Oxford Square Capital Corp (OXSQ) 2015 Q4 法說會逐字稿

Hello and welcome to the TICC Capital Corp fourth-quarter 2015 earnings call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Jonathan Cohen. Mr. Cohen, please go ahead.

Thanks very much. Good morning and welcome, everyone, to the TICC Capital Corp fourth-quarter 2015 earnings conference call. I'm joined today by Steve Novak, our Chairman; Saul Rosenthal, our President and Chief Operating Officer; and Bruce Rubin, our Chief Financial Officer. Also, we have with us several members of our investment staff. 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 TICC Capital Corporation Any unauthorized rebroadcast of this call in any form is strictly prohibited.

I would also like to call your attention to the customer 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.ticc.com.

And with that, I will turn the presentation back over to Jonathan.

Thanks, Bruce, very much. As I'm sure you've seen in our announcement yesterday, we have continued to move forward with certain changes in fees and governance that we intend to make us best-in-class in those regards. One of those changes is having an independent board chairman. TICC is now one of only a few BDCs that will have an independent chairman. The board has chosen Steve Novak to be that chair.

I am going to turn the call over to Steve a minute, but for those of you who do not know Steve, he has a long history with the Company and we believe he is very well-suited for that role. Steve has been an independent director of the Company since 2003 and has chaired both the valuation committee and the [audit] committee. Steve spent more than 35 years on Wall Street, most of it on the buy side as an analyst and portfolio manager.

He has a CFA. He founded two registered investment advisers and built a sell-side research group. He has been an investment banker and has served on a number of corporate boards over the years, including serving as our on-board chairman, or board chairman, several times before.

In summary, I couldn't speak more highly of Steve for this role and, with that introduction, Steve, let me turn the call over to you.

And you, Jonathan. Good morning, everyone. I am very pleased to be assuming the chairmanship, particularly at this critical juncture for the Company. I have joined the call this morning specifically to update you on some of the activities of the board. As you may know, the board formed a special committee many months ago, comprised entirely of independent directors and that committee has been hard at work.

In January we commenced a shareholder outreach program and contacted the 20 largest institutional holders. We had a number of constructive meetings and took their feedback to heart.

We also worked with our financial advisor, Morgan Stanley, to conduct a comprehensive review of the BDC industry generally as well as of our peer group. We had a particular focus on fee structures and corporate governance. We had one goal in mind, to adopt a best-in-class approach. In our view, usual and customary is not good enough anymore.

The result of that work is that yesterday the Company announced that TICC management, in consultation with the special committee, agreed to institute specific fee reductions to a level that we consider truly best-in-class. We are very pleased to have achieved these changes.

In terms of the fee waiver, which will take effect April 1 -- in another month or so, are as follows. And I would call your attention to the 8-K that we filed this morning, which has them in detail.

First, the base management fee was reduced from 2% to 1.5%. Second, TICC management has agreed to forgo the payment of any base management fees on funds received in conjunction with any capital raises until those funds are invested. In addition, the calculation of the Company's income incentive fee will be revised to include a total return requirement that will serve to limit TICC's obligation to pay TICC management and income incentive fee if TICC has generated cumulative net decreases in assets resulting from operations during the quarter for which the fee is calculated and the 11 proceeding quarters were shorter the number of quarter since April 1, 2016 due to unrealized or realize net losses on investments.

In the event TICC's net investment income exceeds the minimum return to TICC stockholders required to achieve -- to be achieved before TICC management is entitled to receive an income incentive fee, which, as many of you know, minimum return is commonly referred to as the preferred return or the hurdle rate. Fourth, the income incentive fee will incorporate a catch-up provision. Lastly, the hurdle rate used to calculate the income incentive fee will change from a variable rate based on the five year treasury note less 5% to a fixed rate of 7% in line with the majority of the industry.

Finally, after these changes take effect, under no circumstances will the aggregate fees earned from April 1, 2016 by TICC management in any quarterly period be higher than those aggregate fees that would have been paid prior to the adoption of these changes. We are pleased to have accomplished the fee waiver with TICC management and to have enhanced our corporate governance practices. We also intend to continue our dialogue with shareholders at the appropriate time.

What that, I turn the call back over to Jonathan.

