CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections aboutOxford Square Capital Corp. , our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "will," "may," "continue," "believes," "seeks," "estimates," "would," "could," "should," "targets," "projects," and variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties, including statements as to:
• our future operating results, including our and our portfolio companies’
ability to achieve our respective objectives;
• our business prospects and the prospects of our portfolio companies; • the impact of investments that we expect to make; • our contractual arrangements and relationships with third parties;
• the dependence of our future success on the general economy and its impact
on the industries in which we invest;
• the ability of our portfolio companies and CLO investments to achieve their
objectives;
• the valuation of our investments in portfolio companies and CLOs,
particularly those having no liquid trading market;
• market conditions and our ability to access alternative debt markets and
additional debt and equity capital;
• our expected financings and investments; • the adequacy of our cash resources and working capital;
• the timing of cash flows, if any, from the operations of our portfolio
companies and CLO investments; and
• the ability of our investment adviser to locate suitable investments for us
and monitor and administer our investments.
These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
• an economic downturn could impair our portfolio companies’ and CLO
investments’ ability to continue to operate, which could lead to the loss of
some or all of our investments in such portfolio companies and CLO investments;
• the length and duration of the COVID-19 outbreak in
well as worldwide, and the magnitude of its impact and time required for
economic recovery;
• the impact of the elimination of the London Interbank Offered Rate
(“LIBOR”) and implementation of alternatives to LIBOR on our operating results;
• a contraction of available credit and/or an inability to access the equity
markets could impair our lending and investment activities;
• interest rate volatility could adversely affect our results, particularly
because we use leverage as part of our investment strategy;
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• the elevated levels of inflation and its impact on our investment
activities and the industries in which we invest;
• currency fluctuations could adversely affect the results of our investments
in foreign companies, particularly to the extent that we receive payments
denominated in foreign currency rather than
• the impact of information technology system failures, data security
breaches, data privacy compliance, network disruptions and cybersecurity
attacks; and
• the risks, uncertainties and other factors we identify in Item 1A. - Risk Factors contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , elsewhere in this Quarterly Report on Form 10-Q and in our other filings with theSEC . Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in Item 1A. - Risk Factors contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , and elsewhere in this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Except where the context requires otherwise, the terms "OXSQ," "Company," "we," "us" and "our" refer toOxford Square Capital Corp. ; "Oxford Square Management" refers toOxford Square Management, LLC ; and "Oxford Funds" refers toOxford Funds, LLC .
The following analysis of our financial condition and results of operations
should be read in conjunction with our financial statements and the related
notes thereto contained elsewhere in this Quarterly Report on Form 10-Q.
OVERVIEW
Our investment objective is to maximize our portfolio's total return. Our
primary focus is to seek an attractive risk-adjusted total return by investing
primarily in corporate debt securities and in collateralized loan obligations
("CLO"), which are structured finance investments that own corporate debt
securities. CLO investments may also include warehouse facilities, which are
early-stage CLO vehicles intended to aggregate loans that may be used to form
the basis of a traditional CLO vehicle. We operate as a closed-end management
investment company and have elected to be regulated as a BDC under the
Investment Company Act of 1940, as amended (the "1940 Act"). We have elected to
be treated for tax purposes as a RIC, under the Code.
Our investment activities are managed by Oxford Square Management, LLC ("Oxford
Square Management"), a registered investment adviser under the Investment
Advisers Act of 1940, as amended. Oxford Square Management is owned by Oxford
Funds, LLC ("Oxford Funds"), its managing member, and a related party, Charles
M. Royce , a member of our Board who holds a minority, non-controlling interest
in Oxford Square Management. Jonathan H. Cohen , our Chief Executive Officer, and
Saul B. Rosenthal , our President, are the controlling members of Oxford Funds.
Under an investment advisory agreement (the "Investment Advisory Agreement"), we
have agreed to pay Oxford Square Management an annual base management fee ("Base
Fee") calculated on gross assets, and an incentive fee based upon our
performance. Under an amended and restated administration agreement (the
"Administration Agreement"), we have agreed to pay or reimburse Oxford Funds, as
administrator, for certain expenses incurred in operating the Company. Our
executive officers and directors, and the executive officers of Oxford Square
Management and Oxford Funds, serve or may serve as officers and directors of
entities that operate in a line of business similar to our own. Accordingly,
they may have obligations to investors in those entities, the fulfillment of
which might not be in the best interests of us or our stockholders.
