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Operator: Good morning or good afternoon all. Welcome to the Oxford Lane Capital Corp announces net asset value and selected financial results for the Third Fiscal Quarter. My name is Adam and I’ll be your operator for today. [Operator Instructions] I will now hand the floor to CEO Jonathan Cohen to begin. So, Jonathan, please go ahead when you are ready.

Jonathan Cohen: Thanks very much. Good morning, everyone. Welcome to the Oxford Lane Capital Corp Third Fiscal Quarter 2024 Earnings Conference Call. I’m joined today by Saul Rosenthal, our president; Bruce Rubin, our chief financial officer; and Joe Kupka, our Managing Director. Bruce, could you open the call with the disclosure regarding forward-looking statements?

Bruce Rubin: Sure, Jonathan. Today’s conference call is being recorded. An audio replay of the call will be available for 30 days. Replay information is included in our press release that was issued earlier this morning. Please note, that this call is the property of Oxford Lane Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure of this morning’s press release regarding forward-looking information. Today’s conference call includes forward-looking statements and projections that reflect the company’s current views with respect to, among other things, future events and financial performance. We ask that you refer to our most recent filings with the SEC for important factors that can cause actual results to differ materially from those indicated in these projections.

We do not undertake to update our forward-looking statements unless required to do so by law. During this call, we will use terms defining the earnings release and also refer to non-GAAP measures. For definitions and reconciliations to GAAP, please refer to our earnings release posted on our website at www.oxfordlayingcapital.com. With that, I’ll turn the presentation back to Jonathan.

Jonathan Cohen: Thank you, Bruce. On December 31st, 2023, our net asset value per share stood at $4.82 compared to a net asset value of $4.81 per share as of September 30th. For the quarter ended December, we recorded GAAP total investment income of approximately $79.2 million, representing an increase of approximately $4.8 million from the prior quarter. The quarter’s GAAP total investment income consisted of approximately $73.6 million from our CLO equity and CLO warehouse investments and approximately $5.7 million from our CLO debt investments and from other income. Oxford Lane reported GAAP net investment income of approximately $48.7 million or $0.23 per share for the quarter ended December, compared to approximately $44.8 million or $0.23 per share for the quarter ended September 30th.

Our core net investment income was approximately $82.7 million or $0.39 per share for the quarter ended December compared with approximately $79.7 million or $0.41 per share for the quarter ended September. For the quarter ended December, we recorded net unrealized appreciation on investments of approximately $6.7 million and net realized losses of approximately $3.1 million or $0.02 net per share. We had a net increase in net assets resulting from operations of approximately $52.4 million or $0.25 per share for the third fiscal quarter. As of December 31st, the following metrics applied. We note that none of these metrics represented a total return to shareholders. The weighted average yield of our CLO debt investments at current cost was 16.6%, down from 18.5% as of September 30th.

The weighted average effective yield of our CLO equity investments at current cost was 16.5%, up from 16.3% as of September 30th. The weighted average cash distribution yield of our CLO equity investments at current cost was 24%, down from 25% as of September 30th. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end. During the quarter ended December, we issued a total of approximately 10.8 million shares of our common stock, pursuant to an at-the-market offering, resulting in net proceeds of approximately $52.2 million. During the quarter-ended December, we made additional CLO investments of approximately $113.9 million and we received approximately $30.2 million from sales and repayments.

On January 25th, our Board of Directors declared monthly stock distributions of $0.08 per share for each of the months ending April, May, and June of 2024. With that, I’ll turn the call over to our Managing Director, Joe Kupka. Joe?

Joe Kupka: Thanks, Jonathan. During the quarter ended December 31, 2023, U.S. loan market performance improved versus the prior quarter. U.S. loan prices, as defined by the Morningstar LSTA U.S. Leverage Loan Index, increased from 95.56% as of September 30th to 96.23% as of December 31st. The increase in U.S. loan prices led to an approximate six-point increase in median U.S. CLO equity net asset values. Additionally, we observed loan pools within CLO portfolios marginally increase their weighted average spreads to 372 basis points compared to 370 basis points last quarter. Despite the increase in loan prices, the 12-month trailing default rate for the loan index increased to 1.5% by principal amount at the end of the quarter from 1.3% at the end of September.