Thanks very much, Steve. In the fourth quarter of 2015, TICC reported GAAP total investment income of approximately $18.8 million, representing a decrease of approximately $4.3 million from the third quarter $23.1 million figure. Fourth quarter GAAP income from our portfolio was earned as follows: approximately $10 million from our debt investments, approximately $8.5 million from our CLO equity investments and approximately $300,000 from all other sources. Income from our debt investments was down $4.1 million, income from our CLO equity investments was down approximately $100,000 and all other income was roughly even from the prior quarter.

TICC also reported GAAP net investment income of approximately $4.5 million, or $0.08 per share, for the fourth quarter of 2015, down from the third quarter's $0.18 per share. We note that in the fourth quarter of 2015 we recognized approximately $2.6 million of incremental expenses, primarily related to the engagement of legal and financial advisors to the Company's special committee.

Our core NII, which approximates our cash income, is substantially higher than our GAAP NII due to the accounting for CLO equity investments under GAAP. And for the fourth quarter was $15.2 million, or $0.26 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.

For the reconciliation of core NII, which is a non-GAAP number to NII calculated in accordance with GAAP, we refer you to the earnings release we issued earlier today. The Company's board of directors has declared a distribution of $0.29 per share, payable on March 31, 2016 -- the stockholders of record as of March 17.

For the quarter ended December 31, 2015, we also recorded net realized capital losses of approximately $4.2 million and net unrealized depreciation of approximately $67.6 million. Our CLO positions suffered significant price declines in the quarter with $43.9 million of that net unrealized depreciation associated with our CLO investments. As a result of those realized and unrealized losses, we had a net decrease in net assets resulting from operations of approximately $67.3 million, or $1.14 per share for the quarter.

Our weighted average credit rating on a fair value basis stood at 2.2 at the end of the fourth quarter of 2015 compared with 2.2 at the end of the third quarter of 2015. As a reminder, our credit rating system is based on a 1 to 5 scale with the lower number representing a stronger credit quality.

At December 31, 2015 our net asset value per share was $6.40 compared to a net asset value at the end of the third quarter of $7.81. During the fourth quarter of 2015 we made additional investments totaling approximately $20.7 million in senior secured loans. Also for the fourth quarter, we received proceeds of approximately $207.9 million from repayments, sales and amortization payments on our debt investments. That level of activity, which was particularly high for our portfolio, resulted primarily from sales initiated by us in order to fund the repayment of debt and to repurchase our common shares.

As of December 31, 2015 the following weighted average yields were calculated. The weighted average yield of our debt investments at current cost stood at approximately 7.1% compared to 7.2% as of September 30, 2015. The weighted average effective yield of our CLO equity investments at current cost stood at approximately 11.3% compared with 11.3% also as of September 30, 2015.

The weighted average yield of our cash income producing CLO equity investments at current cost was approximately 27.4% compared to 25.4% as of September 30, 2015. We note that the cash yield calculated our CLO equity investments is based on cash distributions we received, or were entitled to receive, at each respective period-end and excludes the CLO equity investments which have not yet made their inaugural payments.

I would note that at December 31 we had one investments on nonaccrual status with a cost basis of approximately $15.5 million and a fair value of approximately $13.5 million. That loan was purchased for a total of approximately $10.7 million in separate purchases during 2011 and 2013.

2015 and, particularly the fourth quarter of 2015, was a period of significant change for our Company. Over the past six months we have taken decisive action to better position TICC for the future and to create additional value for our stockholders.

We have reduced the Company's debt by $150 million, which was equal to 29.7% of our consolidated debt as of September 30, 2015. We have repurchased approximately 8.5 million shares of our common stock at a weighted average price of approximately $5.79 for a total of approximately $49.3 million, which represents 14.2% of all of our shares outstanding at September 30, 2015. And we've taken what we consider to be dramatic steps to realign the management and incentive fees paid to our external investment advisor.

On that last point specifically, and as Steve discussed earlier, we have taken time over the last few months to speak with many of you and we have conducted significant analysis of the BDC industry and of our peers. The waiver now in place directly aligns with that feedback and analysis and reflects what we believe is a best-in-class approach across the BDC industry. Under this waiver we have effectively reduce our base management fee, paid the TICC management by 25% from a rate of 2% to 1.5%. And we have implemented the total return hurdle and a catcher provision with regard to the calculation of that increment incentive fee.

Additionally, and as Steve noted, we have moved from a variable hurdle rate to a 7% fixed hurdle rate for that income incentive fee and we have implemented a policy of not charging any management fee on newly raised capital until it is invested. In total we believe that these changes represent significant overall fee revisions.