We generally expect to invest between $5 million and $50 million in each of our
portfolio companies, although this investment size may vary proportionately as
the size of our capital base changes and market conditions warrant. We expect
that our investment portfolio will be diversified among a large number of
investments with
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few investments, if any, exceeding 5.0% of the total portfolio. As of
September 30, 2022 , our debt investments had stated interest rates of between
6.37% and 12.73% and maturity dates of between 3 and 89 months. In addition, our
portfolio had a weighted average annualized yield on debt investments of
approximately 10.41% as of September 30, 2022 .
The weighted average annualized yield of our debt investments is not the same as
a return on investment for our stockholders but, rather, relates to a portion of
our investment portfolio and is calculated before the payment of all of our fees
and expenses. The weighted average annualized yield was computed using the
effective interest rates as of September 30, 2022 , including accretion of
original issue discount ("OID"). There can be no assurance that the weighted
average annualized yield will remain at its current level.
We have historically borrowed funds to make investments and may continue to
borrow funds to make investments. As a result, we are exposed to the risks of
leverage, which may be considered a speculative investment technique.
Borrowings, also known as leverage, magnify the potential for gain and loss on
amounts invested and therefore increase the risks associated with investing in
our securities. In addition, the costs associated with our borrowings, including
any increase in the management fee payable to Oxford Square Management, will be
borne by our common stockholders.
In addition, as a BDC under the 1940 Act, we are required to make available
significant managerial assistance, for which we may receive fees, to our
portfolio companies. This assistance could involve, among other things,
monitoring the operations of our portfolio companies, participating in board and
management meetings, consulting with and advising officers of portfolio
companies and providing other organizational and financial guidance. These fees
would be generally non-recurring, however in some instances they may have a
recurring component. We have received no fee income for managerial assistance to
date.
To the extent possible, we will generally seek to invest in loans that are
collateralized by a security interest in the borrower's assets or guaranteed by
a principal to the transaction. Interest payments, if not deferred, are normally
payable quarterly with most debt investments having scheduled principal payments
on a monthly or quarterly basis. When we receive a warrant to purchase stock in
a portfolio company, the warrant will typically have a nominal strike price, and
will entitle us to purchase a modest percentage of the borrower's stock.
During the three months ended September 30, 2022 , the U.S. loan market exhibited
weakness versus the three months ended June 30, 2022 . U.S. loan prices, as
defined by the Morningstar LSTA US Leveraged Loan Index, decreased from 92.16%
of par as of June 30, 2022 to 91.92% of par as of September 30, 2022 .
As of September 30, 2022 , the Company's Board of Directors approved the fair
value of the Company's investment portfolio of approximately $340.2 million in
good faith in accordance with the Company's valuation procedures.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles inthe United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified investment valuation and investment income as critical accounting policies.
Investment Valuation
We fair value our investment portfolio in accordance with the provisions of
ASC 820, Fair Value Measurement and Disclosure ("ASC 820") and Rule 2a-5 under
the 1940 Act. Estimates made in the preparation of our financial statements
include the valuation of investments and the related amounts of unrealized
appreciation and depreciation of investments recorded. We believe that there is
no single definitive method for determining fair value in good faith. As a
result, determining fair value requires that judgment be applied to the specific
facts and circumstances of each portfolio investment while employing a
consistently applied valuation process for the types of investments we make.
ASC 820-10 clarified the definition of fair value and requires companies to
expand their disclosure about the use of fair value to measure assets and
liabilities in interim and annual periods subsequent to initial recognition.
ASC 820-10 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an
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orderly transaction between market participants at the measurement date. ASC 820-10 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities in markets that are not active; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. We consider the attributes of current market conditions on an on-going basis and have determined that due to the general illiquidity of the market for its investment portfolio, whereby little or no market data exists, substantially all of our fair valued investments are measured based upon Level 3 inputs as ofSeptember 30, 2022 andDecember 31, 2021 . Good Faith Determinations of Fair Value, Rule 2a-5 under the 1940 Act ("Rule 2a-5") was adopted by theSEC inDecember 2020 and establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Our Board of Directors has adopted valuation policies and procedures that are intended to comply with Rule 2a-5. Our Board determines the value of our investment portfolio each quarter. In connection with that determination, members of Oxford Square Management's portfolio management team prepare a quarterly analysis of each portfolio investment using the most recent portfolio company financial statements, forecasts and other relevant financial and operational information. We also engage third-party valuation firms to provide assistance in valuing certain of its syndicated loans and bilateral investments, including related equity investments, although our Board ultimately determines the appropriate valuation of each such investment. Changes in fair value, as described above, are recorded in the statement of operations as net change in unrealized appreciation/depreciation.
