Oxford Square Capital Corp. (NASDAQ:OXSQ) is a closed-end management investment company that has established itself as a prominent player in the corporate debt securities and collateralized loan obligation (CLO) investment landscape. With a focus on maximizing total return, the company has demonstrated its ability to adapt to the changing market dynamics, delivering consistent performance for its shareholders.
Financials
For the fiscal year ended December 31, 2023, Oxford Square Capital Corp. reported annual net income of $17,238,028, annual revenue of $34,767,936, annual operating cash flow of $26,723,176, and annual free cash flow of $26,723,176. These robust financial metrics underscore the company's strong operational efficiency and its ability to generate consistent cash flows to support its investment activities.
In the first quarter of 2024, the company reported net investment income of approximately $6.5 million, or $0.11 per share, compared to $7.8 million, or $0.13 per share, in the prior quarter. The company's net asset value per share stood at $2.42 as of March 31, 2024, compared to $2.55 in the previous quarter. During the quarter, Oxford Square Capital Corp. distributed $0.105 per share in dividends to its shareholders.
Investment Activity and Market Dynamics
The first quarter of 2024 saw an improvement in the U.S. loan market performance, with the Morningstar LSTA US Leveraged Loan Index increasing from 96.23% of par as of December 31, 2023, to 96.69% of par as of March 31, 2024. This positive trend was driven by a mix of opportunistic activity, including refinancings and add-ons, while mergers and acquisitions (M&A) and leveraged buyout (LBO) activity remained relatively slow but showed signs of recovery.
During the quarter, Oxford Square Capital Corp. recorded net unrealized depreciation on investments of approximately $210,000, compared to net unrealized depreciation of $14.8 million in the prior quarter. The company also recorded realized losses of approximately $8.1 million, or $0.14 per share, during the first quarter, compared to realized losses of $270,000 in the previous quarter.
Investment Activity and Portfolio Composition
Oxford Square Capital Corp.'s investment activity during the first quarter of 2024 consisted of purchases of approximately $12.1 million, sales of approximately $1.4 million, and repayments of approximately $17.9 million. As of March 31, 2024, the company's investment portfolio was diversified across various sectors, including business services, software, healthcare, and telecommunications services, among others.
The company's portfolio of senior secured notes, which accounted for 64.4% of the total portfolio as of March 31, 2024, had a weighted average yield of approximately 13.94%. The company's investments in collateralized loan obligations (CLOs), which represented 33.6% of the portfolio, had a weighted average yield of approximately 9.5%.
Business Overview
Oxford Square Capital Corp. is a closed-end management investment company that primarily invests in corporate debt securities and collateralized loan obligations. The company's investment objective is to maximize its total return, which it seeks to achieve by investing primarily in corporate debt securities and, to a lesser extent, in CLO structured finance investments that own corporate debt securities.
The company's investment activities are managed by Oxford Square Management, LLC, a registered investment adviser under the Investment Advisers Act of 1940. Oxford Square Management is owned by Oxford Funds, LLC, its managing member, and Charles M. Royce, a member of the company's Board of Directors, who holds a minority, non-controlling interest.
Risks and Challenges
As with any investment, Oxford Square Capital Corp. faces a range of risks and challenges that investors should be aware of. These include interest rate risk, credit risk, market volatility, and the potential impact of economic downturns on the company's portfolio companies and CLO investments.
The company's use of leverage, while potentially enhancing returns, also exposes it to the risks associated with borrowing, including the potential for increased costs and the impact on the company's net asset value. Additionally, the company's investments in CLOs and other structured finance products may be subject to liquidity and valuation risks.
Outlook
Oxford Square Capital Corp. has not provided specific guidance or outlook for the remainder of 2024. However, the company's management team has expressed confidence in the company's ability to navigate the evolving market landscape and continue to deliver value for its shareholders.
The company's focus on portfolio management strategies designed to maximize long-term total return, coupled with its status as a permanent capital vehicle, has historically allowed it to take a longer-term view towards its investment strategy. This approach, combined with the company's diversified portfolio and disciplined risk management practices, positions Oxford Square Capital Corp. to weather market fluctuations and capitalize on emerging opportunities.
Liquidity
As of March 31, 2024, Oxford Square Capital Corp. reported a current ratio of 0.19 and a quick ratio of 0.19, indicating a weak liquidity position. The company's debt-to-equity ratio stood at 0.88, suggesting a moderate level of leverage.
The company's interest coverage ratio, a measure of its ability to meet its interest obligations, was not provided in the available information.
Conclusion
Oxford Square Capital Corp. has demonstrated its resilience and adaptability in navigating the evolving investment landscape. With a diversified portfolio, disciplined risk management practices, and a focus on maximizing long-term total return, the company is well-positioned to continue delivering value for its shareholders. As the market dynamics continue to shift, investors would be wise to closely monitor Oxford Square Capital Corp.'s performance and strategic initiatives, as the company's ability to capitalize on emerging opportunities could be a key driver of its future success.