Oxford Square Capital (US:OXSQ)2024-08-14 00:21PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited financial statements of Oxford Square Capital Corp. for the quarterly period ended June 30, 2024, including key financial statements and notes, highlighting a decrease in NAV per share to $2.43 and a total investment portfolio fair value of $252.1 million Statements of Assets and Liabilities As of June 30, 2024, total assets increased to $290.2 million, total liabilities to $137.8 million, resulting in a slight increase in net assets to $152.4 million, though NAV per common share decreased to $2.43 Statements of Assets and Liabilities (Unaudited, in thousands) | | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Total investments, at fair value | $252,110 | $266,890 | | Cash and cash equivalents | $30,014 | $5,741 | | Total assets | $290,185 | $277,668 | | Liabilities | | | | Total notes payable | $123,287 | $122,979 | | Total liabilities | $137,773 | $126,359 | | Total net assets | $152,412 | $151,309 | | Net asset value per common share | $2.43 | $2.55 | Schedule of Investments (June 30, 2024) As of June 30, 2024, the investment portfolio's fair value was $252.1 million, primarily comprising Senior Secured Notes (65.5%) and CLO Equity Investments (32.6%), with significant concentrations in Software and Business Services Portfolio Composition by Investment Type (June 30, 2024, in US dollars) | Investment Type | Fair Value (Cost) | % of Net Assets | | :--- | :--- | :--- | | Senior Secured Notes | $165,330,530 ($236,162,805) | 108.5% | | CLO Equity Investments | $82,320,340 ($160,010,968) | 54.0% | | Common Stock | $1,915,500 ($2,034,562) | 1.3% | | Preferred Stock | $2,543,665 ($16,151,862) | 1.7% | | Total Investments | $252,110,035 ($414,360,197) | 165.5% | - As of June 30, 2024, investments on non-accrual status had an aggregate fair value of approximately $3.0 million20 - Qualifying assets under Section 55(a) of the 1940 Act represented 70.8% of the Company's total assets as of June 30, 202420 Schedule of Investments (December 31, 2023) As of December 31, 2023, the investment portfolio's fair value was $266.9 million, mainly Senior Secured Notes ($179.5 million) and CLO Equity Investments ($82.2 million), with Software and Business Services as top industry exposures Portfolio Composition by Investment Type (December 31, 2023, in US dollars) | Investment Type | Fair Value (Cost) | % of Net Assets | | :--- | :--- | :--- | | Senior Secured Notes | $179,456,385 ($279,458,897) | 118.6% | | CLO Equity Investments | $82,157,950 ($160,610,925) | 54.3% | | Preferred Stock | $5,276,092 ($16,151,862) | 3.5% | | Common Stock | $0 ($684,960) | 0.0% | | Total Investments | $266,890,427 ($456,906,644) | 176.4% | - As of December 31, 2023, investments on non-accrual status had an aggregate fair value of approximately $5.8 million40 Statements of Operations For the six months ended June 30, 2024, total investment income decreased to $22.1 million, but lower expenses led to higher net investment income of $14.3 million, though significant net realized losses resulted in a net increase in net assets from operations of only $3.5 million Statements of Operations Highlights (Unaudited, in thousands) | | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Total investment income | $22,123 | $26,455 | | Total expenses | $7,863 | $13,298 | | Net investment income | $14,259 | $13,157 | | Net realized losses | ($38,535) | ($3,331) | | Net change in unrealized appreciation | $27,766 | $8,031 | | Net increase in net assets from operations | $3,491 | $17,856 | Per Share Data (Basic and Diluted, in US dollars) | | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net investment income per common share | $0.24 | $0.26 | | Net increase in net assets from operations per common share | $0.06 | $0.36 | Statements of Changes in Net Assets For the six months ended June 30, 2024, net assets increased by $1.1 million to $152.4 million, driven by operations and capital share transactions, partially offset by distributions to stockholders Changes in Net Assets (Six Months Ended June 30, 2024, in thousands) | Description | Amount | | :--- | :--- | | Net Assets at beginning of period | $151,309 | | Net increase from operations | $3,491 | | Distributions to stockholders | ($12,642) | | Net increase from capital share transactions | $10,255 | | Net Assets at end of period | $152,412 | Statements of Cash Flows For the six months ended June 30, 2024, net cash provided by operating activities was $26.7 million, while net cash used in financing activities was $2.4 million, resulting in a net increase in cash and cash equivalents of $24.3 million Cash Flow Summary (Six Months Ended, in thousands) | | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $26,661 | $28,126 | | Net cash (used in)/provided by financing activities | ($2,387) | $5,884 | | Net increase in cash and cash equivalents | $24,274 | $34,010 | | Cash and cash equivalents, end of period | $30,014 | $43,029 | Notes to Financial Statements (Unaudited) The notes detail the company's BDC/RIC organization, Level 3 investment valuation, income recognition, unsecured note