Oxford Square Capital (OXSQ) - 2022 Q4 - Annual Report

Investment Portfolio - As of December 31, 2022, the largest portfolio investment was in Dryden 43 Senior Loan Fund, with approximately $47.3 million outstanding[46] - Carlyle Global Market Strategies CLO 2021-6, Ltd. had approximately $29.6 million outstanding as of December 31, 2022[47] - Access CIG, LLC's investment in second lien notes amounted to approximately $16.8 million as of December 31, 2022[48] - Affinion Insurance Solutions, Inc. had approximately $15.2 million outstanding on the first lien notes as of December 31, 2022[49] - Quest Software, Inc. had investments totaling approximately $3.0 million in first lien notes and $20.0 million in second lien notes as of December 31, 2022[50] - Dodge Data & Analytics, LLC had approximately $5.0 million and $15.0 million outstanding in first and second lien notes, respectively, as of December 31, 2022[52] - OMNIA Partners, Inc. had approximately $13.8 million outstanding in second lien notes as of December 31, 2022[53] - HealthChannels, Inc. had approximately $19.0 million outstanding in first lien notes as of December 31, 2022[55] - As of December 31, 2022, the company had approximately $307.2 million in principal debt investments at variable interest rates, with all but three being income-producing[439] Fees and Income - The annual hurdle rates for 2022, 2021, and 2020 were approximately 6.26%, 5.36%, and 6.69%, respectively[65] - The Base Fee for advisory services is calculated at an annual rate of 2.00% of gross assets, adjusted for capital raises and redemptions[69] - Quarterly investment income for Hypothetical Scenario 2 was 2.50%, resulting in a Pre-Incentive Fee Net Investment Income of 1.925% after deducting a Base Fee of 0.375% and other expenses of 0.2%[72] - The incentive fee for Hypothetical Scenario 2 was calculated at 0.175%, as the Pre-Incentive Fee Net Investment Income exceeded the hurdle rate of 1.75% but was less than 2.1875%[73] - In Hypothetical Scenario 3, the quarterly investment income was 4.00%, leading to a Pre-Incentive Fee Net Investment Income of 3.425%[74] - The incentive fee for Hypothetical Scenario 3 was 0.685%, as the Pre-Incentive Fee Net Investment Income exceeded both the hurdle rate and 2.1875%[75] - The Capital Gains Incentive Fee for Year 2 was 1.6%, calculated as 20% of the total incentive fee capital gains of 8%[79] - The Capital Gains Incentive Fee for Year 3 was 2%, based on total incentive fee capital gains of 10%[79] - The Base Fee is set at an annualized rate of 1.50%, adjusted pro rata for share or debt issuances[76] - The Total Return Requirement must be met for the Net Investment Income Incentive Fee to be payable, ensuring that cumulative net increases in net assets exceed previously accrued fees[72] Operating Expenses and Management - The company bears all operating expenses, including advisory fees, overhead, and various other costs associated with investment management[80] - The Investment Advisory Agreement can be terminated by either party with 60 days' written notice, ensuring flexibility in management arrangements[84] Risks and Uncertainties - The company relies heavily on strong referral relationships with financial sponsors, and any failure to maintain these relationships could adversely affect its business[95] - The company faces uncertainty regarding the value of its portfolio investments, which may impact its net asset value[95] - A disruption in capital and credit markets could negatively affect the company's business operations[95] - The company is subject to complex corporate governance and accounting requirements that could adversely affect its financial results[95] - The company is authorized to borrow funds, which may increase the risk of investing due to potential leverage[95] - The company may face significant risks if its investment portfolio is concentrated in a limited number of companies[95] - The company operates in a highly competitive market for investment opportunities, facing competition from private equity, venture capital funds, and traditional financial services[97] - The COVID-19 pandemic has caused severe disruptions in the U.S. economy, impacting the company's financial activities[100] Debt and Interest Rates - The company expects that future debt investments will generally be made at variable rates, with many containing interest rate floors[439] - A hypothetical increase of 300 basis points in LIBOR could lead to a 17.6% increase in net investment income, while a decrease of 100 basis points could result in a 5.9% decrease[444] - 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[113] - The company is required to maintain that qualifying assets represent at least 70% of the value of total assets[116] Compliance and Governance - Control is presumed to exist when the company beneficially owns more than 25% of the outstanding voting securities of a portfolio company[117] - The company must offer significant managerial assistance to the issuers of the securities it acquires, unless certain conditions are met[118] - The company is subject to compliance with the Sarbanes-Oxley Act, which imposes various regulatory requirements on publicly-held companies[122] - The company has adopted policies to comply with NASDAQ Global Select Market's corporate governance rules[131] - The company may hedge against interest rate fluctuations using standard hedging instruments, although this may limit benefits from lower interest rates[442]