Oxford Square Capital Corp (OXSQ) 2017 Q1 法說會逐字稿

Good day, and welcome to the TICC Capital Corp. First Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

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

Thank you. Good morning, and welcome, everyone, to the TICC Capital Corp. First Quarter 2017 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President and Chief Operating Officer; and Bruce Rubin, our Chief Financial Officer.

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 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 can 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.

With that, I'll turn the presentation back over to Jonathan.

Bruce, thanks very much. We generated a total return of approximately 3% during the first quarter of 2017, representing the increase in TICC's book value per share plus distributions paid to our common shareholders. Our book value per share rose from $7.50 at the end of the December 2016 quarter to $7.53 at March 31, and we paid distributions of $0.20 per share during the first quarter.

For the quarter ended March 31, 2017, we recorded GAAP net investment income of approximately $7.9 million or approximately $0.15 per share. In the first quarter, we also recorded net unrealized appreciation of appropriately $9.6 million and net realized capital losses of approximately $5.5 million. In total, we had a net increase in net assets from operations of approximately $12.1 million or $0.23 per share.

Our core net investment income for the quarter ended March 31, was approximately $10.4 million or approximately $0.20 per share. Please see the earnings release we issued today for a reconciliation of net investment income with core net investment income.

Following the company's strong total return performance for the full year 2016 and with the continuation of strength in the corporate loan market during the first quarter of calendar 2017, we believe that the various initiatives, including the share repurchase program we completed in 2016 and the portfolio rotation strategy we continue to implement, contributed to the total return we generated in the first quarter. We note that we continued to have no investments on nonaccrual status as of March 31, 2017.

From January 1, 2017, to March 31, the LSTA corporate loan index rose from 98.08% to 98.22% during the first quarter of 2017, tighter leveraged loan spreads continued to generally reduce the weighted average spreads of the loan assets within our CLO investments. That reduction in credit spreads on CLO collateral coupled with a meaningful increase in 3-month LIBOR during the 2016 calendar year, has led to lower current and projected cash flow distribution payments from many CLO equity tranches. Within that context, the strength in the loan market continues to creates opportunities in the CLO markets as higher NAVs present us with greater possibilities for CLO calls and for opportunistic investments in CLO junior debt at discounts to par.

During the first quarter of 2017, CLO liability spreads continued to generally tighten, presenting us with ongoing refinancing as well as resetting opportunities. A reset to the refinancing that includes an extension of the reinvestment period of the CLO. With both CLO collateral and liability spreads at nearly their tightest levels since the 2008 credit crisis and with 3 months LIBOR just over 1%, we believe that the reinvestment period biased portion of the CLO equity class is generally well positioned for any widening of spreads and/or dislocation in the market.

During the first quarter, we continued to execute our strategy of rotating out of more broadly syndicated corporate loans into a combination of club deals and more narrowly syndicated loans through purchases in both the primary and secondary markets. The necessity to maintain investments in more liquid corporate loan assets ahead of the November 2017 maturity of our convertible notes was meaningfully reduced by the underwritten public offering of just over $64 million in aggregate principal amount of 6.5% unsecured notes we completed on April 12, 2017. The notes mature on March 30, 2024, and may be redeemed in whole or in part at any time or from time to time at our option on/or after March 30, 2020. We intend to use the net proceeds from this offering to repay or repurchase a portion of our outstanding indebtedness under our 7.5% convertible notes due November 1, 2017, which amounted to approximately $94.5 million plus accrued interest as of March 31.

With the benefit of that transaction, we believe that we are now in a significantly stronger position to continue the execution of our investment strategies in both the corporate loan and the CLO markets. We believe that our 2017 results should continue to benefit from the steps we took during 2016 to increase shareholder value in multiple ways. We continue to view our mandate as maximizing the risk-adjusted total return on our shareholder's investment in TICC. As such, we have and continued to focus on portfolio management strategies designed to maximize our total return as opposed to generating a certain level of income over a particular time frame. We view the market opportunity currently available to us as strong, and as a permanent capital vehicle, we have historically been able to take a longer-term view towards our investments. We believe that this perspective served us well during the first quarter of 2017.

We note that additional information about TICC's first quarter operating performance has been posted to our website at www.ticc.com.

And with that, operator, we're happy to open the line for any questions.

(Operator Instructions) The first question comes from Mickey Schleien from Ladenburg.

Jonathan, since we don't have the Q yet, we haven't seen the portfolio, obviously. Can you provide us some more background on how the non-CLO investments break down between the broadly syndicated bucket, the narrowly syndicated bucket and the club deals?

Sure, Mickey. The portfolio, obviously, will be coming out with the Q, that should be a little bit later today. But essentially, what you would've seen in the first quarter is a continued rotation out of the more broadly syndicated corporate loans into, again, more narrowly syndicated, more privately negotiated second lien transactions and continued rotation on that basis. We don't have a precise breakdown, and I'm not sure that we actually categorize loans according to their syndicated or non-syndicated privately negotiated versus club deal status, as those elements really represent points on a continuum as opposed to black-and-white lines of demarcation. So we don't have any sort of a statistical breakdown on -- but certainly, what you will see when our schedule investments is released again, later today, is a continuation of that rotation.

The next question comes from Christopher Testa from National Securities Corporation.

Jonathan, just touching a bit on Mickey's question. Just wondering if you could give us kind of a differential in the characteristics between the club deals versus broadly syndicated just in terms of average borrower size and the (inaudible) leverage.

Sure. I think what we continue to see, Chris, is our smaller deals characterized by a fewer number of participants, certainly smaller tranche sizes especially with respect to the second lien, and these are deals that, as you know, are principally privately negotiated. These are not subject to a broader syndication process. We are strongly biased right now in deals where we're getting an early look or a first look in some cases, directly from the sponsor. We hope and expect that to continue.

Okay. Great. And do you have an indication of how much of the club deals you were the lead arranger on?

No. We don't have that information at the moment, Chris.

Our next question comes from Mickey Schleien from Ladenburg.

Yes. Jonathan, I was cut off. Just a follow-up on my previous question and one more question. Can you give us a sense broadly speaking of what the spread is that you're earning when you invest in a club deal versus syndicated deals?

I mean, typically, Mickey, what we're seeing and in terms of second lien narrowly syndicated or privately negotiated deals, somewhere in the high-single digits for transactions where we're comfortable with the total level of leverage with the recurring nature of the underlying cash flows with the persistency of the margin structures and with all of the other aspects that we focus on in the context of our underwriting, I would say second lien syndicated right now is probably LIBOR plus 800 to 900 basis points, whereas privately negotiated second liens with broadly similar credit structures, we're looking at somewhere around 100 basis points wider. So call it LIBOR plus 900 to 1,000.

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

I'd like to thank everyone for their continued interest in TICC. We look forward to speaking to you in the future, and thank you very much for your attention this morning.

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