We also believe that our concurrent deleveraging and significant share repurchase programs are similarly significant in the context of our market. Going forward, our core focus continues to center around rotating out of lower yield and corporate loan assets held on a more leverage basis and into higher yielding assets held on a less leveraged basis. We took a significant step in that direction with the sale of approximately $145.5 million of syndicated corporate loans during the fourth quarter at a weighted average sales price of 98.5% of par. At the same time, we are working to appropriately balance the sometimes competing goals of maintaining a strong and stable dividend, maintaining a stable net asset value and managing the overall risk of the Company's investment portfolio.

We remain committed to taking steps in order to increase value for our shareholders while continuing to navigate what is a highly challenging market environment. We believe that the steps we have taken over the past year are, in certain ways, broadly analogous to those we undertook in 2007 through 2009, prior to and during the last credit crisis. During that period we dramatically deleveraged our balance sheet and rotated into more attractive, risk-adjusted total return assets.

I would now like to turn the call over to Debdeep Maji who well discuss our market overview for us. Debdeep?

Thank you, Jonathan. During the quarter ended December 31, 2015 price declines persisted in the indicator corporate loan market. The continued weakness across the commodity sector, coupled with credit issues in other sectors, continued to weigh on market sentiment. The S&P/LSTA leverage loan index closed at 91.26% on December 31, 2015 compared to 94.21% as of September 30, 2015. As of March 1, 2016 the S&P/LSTA leverage loan index stood at approximately 89.5%. According to S&P, the trailing 12 month leverage loan default rate by number of loans at the end of February 2016 rose to 1.7% from 1.2% at the end of December -- the highest level in over two years.

Against this backdrop, we continue to see a meaningful bifurcation in the loan market as [stress gains], particularly in the oil and gas sector, fell further as oil prices continue to fall during the quarter. Concurrently, near par loans experienced weakness as well as lower liquidity going into year-end as outflows from bank loan ETFs and mutual funds persisted and CLO issuance slowed. According to Morgan Stanley, the average price of the underlying collateral loans and CLOs at the end of December was approximately 93% of par, down 1.25 points from the previous month and down approximately 3 points from the September 2015 levels of 96% of par.

Prices dispersion also increased across CLO collateral as approximately 15% of loans were trading below 90 and 8% below 80 as of year-end compared to 11% and 5% respectively at the end of September. Consequently, post-crisis CLO equity [NAVs] dropped approximately 30 points in the fourth quarter of 2015. As of December 31, 2015 Wells Fargo estimated median NAVs for 2013 and 2014 CLOs are now in single digits and medium NAVs on 2012 and 2015 deals with less energy exposure are approximately 20% of par.

As NAVs declined during the quarter, this was partially offset as collateral managers were able to selectively take advantage of market technicals through active portfolio management to increase collateral par value. According to [LPC] data studied by Wells Fargo, US CLOs still under reinvestment period purchased $5.1 billion in loans in November at a median price of 99 versus $3.4 billion in sales at a median price of 99.3.

Consequently, during the quarter the market continued to see CLO equity tranches trade at a significant discount from a cash price perspective. The combination of further depressed NAVs, the expectation for an increase in actual defaults and ratings downgrades, combined with weakness in the broader markets, resulted in CLO equity trading at lower levels, which is contributed to lower marks on our CLO equity portfolio and for the CLO equity market as a whole.

Addressing our CLO related investment activities, we note that after six years of very stressful activity in the CLO market we had a very challenging 2015 pursuing this strategy, particularly from a mark-to-market perspective. We are among the very first BDC and institutional investors to identify the long -- the outstanding long-term opportunity of investing in CLO debt and equity in 2009 after the credit crisis. Since then, we have deployed total capital of approximately $562 million and have produced a total weighted average [IRR] in excess of 15%, which includes our current non-exited CLO positions as of December 31, 2015 at their then fair market values.

Looking at our exited CLO positions only, we have produce a total cash-on-cash realized weighted average IRR in excess of 30%. That performance is reflected in our overall investment performance from 2009 to 2015, which we will discuss shortly.

Debdeep, thanks very much. With regard to the setting of our net asset value and the fair values at which we mark our portfolio assets, we believe that this is an area that is long deserved and is now receiving significantly greater attention within the BDC space. We are proud of our strong track record of accurately and appropriately marking our assets to market over many years. This is especially true within the CLO market where [bid ask] spreads on CLO equity have widened out considerably.

