Oxford Lane Capital Corp. 5.00% Notes due 2027 (OXLCZ) Q1 2018 Earnings Report, Transcript and Summary

Good morning and welcome to the Oxford Lane Capital Corp First Fiscal Quarter 2018 Earnings Release and Conference Call. All participants will be in a listen mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jonathan Cohen, CEO. Please go ahead.

Good morning, and welcome, everyone, to the Oxford Lane Capital Corp. first fiscal quarter 2018 earnings conference call. I'm joined today by Saul Rosenthal, our President; and Bruce Rubin, our Chief Financial Officer and Treasurer. Bruce, could you open the call today with a 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 Oxford Lane 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 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.

Bruce, thanks very much. At June 30th, our net asset value per share stood at $10.18 compared with a net asset value per share at March 31, 2017, of $10.17. We generated the total return of approximately 3.7% for shareholders during the quarter ended June 30th. That figure represented the change in Oxford Lane's book value per plus distribution paid to our common stockholders. For the quarter ended June 30th, we recorded GAAP total investment income of approximately $17.9 million, representing an increase of approximately $600,000 when compared to the quarter ended March 31, 2017. The June quarter's GAAP investment income from our portfolio was produced as follows, approximately $17 million from our CLO equity investments and approximately $900,000 from our CLO debt investments and from other income. Oxford Lane also recorded GAAP net investment income of approximately $9.8 million or $0.42 per share for the quarter ended June 30, 2017, compared with $9.8 million or $0.45 per share for the prior quarter. During the quarter, we issued a total of approximately 1.4 million shares of our common stock pursuant to an aftermarket offering resulting in net proceeds of approximately $14.6 million after deducting commissions and offering expenses. Since June 14, 2017, we sold approximately $2.7 million shares of our newly designated 6.75% Series 2024 Term Preferred Shares at a public offering price of $25 per share, raising approximately $66 million in net proceeds. Those shares are currently traded on the NASDAQ Global Select Market under the symbol OXLCM. On June 14, 2017, we redeemed all of the issued and outstanding shares, an aggregate of approximately 2.0 million shares of our 8.125% Series 2024 Term Preferred Stock, which had been traded on the NASDAQ Global Select Market under the symbol OXLCN, for a redemption price of $25 per share plus accrued but unpaid dividends. For the quarter ended June 30th, we recorded net realized gains of approximately $1.5 million or $0.06 per share and net unrealized depreciation of approximately $2.8 million or $0.12 per share. We had a net increase in net assets resulted from operations of approximately $8.5 million or $0.37 per share for the quarter. As of June 30, 2017 the following weighted average yield were calculated, the weighted average yield of our CLO debt investments at current costs was approximately 9.4% compared with 9.6% at March 31, 2017. The weighted average GAAP effective yield of our CLO equity investments at current cost was approximately 18.7% compared with 19.4% as of March 31, 2017. The weighted average cash yield of our CLO equity investment at current cost was approximately 26.4% compared with 22.4% as of March 31th. We note that the cash yields calculated on our CLO equity investments are based on the cash and income distributions we received or were entitled to receive at each respective period end. Our core net investment income or core NII was approximately $12.1 million or $0.52 per share for the quarter ended June 30th, compared to 9.3% or $0.43 per share for the prior quarter. Core NII represents GAAP net investment income adjusted for additional cash income distributions received or entitled to be received if any in either case on our CLO equity investments. Please see our earnings release for a reconciliation of core NII to GAAP NII. And with that, I’d like to turn the call over to Joe Kupka, who is going to talk a little bit about our investment activity during the quarter.

Thanks, Jonathan. For the quarter ended June 30th, we made additional CLO investments of approximately $95.7 million. Also during the quarter we received cash proceeds of approximately $39.1 million from sale of our CLO investments. Additionally we received cash proceeds of approximately $7 million from the repayment of our CLO warehouse facility. For the quarter ending June 2017, we continued our active rotation of the CLO portfolio with opportunistic purchases and sales. CLO liability spreads continue to generally tighten during the quarter, presenting us with ongoing refinancing of the communities. Several of our CLOs equity refinancing transactions, which decreased the weighted average cost of the respective liabilities. While we continue to generally focused on longer dated CLO equity with longer reinvestment periods, that should have additional time to build par values and to invest in wider credit spread compared to today’s corporate loan environment, we continue to evaluate a variety of different CLO equity and debt profiles, that we believe may provide us with attractive risk-adjusted returns. We believe that the CLO market continues to present us with compelling investment opportunity set, especially as we continue to see a broad dispersion in pricing across vintages and profiles.

Thanks very much, Joe, I note that additional information about Oxford Lane’s first quarter performance has been posted to our website at www.oxlc.com. And operator with that we are happy to open the call up to any questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question is from Mickey Schleien with Ladenburg. Please go ahead.

Yes, good morning everyone. Could you please describe how the implementation of the risk retention rules has impacted the pool of CLO managers out there? And what strategies you've been pursuing to manage your relationships with them as a result of that trend?

Sure Mickey. Thank you very much for the question. In terms of our relationships with the various collateral managers, we regard those as strong and ongoing. So having been an investor in the CLO debt and equity markets starting since -- starting in 2009 we have a long history in this asset class, we have a long series of relationships with many or even most of the larger collateral managers. To address your earlier -- the earlier portion of your question, the first part of your question. I would say that the pool of relevant collateral managers has been it's certainly hasn't grown, but I don't think it's shrunk dramatically over the period, during which the risk retention rules have come into effect. The market I think generally has become somewhat bifurcated in the sense that first tier collateral managers have seen a continuance of a tightening in their liability spreads and some of that probably has come at the expense of some of the smaller collateral managers who have seen a widening or a lack of tightening in their relative spreads. But the pool of collateral managers that we have to choose among, I think is sufficiently sizable. And our relationships are sufficiently deep that we continue to see very high quality deal flow in the warehouse market in the primary market and obviously in the secondary market as well.

Thanks for that, Jonathan. It’s a good segue to my follow-up questions. Clearly, the credit markets have a lot of liquidity partly to I think as funds have been created to meet this sort of ongoing search for yield. So I'm interested to know whether some of that liquidity has resulted in a new core of CLO asset managers that have the capability and the talent and the resources to get involved in the CLO market and whether that's providing you new opportunities?

Thank you, Mickey. That's a very good question. The answer I think is probably yes. We have seen the emergence of new managers including some high quality managers who were interested to invest with. The dynamics that you've described have indeed I think contributed to that dynamic.

Thanks for that Jonathan. I appreciate your time.

Thank you, Mickey.

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

Thanks very much. I'd like to thank everyone on the call and everyone on listening to the replay for their interest, their ongoing interest in Oxford Lane Capital Corp. And we look forward to speaking to you next quarter. Thanks very much again.

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