borrowings, adviser fee structure, and declared distributions, along with market and share issuance risks - The company is a closed-end investment company regulated as a Business Development Company (BDC) and taxed as a Regulated Investment Company (RIC), aiming to maximize total return through corporate debt and CLO structured finance investments52 - All of the company's investments are classified as Level 3 in the fair value hierarchy, indicating valuation reliance on unobservable inputs and significant management judgment5983 - The company has two outstanding series of unsecured notes: $44.8 million of 6.25% Notes due 2026 and $80.5 million of 5.50% Notes due 2028, with an asset coverage ratio of 220% as of June 30, 2024, exceeding the 150% regulatory requirement100106108 - The company pays its adviser, Oxford Square Management, a base fee and a potential two-part incentive fee; for Q2 2024, the base fee was $1.0 million, with no incentive fees earned due to the total return requirement113116202 - The company declared monthly distributions of $0.035 per share through December 2024159 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, portfolio changes, and liquidity, noting a decrease in investment portfolio fair value to $252.1 million, higher net investment income due to lower expenses, and capital raised via an ATM program - The fair value of the investment portfolio decreased by $14.8 million during the first six months of 2024, from $266.9 million to $252.1 million, primarily due to net realized losses ($38.5 million) and repayments/sales ($38.5 million) outpacing new purchases ($40.9 million) and net unrealized appreciation ($27.8 million)184185 - The weighted average annualized yield on debt investments increased to 13.69% as of June 30, 2024, from 12.85% a year prior, while the weighted average credit grade of the debt portfolio remained stable at 2.3199190 - For the six months ended June 30, 2024, total investment income decreased to $22.1 million from $26.5 million year-over-year, while total expenses fell to $7.9 million from $13.3 million, resulting in higher net investment income of $14.3 million versus $13.2 million197201212 - The company utilized its At-the-Market (ATM) offering to raise approximately $9.8 million in net capital during the first six months of 2024 by issuing 3,257,030 shares146219 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility, affecting its variable-rate assets and net interest income, with a hypothetical 100 basis point increase or decrease in base rates impacting annual investment income by 4.8% - The company's primary market risk is interest rate volatility, which affects its variable-rate assets and overall net interest income243244 Hypothetical Annualized Impact of Interest Rate Changes on Investment Income (as of June 30, 2024) | Hypothetical Change in Base Rate | Estimated Percentage Change in Investment Income | | :--- | :--- | | Up 300 basis points | 14.5% | | Up 200 basis points | 9.7% | | Up 100 basis points | 4.8% | | Down 100 basis points | (4.8)% | | Down 200 basis points | (9.7)% | | Down 300 basis points | (14.5)% | Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - As of June 30, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were effective248 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2024250 PART II. OTHER INFORMATION Legal Proceedings The company is not currently subject to any material legal proceedings, and any ordinary course legal actions are not expected to materially impact its financial condition or results of operations - The company reports no material legal proceedings as of the filing date252 Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023, were reported - No material changes to the risk factors discussed in the Annual Report for the year ended December 31, 2023, were reported for the six months ended June 30, 2024253 Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended June 30, 2024, the company issued 100,383 shares of common stock valued at approximately $295,000 through its unregistered distribution reinvestment plan, with no equity securities repurchased - In the three months ended June 30, 2024, 100,383 shares of common stock were issued under the distribution reinvestment plan, an unregistered sale with an aggregate value of approximately $295,000254 - The company did not repurchase any of its common stock during the three months ended June 30, 2024255 Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported255 Mine Safety Disclosures This section is not applicable to the company - This section is not applicable to the company255 Other Information During the fiscal quarter ended June 30, 2024, no directors or officers adopted or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements - No directors or officers adopted or terminated any Rule 10b5-1 trading plans during the quarter256 Exhibits This section lists the exhibits filed with the report, including corporate governance documents and CEO/CFO certifications pursuant to the Sarbanes-Oxley Act - Exhibits filed include corporate governance documents and required CEO/CFO certifications (Rule 13a-14 and Section 906 of Sarbanes-Oxley)258