We note that we have marked down those CLO equity positions we held during the fourth quarter of 2015 by approximately $43.7 million and that we realized $2.7 million of losses on CLO equity sales in that quarter. Our weighted average CLO equity mark at December 31 stood at [48 spot 2].

We believe that the dislocation in the market over the last year has changed the way that investors view CLO participation by BDCs. Specifically, we recognize that investors may now regard that CLO exposure as a meaningful negative and that sentiment has continued into 2016. With that in mind, and in view of the somewhat circuitous loop between investor perception and total return prospects for BDC's, we have taken steps to begin to reduce the relative importance of our CLO investment strategy within TICC.

While that initiative has been slowed by the disruption across the corporate credit markets and within the CLO equity market, we remain committed to rotating out of CLO equity over time at TICC. At the same time, we remain highly focused on continuously managing the value of our investment portfolio. As such, we have no near-term plans to sell CLO assets at current market prices that we believe do not reflect the value of our CLOs projected cash flow payments, which are expected to be received prior to the maturity of those investments. We believe that our CLO investment strategy has produced, on a historical basis, very strong GAAP and cash returns for TICC.

I would like to turn the call over now to Hari Srinivasan who was going to talk about our sector exposure and our leverage position. Hari?

Thank you, Jonathan. It is worth addressing a decision we made several years ago about how we were going to allocate the Company's investments, not only among the different types of investments, but also among different types of issuers of corporate debt. In that regard, we made a multi-year decision to award direct oil and gas exposure as well as other commodities such as coal, metals and mining and energy exposure broadly and have run a [legal percent], direct balance sheet exposure to these sectors for some time. We have additionally endeavored to minimize the oil and gas and energy exposures we hold on the derivative basis to our CLO equity holdings and have thus generally focused on those CLOs with [lower] levels of these exposures. We maintained -- we expect to maintain that position over the near to intermediate term.

Over the past several years, in order to finance our investment strategy, we have operated with relatively high levels of overall debt. But we know that the majority of outstanding debt has been on a nonrecourse basis for TICC. That dichotomy was largely a function of our 2011 and 2012 CLOs and TICC funding financing structures, which were nonrecourse of TICC but consolidated onto our corporate balance sheet under GAAP accounting. During the past year we have chosen to significantly [de-lower] our balance sheet.

I will turn the call over to Jonathan.

Thanks very much, Hari. Lastly, I want to discuss the issue at TICC's investment performance over the past several years and for 2015. We certainly had a disappointing 2015, led principally by unrealized mark-to-market losses, both on our CLO equity and our corporate loan investments. At the same time, we are proud of our total longer-term returns since the implementation of our current investment strategy in 2009 during, and in the immediate aftermath, of the credit crisis.

During the seven-year period from January 1, 2009 to December 31, 2015, the year we just reported results for, we produce a total return to our shareholders of approximately 74% based on NAV appreciation plus dividends and a total return to stockholders of approximately 276% based on share price appreciation plus evidence. That longer-term track record notwithstanding, the market disruptions that have recently occurred and the significant changes we have implemented, which were very much the result of our 2005 -- 2015 operating results, we are expecting to produce significant improvements going forward.

With that, I would like to turn the call back to the operator who can pull for questions.

(Operator Instructions)

Jonathan Bock, Wells Fargo.

Good morning, and thank you for taking my questions. And thank you for your commentary on the CLO market, as well as the valuation process. I found that very helpful. Jonathan, starting first -- so I've got a few here, but starting first with the dividend, just a couple of questions that shareholders and institutions likely have. Is it your intention to keep the dividend at the current level that is not covered by earnings and thus maintain the NAV diminution that's occurring as a result of paying a dividend in excess of those earnings?

Thank you, Jon, for that question. It isn't the Board's intention, I don't believe, to maintain the dividend at any particular level, based on anything other than the operating performance in the cash flow and the distributed investment income that the Company produces. So, during the fourth quarter, we generated an estimated $0.26 per share of core NII, which is effectively distributable or taxable NII. So, as you know, there's obviously a difference between GAAP net investment income and the distributable income, essentially the cash that we received and are therefore responsible to distribute. The Board's view, I think, is that they will continue to review our quarterly performance and our forward projections, both on a GAAP basis and on a tax basis and are going to set the dividend in concert with those things.

That makes sense. Unfortunately, I wasn't a part of the review process but I do believe that BDCs often get significant NAV discounts when they over-distribute dividends relative to what is their true NOI and not on a distributable basis. That is just an opinion.

