Oxford Square Capital (US:OXSQ)2024-03-19 01:17Investment Holdings - As of December 31, 2023, the outstanding investment in Dryden 43 Senior Loan Fund was approximately $47.3 million[53]. - Carlyle Global Market Strategies CLO 2021-6, Ltd. had an outstanding investment of approximately $29.6 million as of December 31, 2023[54]. - Access CIG, LLC's outstanding investment in second lien notes was approximately $16.8 million as of December 31, 2023[55]. - Global Tel Link Corp had an outstanding investment of approximately $17.0 million in second lien notes as of December 31, 2023[56]. - Viant Medical Holdings, Inc. had outstanding investments of approximately $9.5 million and $5.0 million in first and second lien notes, respectively, as of December 31, 2023[57]. - Quest Software, Inc. had outstanding investments of approximately $3.0 million in first lien notes and $20.0 million in second lien notes as of December 31, 2023[58]. - Affinion Insurance Solutions, Inc. had an outstanding investment of approximately $14.5 million in first lien notes as of December 31, 2023[59]. - Verifone Systems, Inc. had an outstanding investment of approximately $13.9 million in first lien notes as of December 31, 2023[60]. - HealthChannels, Inc. had an outstanding investment of approximately $18.8 million in first lien notes as of December 31, 2023[61]. - Convergint Technologies, LLC had outstanding investments of approximately $2.5 million and $11.0 million in first and second lien notes, respectively, as of December 31, 2023[62]. Investment Income and Fees - Quarterly investment income was reported at 2.50%, exceeding the hurdle rate of 1.75%[81]. - Pre-Incentive Fee Net Investment Income for the quarter was calculated at 1.925% after deducting base fees and other expenses[81]. - The incentive fee for the quarter was determined to be 0.175%, as the Pre-Incentive Fee Net Investment Income exceeded the hurdle rate but was less than 2.1875%[84]. - In a different scenario, quarterly investment income reached 4.00%, resulting in a Pre-Incentive Fee Net Investment Income of 3.425%[85]. - The incentive fee in this scenario was calculated at 0.685%, as the Pre-Incentive Fee Net Investment Income exceeded both the hurdle rate and 2.1875%[87]. - The Capital Gains Incentive Fee is set at 20% of realized capital gains, net of losses, for each calendar year[89]. - Year 2 saw a total capital gains incentive fee of 1.6%, based on 9% realized gains after accounting for 1% unrealized depreciation[92]. - Year 3 reported a total capital gains incentive fee of 2%, calculated from 12% realized gains after accounting for 2% unrealized depreciation[92]. Operating Expenses and Management - The company bears all operating expenses, including advisory fees, overhead, and various other costs related to investment management[93]. - The Investment Advisory Agreement was re-approved by the Board of Directors on April 25, 2023, ensuring continued management services[96]. - The company has no employees; day-to-day investment operations are managed by Oxford Square Management[111]. Regulatory and Compliance Risks - The company is subject to increasingly complex corporate governance, public disclosure, and accounting requirements that could adversely affect its business and financial results[109]. - The company may face significant risks due to potential changes in interest rates for term loans to portfolio companies extending beyond 2023[109]. - The company is subject to compliance examinations by the SEC for adherence to the 1940 Act, which includes maintaining a minimum of 70% qualifying assets[130]. - The Sarbanes-Oxley Act requires the company's CEO and CFO to certify the accuracy of financial statements in periodic reports[138]. - The company has adopted compliance policies and procedures to prevent violations of federal securities laws and reviews them annually[137]. Market Conditions and Risks - The company operates in a highly competitive market for investment opportunities, facing competition from private equity, venture capital funds, and traditional financial services companies[110]. - The company may incur a 4% nondeductible U.S. federal excise tax on certain undistributed income unless it meets specific distribution requirements[114]. - The company may be forced to curtail or cease new lending and investment activities if it cannot obtain additional capital due to regulatory or market constraints[109]. - The company’s common stock price may be volatile and has traded at a discount from net asset value[109]. - The company is authorized to borrow funds, which may increase the risk of investing in it[109]. - The company may face significant potential conflicts of interest between itself and its management team[109]. Interest Rate Sensitivity - A hypothetical increase of 300 basis points in floating interest rates would result in a 15.1% increase in net investment income, while a decrease of 300 basis points would lead to a 15.1% decrease[451]. - The company may hedge against interest rate fluctuations using standard hedging instruments, although this may limit benefits from lower interest rates[449]. - As of December 31, 2023, all but four of the company's variable rate investments were income producing, with rates generally based on the five-year U.S. Treasury note, the Prime rate, or SOFR[447]. Stock and Asset Management - The company must offer significant managerial assistance to the issuers of the securities it acquires, unless certain conditions are met[135]. - The company may sell its common stock below net asset value under specific circumstances, such as rights offerings to existing stockholders[129]. - The company is required to file annual and quarterly reports with the SEC, including audited financial statements[147]. - The asset coverage requirement under the 1940 Act for senior securities was changed from 200% to 150%, allowing the company to borrow $2 for investment purposes for every $1 of investor equity[128].