 million or $0.45 per share for the prior quarter. During the quarter, we issued a total of approximately 1.4 million shares of our common stock pursuant to an aftermarket offering, resulting in net proceeds of approximately $14.6 million after deducting commissions and operating expenses.

Since June 14, 2017, we've sold approximately 2.7 million shares of our newly designated 6.75% Series 2024 Term Preferred Shares at a public offering price of $25 per share, raising approximately $66 million in net proceeds. Those shares are currently traded on the NASDAQ global select market under the symbol OXLCM.

On June 14, 2017, we redeemed all of the issued and outstanding shares, an aggregate of approximately 2.0 million shares of our 8.125% Series 2024 Term Preferred Stock, which had been traded on the NASDAQ global stock market under the symbol OXLCN for a redemption price of $25 per share plus accrued but unpaid dividends.

For the quarter ended June 30, we recorded net realized gains of approximately $1.5 million or $0.06 per share and net unrealized depreciation of approximately $2.8 million or $0.12 per share. We had a net increase in net assets resulting from operations of approximately $8.5 million or $0.37 per share for the quarter.

As of June 30, 2017, the following weighted average yields were calculated. The weighted average yield of our CLO debt investments at current cost was approximately 9.4% compared with 9.6% at March 31, 2017. The weighted average GAAP effective yield of our CLO equity investments at current cost was approximately 18.7% compared with 19.4% as of March 31, 2017. The weighted average cash yield of our CLO equity investments at current cost was approximately 26.4% compared with 22.4% as of March 30 -- 31, excuse me.

We note that the cash yields calculated on our CLO equity investments are based on the cash income distributions we received or were entitled to receive at each respective period end. Our core net investment income, or core NII, was approximately $12.1 million or $0.52 per share for the quarter ended June 30 compared to 9.3% or $43 million -- $0.43 per share for the prior quarter.

Core NII represents GAAP net investment income adjusted for additional cash income distributions received or entitled to be received, if any in either other case, on our CLO equity investment. Please see our earnings release for a reconciliation of core NII to GAAP NII.

And with that, I'd like to turn the call over to [Joe Cosco], who's going to talk a little bit about our investment activity during the quarter

Thanks, Jonathan. During the quarter ended June 30, we made additional CLO investments of approximately $95.7 million. Also during the quarter, we received cash proceeds of approximately $39.1 million from the sale of our CLO investments.

Additionally, we received cash proceeds of approximately $7 million from the repayment of a CLO warehouse facility. For the quarter ending June 2017, we continued our active rotation of the CLO portfolio with opportunistic purchases of new sales.

CLO liability spreads continued to generally tighten during the quarter, presenting us with ongoing refinancing opportunities. Several of our CLOs executed refinancing transactions, which decreased the weighted average cost of their respective liabilities. While we continue to generally focus on longer data CLO equity with longer reinvestment periods, that should have additional time to build par values and to invest in wider credit spreads compared to today's corporate loan environment, we continue to evaluate a variety of different CLO equity and debt profiles that we believe may provide us with attractive risk-adjusted returns. We believe that the CLO market continues to present us with compelling investment opportunity set, especially as we continue to see a broad dispersion in pricing across vintages and profiles.

Thanks very much, [Joe]. I'd note that additional information about Oxford Lane's first quarter performance has been posted to our website at www.oxlc.com.

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

(Operator Instructions) Our first question is from Mickey Schleien with Ladenburg.

Could you please describe how the implementation of the risk retention rules has impacted the pool of CLO managers out there? And what strategies have you been pursuing to manage your relationships with them as a result of that trend?

Sure, Mickey. Thank you very much for the question. In terms of our relationships with the various collateral managers, we regard those as strong and ongoing. So having been an investor in the CLO debt and equity markets starting since -- starting in 2009, we have a long history in this asset class, we have a long series of relationships with many or even most of the larger collateral managers. To address the -- your earlier -- the earlier portion of your question, the first part of your question, I would say that the pool of relevant collateral managers has been -- it certainly hasn't grown, but I don't think it's shrunk dramatically over the period during which the risk retention rules have come into effect. The market, I think, generally has become somewhat bifurcated in the sense that first-tier collateral managers have seen continued -- a continuance of a tightening in their liability spreads, and some of that probably has come at the expense of some of the smaller collateral managers who have seen a widening or at least a lack of tightening in their relative spreads. But the pool of collateral managers that we have to choose among, I think, is sufficiently sizable and our relationships are sufficiently deep that we continue to see very high-quality deal flow in the warehouse market, in the primary market and, obviously, in the secondary market as well.

It's a good segue to my follow-up question. Clearly, the credit markets have a lot of liquidity, partly due, I think, as funds have been created to meet the sort of ongoing search for yield. So I'm interested to know whether some of that liquidity has resulted in a new core of CLO asset managers that have the capability and the talent and the resources to get involved in the CLO market, and whether that's providing you new opportunities.

Thank you, Mickey, that's a very good question. The answer, I think, is probably yes. We have seen the emergence of new managers, including some high-quality managers, who were interested to invest with the dynamics that you've described, have indeed, I think, contributed to that dynamic.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jonathan Cohen for any closing remarks.

Thanks very much. I'd like to thank everyone on the call and everyone listening to the replay for their interest, their ongoing interest in Oxford Lane Capital Corp. And we look forward to speaking you -- speaking to you next quarter. Thanks very much again.

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