Moving next, I noticed -- and perhaps it's legalese and this is all going to be fixed, both Steve and Jonathan, you mentioned that this is a waiver for fees. Can you explain why it's not permanent?

Certainly. It's an ongoing waiver, Jon. And, in the absence of any change to the underlying investment contract, it will continue, presumably in perpetuity. The reason why these changes haven't yet been included within the investment advisory agreement is that the Board is required to conduct a full 15(c) review process in the context of making any change of any description to that contract. Presumably, that's something the Board will be looking at fairly shortly.

And, Jonathan, if I may just add, we're about to commence -- we normally commence that 15(c) process at around this time of the year. But we wanted to get this in place immediately, so we did it by this means.

Got it. That is totally fair and I appreciate that. So, as I look at best in class, I completely understand, when we think of cumulative look-backs, et cetera, are very, very important for those BDCs that operate under a true direct origination model. But if I think of a closer comp to you, which owns primarily BSL and CLO equity, what I see is American capital senior floating with a true fee of 80 basis points on gross assets with no incentive fee. So, can you explain how this fee structure that you've presented to us is superior to what one would believe, or a shareholder would actually put forth to you, as a closer comp given the collateral that you now manage?

Sure, Jon. Thank you. The collateral that we manage is shifting. So if you look at the very substantial sales that we conducted during 2015, and especially in the latter portion of 2015, that was primarily our more liquid syndicated corporate loan investments. Going forward, our objective, and our investment focus, is going to be on significantly less liquid assets, more proprietary assets. As you know, the origin of TICC, which was originally called Technology Investment Capital Corp, was in the bilateral loan market. And we're increasingly starting to look at less leverage -- or less liquid, rather, leveraged loans where we think we've got more of a proprietary competitive advantage.

Got it. And then I guess the next question that shareholders would likely put forth is -- and have assets to another that's changed the fee is -- NAV was down significantly this quarter. Could you explain why you chose to make this fee starting as of April 1 and not perhaps retroactively include the NAV losses in your NOI incentive fee going forward because shareholders today, obviously, as a result of the NAV decline, experience some pain. Is there a reason you decided not to include fourth quarter in that fee look-back?

Sure, Jon. The process by which we came up with this waiver agreement was a lengthy one. We looked at the rest of the industry, we looked at competitive -- our competitive position within this market. We looked at a great number of things.

I think what we have ended up with is something by virtue of the new management fee at 150 basis points; by -- in consideration of the total return hurdle, which is, as you've noted, I think, historically, is very much a best practice within this market; by our decision not to charge any management fee -- any base management fee on new capital raise, whether that is debt or equity; by the establishment of the 7% fixed hurdle rate, as opposed to the variable hurdle rate, which was a bit less than 7% that we have historically maintained. All of these things in concert, I think, brought us to a point that we were comfortable with, I hope and believe the special committee were comfortable with, and we're happy with where we have ended up.

Okay. I understand. And then, just a few more and then I can hop back in. So, Jonathan, I think I saw professional fees increase quarter over quarter. I'm going to venture a guess. Did that relate to just general legal proxy and advisor expenses tied to the BSP transaction -- the strategic review, give or take? Is that where they came from?

Sure. That was primarily legal and financial advisory services provided to the special committee during the quarter.

Got it. Then the question is, so I understand there is a coming proxy contest at your annual meeting where shareholders are requesting termination of the external management agreement with TICC Management. So the question I've got is, do you intend to use shareholder capital to defend the external manager against the loss of the contract? And, if you do, is that an appropriate expense for the shareholders to bear when the external manager could pay for it itself?

Jonathan, we honestly haven't had that series of discussions yet. We are still a ways off from the annual meeting. And the prospect of a proxy battle is something that we have not yet turned our attention to.

Okay. And then, finally, Steve, the special committee had outlined that previously TICC as an external manager -- whether it was scale, whether it was operating ability, et cetera, strategy -- that, that was the time, in 2015, to sell. And, in fact, sell to benefit Street Partners, which is a very adept and well-known middle-market credit manager. The question I have is, why has it changed? Because, at the end of the day, the same team sets in place, albeit at a lower price, but if you were recommending moving the assets -- or recommending moving the BDC or selling the external manager just a few months ago, citing that the status quo, which is the current Management Team is in place, as the reason to move to BSP, why is it different now?

Jon, this is Jonathan. Why don't I sort of just offer my perspective on what we heard from the special committee and from our ongoing dialogue with the Board.

Okay.

