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Oxford Lane Capital: A Look At The Preferreds Post Results


  • OXLC has reported financial results for its last quarter, and we take a look at asset coverage implications for its preferreds.
  • OXLC preferreds are trading at substantially higher yields than the ECC preferred, likely owing to their lower asset coverage; however, we find the yield differential excessive.
  • We like OXLCO within the stack as we would expect it to be repurchased on further NAV stress.
  • Overall, we still find value in the ECC baby bonds for their 9% yield and estimated 340% asset.
  • This idea was discussed in more depth with members of my private investing community, Systematic Income. Get started today »

The CEF preferred stock sector is, on average, one of the safest; however, the average hides a lot of variation. In addition to having well-behaved CEFs with high asset coverage, it also boasts extremely volatile CEFs with low coverage such as a number of CLO funds. These funds have taken a beating over the last few weeks due to a drop in loan prices, rising CLO equity discount rates and credit downgrades. In this article, we consider the implications of the current market environment on these funds and take a look at the Oxford Lane Capital Corp. (NASDAQ:OXLC) preferreds. We also compare them to the Eagle Point Credit Co. (ECC) preferred and baby bonds.

Our takeaway is that the OXLC preferreds are trading at significantly higher yields than the ECC preferred which is likely due to their lower asset coverage although a 2-3% advantage seems too high. Within the OXLC preferred stack, we like OXLCO which is likely to be the first series to be repurchased or redeemed by the fund on further stress. Overall, however, we still find value in the ECC baby bonds at 9% yield owing to their estimated 340% asset coverage.

What Just Happened?

Earlier this week, the Oxford Lane Capital Corp. (OXLC) reported its quarterly results. The key message was a potential reduction or suspension of the distribution alongside a sharp drop in NAV which has fallen by nearly 65% in the last two years. Another CLO equity fund the Eagle Point Credit Co. has fared only marginally better in the same span.

The biggest challenge for CLO managers in the current market environment is dealing with the coming downgrade wave. This is exacerbated by the fact that CLOs came into this period with larger lower-rated buckets than we have seen historically.

Source: Bloomberg


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This article was written by

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Income investing across BDCs, CEFs, ETFs, preferreds, baby bonds and more.

At Systematic Income our aim is to build robust Income Portfolios with mid-to-high single digit yields and provide investors with unique Interactive Tools to cut through the wealth of different investment options across BDCs, CEFs, ETFs, mutual funds, preferred stocks and more. Join us on our Marketplace service Systematic Income.

Our background is in research and trading at several bulge-bracket global investment banks along with technical savvy which helps to round out our service. 

Analyst’s Disclosure: I am/we are long ECCY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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