Oxford Square Capital (US:OXSQ)2021-03-22 10:29Portfolio Investments - As of December 31, 2020, the total fair value of the ten largest portfolio investments was $159.6 million, representing 54.2% of the total portfolio[49]. - Octagon Investment Partners 49, Ltd. had a fair value of $22.3 million, accounting for 7.6% of the total portfolio[49]. - Keystone Acquisition Corp. had a fair value of $18.5 million, representing 6.3% of the total portfolio[49]. - Sound Point CLO XVI, Ltd. had a fair value of $18.2 million, making up 6.2% of the total portfolio[49]. - The investment in Access CIG, LLC was valued at $16.5 million, which is 5.6% of the total portfolio[49]. - Premiere Global Services, Inc. had a fair value of $15.9 million, representing 5.4% of the total portfolio[49]. - The total outstanding investment across the ten largest portfolio companies included approximately $188.8 million in cost[49]. Fees and Incentives - The annual hurdle rate for 2020 was approximately 6.69%, which influenced the calculation of incentive fees[70]. - The Base Fee for advisory services is calculated at an annual rate of 2.00% of gross assets[69]. - The Capital Gains Incentive Fee is determined based on realized capital gains, net of losses, for each calendar year[67]. - The Base Fee has been reduced from 2.00% to 1.50% and is calculated on a pro-rata basis for any share or debt issuances until the funds are invested[13]. - The Net Investment Income Incentive Fee now includes a Total Return Requirement, requiring 20% of the cumulative net increase in net assets from operations over the past 12 quarters to exceed cumulative fees accrued[13]. - The hurdle rate for the Net Investment Income Incentive Fee has changed from a variable rate to a fixed rate of 7.00%[13]. - The Preferred Return Amount is calculated quarterly at 1.75% of the Company's net asset value from the previous quarter[13]. - In hypothetical scenarios, if the Pre-Incentive Fee Net Investment Income exceeds the hurdle rate, the incentive fee can range from 0% to 20% based on performance[74][79]. - The Capital Gains Incentive Fee is set at 20% of realized capital gains, net of losses, with no fees paid if there are no gains[81]. Management and Operations - The Company bears all operating expenses, including advisory fees, legal costs, and other administrative expenses, which ultimately affect stockholders[86]. - The Investment Advisory Agreement can be terminated by either party with 60 days' written notice, ensuring flexibility in management[88]. - Oxford Square Management is responsible for managing investments and providing necessary personnel for operations[90]. - The Company is entitled to indemnification for damages arising from the services rendered by Oxford Square Management, barring willful misconduct[89]. Market Conditions and Risks - The company is currently facing capital markets disruption and economic uncertainty, which may impair its ability to secure debt financing[18]. - The financial condition and results of operations are dependent on effective management of the existing portfolio and future growth[18]. - The company operates in a highly competitive market for investment opportunities, facing competition from private equity, venture capital funds, and traditional financial services companies[103]. - There is uncertainty regarding the value of portfolio investments, which may impact the net asset value[101]. - The potential for significant loss exists if concentrated investments in a limited number of portfolio companies default on their obligations[101]. - The company is dependent on key management personnel from Oxford Square Management for future success[18]. - Changes in the LIBOR calculation process may adversely affect the value of LIBOR-indexed floating-rate debt securities in the portfolio[101]. - The company may face risks related to corporate governance and public disclosure requirements that could adversely affect its financial results[101]. Regulatory Compliance - The company must distribute at least 90% of its investment company taxable income to qualify for RIC tax treatment, which affects its cash flow management[105]. - The company may incur a 4% nondeductible U.S. federal excise tax on certain undistributed income if it fails to meet distribution requirements[107]. - As of December 31, 2020, the company had approximately $208.5 million in principal debt investments at variable interest rates, with all but two being income-producing[431]. - The company expects future debt investments to generally be made at variable rates, with many containing interest rate floors[431]. - A hypothetical increase of 300 basis points in LIBOR would result in a 15.8% increase in net investment income, while a decrease of 25 basis points would lead to a 0.6% decrease[435]. - The asset coverage requirement for senior securities was changed from 200% to 150%, allowing the company to borrow $2 for investment purposes for every $1 of investor equity[118]. - The company is required to maintain that at least 70% of its total assets consist of qualifying assets, which include securities from eligible portfolio companies[120]. - The company must adhere to certain regulatory requirements, including having a majority of directors who are not interested persons[117]. - The Sarbanes-Oxley Act requires the company to certify the accuracy of its financial statements and assess internal controls over financial reporting[126]. - The company may hedge against interest rate fluctuations using standard hedging instruments, although this may limit benefits from lower interest rates[432]. - The company is subject to examination by the SEC for compliance with the 1940 Act[119]. - The company has adopted policies to comply with NASDAQ Global Select Market's corporate governance rules and will monitor compliance with future listing standards[136].