Additionally, the distress ratio, defined as the percentage of loans with a price below 80% of par, ended the quarter at 4.5% compared to approximately 4.4% at the end of September. CLO new issuance during the quarter totaled approximately $32 billion, an increase of $4 billion from the prior quarter. The $116 billion of issuance in 2023 trailed the $129 billion of issuance in 2022. However, CLO liabilities have continued to tighten through the new year, which should improve new issue arbitrage and issuance going forward. Oxford Lane continued to be active during the quarter. While most of our activity took place in the secondary market this quarter, we added one new issued CLO equity investment, one new issued CLO debt investment, and one new warehouse during the quarter.

Our investment strategy during the quarter was to engage in relative value trading and to lengthen the weighted average reinvestment period of Oxford Lane’s CLO equity portfolio. In the current market environment, we intend to continue to utilize an opportunistic and unconstrained investment strategy across U.S. CLO equity debt and warehouses as we look to maximize our long-term total return. And as a permanent capital vehicle, we have historically been able to take a longer-term view towards our investment strategy. With that, I’ll turn the call back over to Jonathan.

Jonathan Cohen: Thanks Joe. Additional information about Oxford Lane’s third quarter performance has been uploaded to our website www.oxfordlanecapital.com. And with that, operator, we’re happy to open the call up for any questions.

Operator: Thank you. [Operator Instructions] Now our first question today comes from Mickey Schleien from Ladenburg. Mickey, your line is open. Please go ahead.

Mickey Schleien: Yes, good morning, everyone. Jonathan, in the prepared remarks, I think you mentioned that CLO debt liability spreads are compressing. What are your expectations for that trend to continue in order to offset the decline in leverage loan spreads, which are also compressing and thereby protecting the arbitrage this year?

Jonathan Cohen: We don’t really have a view, Mickey. I mean, that’s more of a macro factor. And in terms of the forward pricing outlook for CLO debt tranches, which in turn, as you rightly note, feeds into the quality of a new issue arbitrage and therefore the robustness of the forward calendar. We’d obviously like to see those things happen, but we have no particular insight as to whether they will.

Mickey Schleien: Okay. If I can follow up then, what are your expectations for the portfolios CLO investments that are beyond their reinvestment period in terms of the ability to have those called now that spreads are tightening, and what proportion of those investments are you in a control position?

Jonathan Cohen: Sure. We’ve already begun that process, just taking advantage of rising NAVs and the tightening liabilities. So, we’re starting to have those discussions kind of a case-by-case basis depending on the current status of the CLO. We’re going to look to call some deals, reset when we can, and kind of take it case-by-case. Obviously, regarding your first question, there’s going to be this push and pull on the market as a lot of the post-reinvestment CLOs try to get something done. So I think we’ll be range-bound, but we kind of take what the market gives us in terms of when we want to reset first call.

Mickey Schleien: I understand and my last question, what sort of average recovery rate assumption are you using in the portfolio to calculate your estimated yields? And how has the decline in the rate of those recoveries impacted that assumption?

Jonathan Cohen: Sure, Mickey. I don’t think we have historically disclosed those figures publicly, but in any case, it’s a range. I mean, as we’re calculating those likelihoods, we’re looking at a range of possibilities and probabilities that are in turn dependent on, in some cases, the individual portfolio compositions of the underlying collateral pools and the structure of the indentures themselves. So it isn’t as if we have sort of a single calculation that fits every profile. We’ve got a range of calculations that we hope allow us to make good decisions around a very wide array of different CLO profiles.

Mickey Schleien: Okay. That’s it for me this morning. Thank you.

Jonathan Cohen: Thank you, Mickey, very much.

Operator: The next question comes from Matt Howlett from B. Riley Securities. Matt, your line is open. Please go ahead.

Matthew Howlett: Good morning, everyone. This is Michael Schafer on for Matt. Notice cash flow diversion down a little bit over half. I’m curious if you could detail the trend there? What that looks like quarter to date. Thank you.

Bruce Rubin: Yeah, sure. So we had a large payer in particular that kind of — just through the self-curing mechanisms of the CLO in combination with improving market conditions turned off its diversion, so started to pay. It’s hard to project out diversions for next quarter, a lot of it [Multiple Speakers]

Jonathan Cohen: Right, we generally don’t do that, but as you say, we were down about half in terms of the quantum of diversion quarter-over-quarter.

Michael Schafer: Thank you.

Jonathan Cohen: Thank you very much. Thank you for your question.

Operator: I show no further questions. Now I’ll turn the call back over to Jonathan Cohen, CEO.

Jonathan Cohen: Wonderful. Well, thank you very much. I’d like to thank everyone who participated in this call and everyone who’s listening on the replay of the call for their interest and their participation. We look forward to speaking to you again soon. Thanks very much.