Oxford Square Capital (US:OXSQ)2021-10-26 17:19Financial Data and Key Metrics Changes - For Q3 2021, the company's net investment income was approximately $4 million or $0.08 per share, an increase from $2.8 million or $0.06 per share in the prior quarter [6] - The net asset value per share rose to $5.03 from $4.91 in the previous quarter [6] - Total investment income for Q3 was approximately $9.8 million, up from $7.8 million in the prior quarter [7] - Net unrealized appreciation on investments was approximately $5.6 million or $0.11 per share, compared to $2.5 million or $0.05 per share in the prior quarter [7] - Realized gains on investments increased to approximately $1.7 million or $0.03 per share from $1.2 million or $0.02 per share in the prior quarter [8] - The net increase in net assets from operations was approximately $11.3 million or $0.23 per share, compared to $6.5 million or $0.13 per share in the prior quarter [9] Business Line Data and Key Metrics Changes - Investment activity included purchases of approximately $23.1 million and repayments of approximately $5.7 million during the quarter [10] - As of September 30, the company held cash and cash equivalents of approximately $19.5 million, with unsettled purchases of approximately $6.5 million [10] Market Data and Key Metrics Changes - The U.S. loan market modestly strengthened, with bond prices increasing from 98.37% of par to 98.62% of par [13] - BB rated loan prices increased by 13 basis points, B rated loan prices by 4 basis points, and CCC rated loan prices by 26 basis points on average [14] - The 12-month trailing default rate for the S&P/LSTA Leveraged Loan Index decreased to 0.35% from 1.25% at the beginning of the quarter [14] - The distress ratio was approximately 0.72%, the lowest level in nearly seven years [14] - Primary market issuance was approximately $161 billion for the quarter, bringing year-to-date issuance to approximately $485 billion [15] - U.S. loan fund inflows were approximately $5.6 billion for the quarter, totaling approximately $25.9 billion year-to-date [16] Company Strategy and Development Direction - The company focuses on portfolio management strategies designed to maximize long-term total return, taking a longer-term view towards investment strategy [16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of inflation on the economy and the loan market, noting that all loans are floating rate and expressed as LIBOR plus [21] - The company is aware of inflationary trends and considers them in investment decisions, but there is no specific solution to address inflationary impacts [22] - The current debt to equity ratio stands at 0.76, which management is comfortable with given the economic environment and the cost of leverage [25] Other Important Information - The Board of Directors declared monthly distributions of $0.035 per share for January, February, and March of 2022 [11] Q&A Session Summary Question: How should assets perform during inflation periods? - Management indicated that inflation affects various sectors differently and that all loans are floating rate, which may provide some protection, but the impact depends on how inflation manifests [21][22] Question: Why did the effective yield in the CLO equity portfolio decline while cash yields increased? - Management explained that effective yield captures total expected returns, which may vary across positions, leading to a decline despite increased cash yields [23][24] Question: What is the target leverage ratio for the fund? - The current debt to equity ratio is 0.76, which management finds comfortable given the current economic conditions [25] Question: Plans to reduce the non-qualified asset ratio? - Management stated that non-qualified assets are primarily CLO tranche positions, which will roll off over time, and they will consider opportunistic sales as appropriate [26][30]