Syndicated Loans (Including Senior Secured Notes)
In accordance with ASC 820-10, our valuation procedures specifically provide for the review of indicative quotes supplied by the large agent banks that make a market for each security. However, the marketplace from which we obtain indicative bid quotes for purposes of determining the fair value of our syndicated loan investments has shown attributes of illiquidity as described by ASC-820-10. During such periods of illiquidity, when we believe that the non-binding indicative bids received from agent banks for certain syndicated investments that we own may not be determinative of their fair value or when no market indicative quote is available, we may engage third-party valuation firms to provide assistance in valuing certain syndicated investments that we own. The third-party valuation firms may use the income or market approach in arriving at a valuation. Unobservable inputs utilized could include discount rates derived from estimated credit spreads and earnings before interest, taxes, depreciation, and amortization multiples. In addition, Oxford Square Management analyzes each syndicated loan by reviewing the company's financial statements, covenant compliance and recent trading activity in the security (if known), and other business developments related to the portfolio company. All available information, including non-binding indicative bids which may not be determinative of fair value, is presented to the Valuation Committee to consider in its determination of fair value. In some instances, there may be limited trading activity in a security even though the market for the security is considered not active. In such cases the Valuation Committee will consider the number of trades, the size and timing of each trade, and other circumstances around such trades, to the extent such information is available, in its determination of fair value. The Valuation Committee will evaluate the impact of such additional information, and factor it into its consideration of the fair value that is indicated by the analysis provided by third-party valuation firms, if any.
Collateralized Loan Obligations – Debt and Equity
We have acquired a number of debt and equity positions in CLO investment vehicles and CLO warehouse investments. These investments are special purpose financing vehicles. In valuing such investments, we consider the indicative prices provided by a recognized industry pricing service as a primary source, and the implied yield of such prices, supplemented by actual trades executed in the market at or around period-end, as well as the indicative prices provided by the broker who arranges transactions in such investment vehicles. We also consider those instances in which the record date for an equity distribution payment falls on the last day of the period, and the likelihood that a prospective purchaser would require a downward adjustment to the indicative price representing substantially all of the pending distribution. Additional factors include any available information on other relevant transactions including firm bids and offers in the market and information resulting from bids-wanted-in-competition. In addition, we consider the operating metrics of the specific investment vehicle, including compliance with collateralization tests, defaulted and restructured securities, and payment defaults, if any. Oxford Square Management or the Valuation Committee may request an additional analysis by a third-party firm to assist in the valuation process of CLO investment vehicles. All information is presented to ourBoard for its determination of fair value of these investments. 48
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Bilateral Investments (Including Equity)
Bilateral investments (as defined below) for which market quotations are readily available are valued by an independent pricing agent or market maker. If such market quotations are not readily available, under the valuation procedures approved by our Board upon the recommendation of the Valuation Committee, a third-party valuation firm will prepare valuations for each of our bilateral investments that, when combined with all other investments in the same portfolio company, have a value as of the previous quarter of greater than or equal to 2.0% of its total assets as of the previous quarter. In addition, in those instances where a third-party valuation is prepared for a portfolio investment which meets the parameters noted in (i) and (ii) above, the frequency of those third-party valuations is based upon the grade assigned to each such security under its credit grading system as follows: Grade 1, at least annually; Grade 2, at least semi-annually; Grades 3, 4, and 5, at least quarterly. Bilateral investments which do not meet the parameters in (i) and (ii) above are not required to have a third-party valuation and, in those instances, a valuation analysis will be prepared by Oxford Square Management. Oxford Square Management also retains the authority to seek, on our behalf, additional third party valuations with respect to both our bilateral portfolio securities and our syndicated loan investments. Our Board retains ultimate authority as to the third-party review cycle as well as the appropriate valuation of each investment.
The term “Bilateral investments” means debt and equity investments directly
negotiated between the Company and a portfolio company, but excludes syndicated
loans (i.e., corporate loans arranged by an agent on behalf of a company,
portions of which are held by multiple investors in addition to OXSQ).
Refer to “Note 4. Fair Value” in the notes to our financial statements for more
information on investment valuation and our portfolio of investments.
