Oxford Lane Capital's (OXLC) CEO Jonathan Cohen on Q1 2017 Results - Earnings Call Transcript

| About: Oxford Lane (OXLC)

Oxford Lane Capital (NASDAQ:OXLC)

Q1 2017 Earnings Conference Call

August 10, 2016 10:00 ET

Executives

Debdeep Maji - Managing Director

Jonathan Cohen - Chief Executive Officer

Bruce Rubin - Chief Financial Officer and Treasurer

Operator

Good morning and welcome to the Oxford Lane First Fiscal Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jonathan Cohen, Chief Executive Officer. Please go ahead, sir.

Jonathan Cohen

Thanks very much. Good morning and welcome everyone to the Oxford Lane Capital Corp first fiscal quarter 2017 earnings conference call. I’m joined today by Saul Rosenthal, our President and Bruce Rubin, our Chief Financial Officer and Treasurer. Bruce, would you open the call today, with the 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 Oxford Lane 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 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.

Jonathan Cohen

Thanks Bruce. At June 30, 2016 our net asset value per share stood at $8.78 compared with a net asset value per share at March 31, 2016 of $7.04. Through the quarter ended June 30, the fund recorded net realized losses of approximately $3.3 million or $0.18 per share and net unrealized appreciation of approximately $41.6 million or $2.22 per share for the quarter ended June 30, 2016. As a result of those net realized losses and unrealized appreciation, we had a net increase in net assets resulting from operations of approximately $44 million or $2.34 per share for the quarter.

For the quarter ended June 30, Oxford Lane recorded GAAP total investment income of approximately $12.4 million representing a decrease of approximately $1.3 million when compared to the quarter ended March 31, 2016. That decrease in GAAP investment income for the quarter was driven by a lower level of leverage we employed during the quarter on our CLO equity portfolio as a result of our preferred stock repurchase program and by the maintenance of a higher cash position during the quarter in order to effect additional preferred stock repurchases partially offset by higher effective yields on our CLO equity portfolio for the quarter ended June 30.

The June’s quarter GAAP income from our portfolio was produced as follows; approximately $12 million from our CLO equity investments and approximately $400,000 from our CLO debt investments and other income. Oxford Lane also recorded GAAP net investment income of approximately $5.7 million or $0.30 per common share for the quarter ended June 30 compared with prior quarter of $6.6 million or $0.36 per share. For the quarter ended June 30, we expensed approximately $618,000 or $0.03 per share in conjunction with our preferred stock repurchase program.

As of June 30, the following weighted average yields were calculated. The weighted average GAAP yield of our CLO debt investments at current cost was approximately 8.9% which remained unchanged when compared to March 31, 2016. The weighted average GAAP effective yield of our CLO equity investments of current cost was approximately 15.4% compared with 14.3% as of March 31, 2016. The weighted average cash distribution yield of our cash income producing CLO equity investments of current cost was approximately 33.9% when compared with 26.6% as of March 31, 2016.

The net of the cash yields calculated on our CLO equity investments is based on the cash distributions we received or were entitled to receive at each respective period end. Our core net investment income or core NII was approximately $19.5 million or $1.04 per share for the quarter ended June 30. Core NII represents GAAP net investment income adjusted for additional cash distributions received or entitled to be received if any in either case on our CLO equity investments. Our Board of Directors has declared a distribution of $0.60 per common share for the quarter ended September 30, 2016 payable on September 30, 2016 to stockholders of record as of September 16.

During the quarter ended June 30, we made additional CLO equity investments of approximately $20.5 million. Also during the quarter, we sold approximately $21 million of our CLO investments. During the quarter ended June 30, we saw a rebound in syndicated corporate loan prices with the S&P/LSTA leverage loan index increasing from 91 spot 51 as of 03/31/2016 to 93 spot 20 as of 06/30/2016. Strength in the broader markets continue to rebound in commodity prices and several CLOs pricing in the primary market drove an increase in prices in the syndicated loan market through June 30.

I would like to turn the call now over to Deep Maji to talk a little bit more about what we saw in the market during the quarter, Deep.

Debdeep Maji

Sure, correspondingly we saw an improvement in CLO equity index prices from March 31, 2016 as announced our CLI equity tranches increased, spreads contracted in the secondary market and rest of them improved. As of August 8, 2016 the S&P/LSTA leverage loan index stood at 94.09. We believe that the CLO market continues to present us with compelling investment opportunities that especially as we saw broader disperse and the underlying portfolio for the vintages and prices. Since we began investing in the CLO market, we are focused on both the primary and secondary markets and have varied our emphasis according to which offered better relative value at various times. We continue to deploy our CLO investment strategy where we see opportunities to generate attractive current cash flows and or the potential for capital appreciation.

Additionally, we continue to actively manage our portfolio loan with a attractive sales opportunities in the secondary market. While we continue to generally focus on longer dated CLO equity with long reinvestment periods that will have additional time to build par and invest in wider credit spreads compared to today’s corporate loan market. We continue to evaluate a variety of different CLO equity and debit profiles that we believe may provide us with attractive risk adjusted returns.

Jonathan Cohen

Okay, thanks very much. Lastly, I would like to mention the total net assets for Oxford Lane at the end of the June quarter stood at approximately $165 million while growth asses were approximately $285.6 million. And with that, I would like to turn the call over to – see if we have any questions.

Question-and-Answer Session

Operator

Jonathan Cohen

Alright, thanks very much. As always, we appreciate your interest in Oxford Lane Capital Corp. We look forward to speaking to some of you hopefully during the remainder of this quarter, the September quarter and speaking to the broader group at when we announce our September quarter results. Thank you all very much.

Operator

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

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