Firstly, I think the market has changed pretty dramatically since we began, well over a year ago, the discussions that you are referencing. The market has moved from one where, I think, scale was more important in terms of sourcing transactions, sourcing deal flow to a market where we believe competitive advantage is being defined by other factors. This is a market that is significantly dislocated.

This is a market where positions cannot be exited at par values nearly as easily as they could've been 1 year or 1.5 years ago. And this is a market that we, historically -- a dislocated market -- that we've, historically, tended to perform well in. We have rotated the portfolio meaningfully. We have engaged in one of what -- I believe what is one of the very largest share repurchase programs in the BDC industry, bought back over 14% of our market capitalization thus far, and we have substantially deleveraged our balance sheet.

So, the existing manager is doing a great many things to try to address the value issues, the value-creation issues that you've spoken about and you've spoken about historically. So that's -- anyways, that's the Management's perspective. I think Steve is probably going to let it lie there.

Okay. And, Jonathan, thank you for that. So I guess the only other question that I had is I know you mentioned a lot of the creation that occurred was a result of your ability to buy in CLOs in 2009, which was also the date you referenced as you talked about your performance. I know TICC history goes well beyond that. One question, as it just gets to share repurchases, again, because it's an important item and we all believe in it and appreciate the fact that you're returning shareholder capital -- do you expect that to continue in light of the fact that you have BSL collateral that could be sold and you could essentially continue to return capital to investors in the future the way you have in the past?

I do intend -- or I do expect, rather, Jonathan, for the Board and the Management to continue to look much more closely at share repurchase opportunities, on an ongoing basis, than we have in years past. So I think that, in this market environment -- and in an environment where TICC shares are trading at a discount, even a relatively modest discount to NAV in the future -- the share repurchase option needs to be much more seriously pursued than we or our BDC peers have in the past. And that was really the advantage of the 10b5-1 plan that we were able to implement last quarter. My sense is we will look to utilize that mechanism prospectively more in the future.

Got it. Guys, thank you very much for taking my questions. It's very much appreciated

Thank you very much, Jon. Thank you again. Operator, next question.

Mickey Schleien, Ladenburg.

Good morning, Jonathan. I wanted to ask you what the legal or regulatory requirement is for holding the shareholder meeting -- the annual shareholder meeting, in terms of timing?

Thank you, Mickey. I believe that the legal and/or regulatory requirement associated with the holding of the shareholder meeting is that it would need to be held by December 31, 2016.

Okay. And you haven't scheduled it yet, correct?

Correct. We have not.

Okay. My next question is, with all the downgrades we've seen in the leverage loan market, which may be tripping some tests and CLOs, how are your existing CLO investments performing with relation -- in relation to potential cash flow diversions, if any?

Sure, Mickey. Thank you. Our CLO equity positions continue to perform well. They are cash flowing. They were all cash flowing fully, with no diversion to their top of their respective debt stacks as of December 31. And the CLO market overall, putting aside our specific portfolio, continues to generate very strong cash flows. Part of that is a function of a widening corporate loan environment where you are able to potentially arbitrage a fixed cost of capital against a variable use of proceeds and enjoy the benefit of that widening over time.

Obviously, the offset to that -- and the offset could offset all or more than all of that benefit -- is that you've got the prospect for greater CCC downgrades, you've got the prospect for greater defaults, and you've got the prospect going forward for lower recovery rates. So those are the various things that we're thinking about in the context of the management of our CLO equity book.

Okay. Thank you for that, Jonathan. My last question is -- I see in your deck that most of the CLO portfolios now, approximately two-thirds -- I suppose that's because of your new strategy to rotate out of CLO. I just was curious, of those that are callable, in how many are you in a position to control the call?

Sure, Mickey. As you know, part of our strategy -- certainly not all of it, but part of our strategy, historically, has involved assuming control positions, greater than 51% positions, in our various CLO equity tranches. That gives us the ability to call these instruments. And certain of those instruments, we do enjoy the benefit of a call right. That said, in the current market environment, we are not looking at a call strategy as particularly desirable, from an economic perspective.

I understand. Those are all my questions. I appreciate all of your commentary today. And that is it for me. Thank you.

Thank you, Mickey, very much.

Thank you. And this does conclude the question-and-answer session. So I now would now like to turn the call back over to Management for any closing comments.

Great. Thank you very much. I would like to thank everybody on the call today. I would like to thank you for your interest in TICC Capital, and we look forward to continuing these discussions. Thanks very much.

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