INVESTMENT INCOME:
Interest Income
Interest income is recorded on an accrual basis using the contractual rate applicable to each debt investment and includes the accretion of market discounts and/or OID and amortization of market premiums. Discounts from and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any. Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to restructuring such that the interest income is deemed to be collectible. We generally restore non-accrual loans to accrual status when past due principal and interest is paid and, in our judgment, is likely to remain current. As ofSeptember 30, 2022 and 2021, we had three debt investments that were on non-accrual status. Interest income also includes a payment-in-kind ("PIK") component on certain investments in our portfolio. Refer to the section below, "Payment-In-Kind," for a description of PIK income and its impact on interest income.
Payment-In-Kind
We have debt and preferred stock investments in our portfolio that contain contractual PIK provisions. PIK interest and preferred stock dividends are computed at their contractual rates and are accrued into income and added to the principal balances on the capitalization dates. Upon capitalization, the PIK portions of the investments are valued at their respective fair values. If we believe that a PIK is not fully expected to be realized, the PIK investment would be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends would be reversed from the related receivable through interest or dividend income, respectively. PIK investments on non-accrual status are restored to accrual status once it becomes probable that such PIK will be ultimately collectible in cash. For the three and nine months endedSeptember 30, 2022 and 2021, no PIK preferred stock dividends were recognized as dividend income. For the three and nine months endedSeptember 30, 2022 and 2021, no PIK interest was recognized as interest income. 49 Table of Contents
Income from Securitization Vehicles and Equity Investments
Income from investments in the equity class securities of CLO vehicles (typically income notes or subordinated notes) is recorded using the effective yield method in accordance with the provisions of ASC 325-40, Beneficial Interests in Securitized Financial Assets, based upon estimated cash flows, amounts and timing including those CLO equity investments that have not made their inaugural distribution for the relevant period end. We monitor the expected residual payments, and effective yield is determined and updated periodically, as needed. Accordingly, investment income recognized on CLO equity securities in the GAAP statement of operations differs from both the tax-basis investment income and from the cash distributions actually received by us during the period. We also record income on our investments in certain securitization vehicles (or "CLO warehouse facilities") based on a stated rate per the underlying note purchase agreement plus accrued interest or, if there is no stated rate, then an estimated rate is calculated using a base case model projecting the timing of the ramp-up of the CLO warehouse facility. As ofSeptember 30, 2022 and 2021, we had no investments in CLO warehouse facilities.
Other Income
Other income includes prepayment, amendment, and other fees earned by our loan investments, distributions from fee letters and success fees associated with portfolio investments. Distributions from fee letters are an enhancement to the return on a CLO equity investment and are based upon a percentage of the collateral manager's fees above the amortized cost, and are recorded as other income when earned. We may also earn success fees associated with our investments in certain securitization vehicles or CLO warehouse facilities, which are contingent upon a repayment of the warehouse by a permanent CLO structure; such fees are earned and recognized when the repayment is completed.
Recently Issued Accounting Standards
See “Note 3. Summary of Significant Accounting Policies” to our financial
statements for a description of recent accounting pronouncements, including the
impact on our financial statements.
PORTFOLIO COMPOSITION AND INVESTMENT ACTIVITY
The total fair value of our investment portfolio was approximately$340.2 million and$420.8 million as ofSeptember 30, 2022 , andDecember 31, 2021 , respectively. The decrease in the value of investments during the nine month period endedSeptember 30, 2022 , was due primarily to net unrealized depreciation on our investment portfolio of approximately$76.5 million (which incorporates reductions to CLO equity cost value of$18.1 million ),$49.8 million of debt repayments, and$14.6 million of sales of investments, which were partially offset by approximately$78.2 million of investments acquired.
