Earnings Call Transcript - OXSQ Q4 2025

Operator, Operator

Thank you for holding. My name is Tina, and I will be your conference operator today. I would like to welcome everyone to the Oxford Square Capital Corp. Fourth Quarter 2025 Earnings Release Conference Call. It is now my pleasure to turn the call over to CEO, Jonathan Cohen. Please proceed.

Jonathan Cohen, CEO

Good morning, everyone. Welcome to the Oxford Square Capital Corp. Fourth Quarter 2025 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Kevin Yonon, Managing Director and Portfolio Manager. Bruce, could you open the call with a disclosure regarding forward-looking statements?

Bruce Rubin, CFO

Of course, Jonathan. Today's conference 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 issued this morning. Please note that this call is the property of Oxford Square Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure in this morning's press release regarding forward-looking information. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, future events and financial performance. We ask that you refer to the most recent filings with the SEC for important factors that can cause actual results to differ materially from those indicated in 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.oxfordsquarecapital.com. With that, I'll turn the presentation back to Jonathan.

Jonathan Cohen, CEO

Thanks, Bruce. For the quarter ended December, Oxford Square's net investment income was approximately $5.4 million or $0.07 per share compared with approximately $5.6 million or $0.07 per share in the prior quarter. Our net asset value per share stood at $1.69 compared to a net asset value per share of $1.95 for the prior quarter. During the quarter, we distributed $0.105 per share to our common stock shareholders. For the fourth quarter, we recorded total investment income of approximately $10.4 million as compared to approximately $10.2 million in the prior quarter. In the fourth quarter, we recorded combined net unrealized and realized losses on investments of approximately $18.3 million or $0.22 per share compared to combined net unrealized and realized losses on investments of approximately $7.5 million or $0.09 per share in the prior quarter. During the fourth quarter, our investment activity consisted of purchases of approximately $18 million and repayments of approximately $7.4 million. During the quarter ended December, we issued a total of approximately 4.3 million shares of our common stock pursuant to an at-the-market offering, resulting in net proceeds of approximately $7.9 million. On February 26, 2026, our Board of Directors declared monthly distributions of $0.035 per share for each of the months ending April, May and June of 2026. We note that additional details regarding record and payment date information can be found in our press release that was issued this morning. With that, I'll turn the call over to our Portfolio Manager, Kevin Yonon.

Kevin P. Yonon, Portfolio Manager

Thank you, Jonathan. During the quarter ended December 31, the U.S. loan market performance declined versus the prior quarter. U.S. loan prices, as defined by the Morningstar LSTA U.S. Leveraged Loan Index decreased slightly from 97.06% of par as of September 30 to 96.64% of par as of December 31. According to LCD, during the quarter, there was some pricing dispersion with BB-rated loan prices decreasing 8 basis points, B-rated loan prices increasing 18 basis points, and CCC-rated loan prices decreasing 265 basis points on average. According to PitchBook LCD, the 12-month trailing default rate for the loan index decreased to 1.23% by principal amount at the end of the quarter from 1.47% at the end of September. Additionally, the default rate, including various forms of liability management exercises, which are not captured in the cited default rate remained at an elevated level of 3.35%. The distress ratio, defined as a percentage of loans with prices below 80% of par, ended the quarter at 4.34% compared to 2.88% at the end of September. During the quarter ended December 31, 2025, U.S. leveraged loan primary market issuance, excluding amendments and repricing transactions, was $70.7 billion, representing a 27% decrease versus the quarter ended December 31, 2024. This was driven by lower refinancing and LBO activity, partly offset by higher M&A and dividend activity versus the prior year comparable quarter. At the same time, U.S. loan fund outflows, as measured by Lipper, were approximately $3.2 billion for the quarter ended December 31. We continue to focus on portfolio management strategies designed to maximize our long-term total return. As a permanent capital vehicle, we historically have been able to take a longer-term view towards our investment strategy. With that, I will turn the call back over to Jonathan.

Jonathan Cohen, CEO

Thank you, Kevin. Additional information about Oxford Square's fourth quarter performance has been posted to our website at www.oxfordsquarecapital.com. And with that, operator, we're happy to open the call up for any questions.

Operator, Operator

And our first question is from Erik Zwick with Lucid Capital Markets.

Erik Zwick, Analyst

I wanted to start with a question. You mentioned the $18 million of new investment purchases during the quarter. Curious if you could just add a little maybe detail into what you bought and what you're currently finding attractive in the market.

Kevin P. Yonon, Portfolio Manager

Sure. So broadly, the investments were focused on first lien loans, generally B2B loans. Going forward into this quarter, I mean, obviously, the primary market has certainly slowed down just given the volatility associated with certain things. But I think we're definitely seeing opportunities in the primary and the secondary, just given the way the markets are trading.

Erik Zwick, Analyst

Got it. To dive deeper into your question, you noted in the prepared comments that the distressed ratio has increased to around 4 percent, up from about 2 percent. This indicates a market shift. From your perspective, does this reflect some of the volatility and concerns in the software market? If not, what other factors are influencing this? Additionally, has this situation created opportunities for you to find good investments at lower prices today?

Jonathan Cohen, CEO

The answer, I think, Erik, is yes to both questions. Certainly, the state of the software market right now, the software private credit market and the syndicated loan markets in that sector are reflecting real concern, no question about it. There's also, I think, a more general pushback against the growth in the private credit asset class that we've been seeing for the past several years. All of that is manifesting in somewhat more recently wider U.S. syndicated corporate loan spreads and lower pricing for the LSTA index. So the answer certainly from our perspective anyways is yes.

Erik Zwick, Analyst

That's helpful. And last one for me. Wondering if you could just describe a little bit the unrealized depreciation in the quarter, what was the primary driver there?

Unknown Executive, Executive

Yes, a significant part of that was due to the CLO equity portion of the book. As you know, it faced a very challenging year-end quarter, primarily resulting from a markdown of the CLO equity portion of the book.

Jonathan Cohen, CEO

Principally unrealized.

Operator, Operator

And with no further questions in queue, I will now hand the call back over to CEO, Jonathan Cohen.

Jonathan Cohen, CEO

Thank you very much. I'd like to thank everyone on the call now, listening to this call and also everyone listening to the replay for their interest in Oxford Square, and we look forward to speaking to you again soon. Thanks very much.

Operator, Operator

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.