A reconciliation of the investment portfolio for the nine months ended
September 30 , December 31 ,
($ in millions) 2022
2021
Beginning investment portfolio$ 420.8 $ 294.7 Portfolio investments acquired 78.2
178.9 Debt repayments (49.8 ) (24.3 ) Sales of securities (14.6 ) (15.2 )
Reductions to CLO equity cost value(1) (18.1 ) (37.5 ) Accretion of discounts on investments 0.7
0.7
Net change in unrealized (depreciation)/appreciation on investments (76.5 )
38.5
Net realized losses on investments (0.4 ) (15.0 ) Ending investment portfolio(2)$ 340.2
$ 420.8 ____________ (1) For the nine months endedSeptember 30, 2022 , the reductions to CLO equity cost value of approximately$18.1 million represented the distributions received, or entitled to be received, on our investments held in CLO equity subordinated and income notes of approximately$30.9 million , plus the amortization of cost on our CLO fee notes of approximately$91,000 , less the effective yield interest income recognized on our CLO equity subordinated and income notes of approximately$12.9 million . For the year endedDecember 31, 2021 , the reductions to CLO equity cost value of 50 Table of Contents ____________ approximately$37.5 million represented the distributions received, or entitled to be received, on our investments held in CLO equity subordinated and income notes of approximately$55.8 million , plus the amortization of cost on our CLO fee notes of approximately$0.4 million , less the effective yield interest income recognized on our CLO equity subordinated and income notes of approximately$18.7 million . (2) Totals may not sum due to rounding. During the nine months endedSeptember 30, 2022 we purchased approximately$78.2 million in portfolio investments, which includes additional investments of approximately$52.8 million in existing portfolio companies and approximately$25.3 million in new portfolio companies. During the year endedDecember 31, 2021 , we purchased approximately$178.9 million in portfolio investments, including additional investments of approximately$65.4 million in existing portfolio companies and approximately$113.5 million in new portfolio companies. In certain instances, we receive investment proceeds based on the scheduled amortization of the outstanding loan balances and from the sales of portfolio investments. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments may fluctuate significantly from period to period.
For the nine months ended
2021
ended
principal repayments of approximately
respectively.
As ofSeptember 30, 2022 , we had investments in debt securities of, or loans to, 20 portfolio companies, with a fair value of approximately$230.3 million , CLO equity investments of approximately$107.7 million , and other equity investments of approximately$2.2 million . As ofDecember 31, 2021 , we had investments in debt securities of, or loans to, 20 portfolio companies, with a fair value of approximately$264.5 million , CLO equity investments of approximately$155.6 million and other equity investments of approximately$772,000 . The following table indicates the quarterly portfolio investment activity for the past seven quarters: Reductions to Purchases of Repayment of Sales of CLO Equity Three Months Ended ($ in millions) Investments Principal Investments Cost(1) September 30, 2022 $ 3.9 $ 11.0 $ 1.8 $ 3.9 June 30, 2022 26.9 0.2 9.5 6.4 March 31, 2022 47.4 38.6 3.4 7.8 Total 2022 to date(2)$ 78.2 $ 49.8$ 14.6 $ 18.1 December 31, 2021$ 23.3 $ 1.6$ 10.3 $ 7.4 September 30, 2021 23.1 5.7 - 8.6 June 30, 2021 99.5 0.6 3.0 15.5 March 31, 2021 32.9 16.4 1.8 6.0 Total 2021(2)$ 178.9 $ 24.3$ 15.2 $ 37.5 ____________ (1) Reductions to CLO equity cost value represent the distributions received, or entitled to be received, on our investments held in CLO equity subordinated and income notes, plus the amortization of cost of our CLO fee notes, less the effective yield interest income recognized on our CLO equity subordinated and income notes. (2) Totals may not sum due to rounding.
The following table shows the fair value of our portfolio of investments by
asset class as of
September 30, 2022
Investments at Percentage of Investments at Percentage of
($ in millions) Fair Value Total Portfolio Fair Value Total Portfolio
Senior Secured Notes $ 230.3 67.7 % $ 264.5 62.8 %
CLO Equity 107.7 31.7 % 155.6 37.0 %
Equity and Other Investments 2.2 0.6 %
0.8 0.2 % Total(1) $ 340.2 100.0 % $ 420.8 100.0 % ____________
(1) Totals may not sum due to rounding.
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Qualifying assets must represent at least 70.0% of the Company's total assets at the time of acquisition of any additional non-qualifying assets. As ofSeptember 30, 2022 andDecember 31, 2021 , we held qualifying assets that represented 69.7% and 64.1%, respectively, of the total assets. No additional non-qualifying assets were acquired during the periods when qualifying assets were less than 70.0% of the total assets.
The following table shows our portfolio of investments by industry at fair
value, as of
September 30, 2022
Investments at Percentage of Investments at Percentage of
Fair Value Fair Value Fair Value Fair Value
($ in millions) ($ in millions)
Structured finance(1) $ 107.7 31.7 % $ 155.6 36.9 %
Software 78.8 23.1 % 50.9 12.1 %
Business services 64.0 18.8 % 88.7 21.0 %
Healthcare 39.4 11.6 % 63.0 15.0 %
Diversified insurance 14.7 4.3 % 25.9 6.2 %
Telecommunication services 14.6 4.3 % 15.8 3.8 %
Plastics Manufacturing 11.8 3.5 % 12.7 3.0 %
Utilities 7.1 2.1 % 7.5 1.8 %
IT consulting 2.2 0.6 % 0.8 0.2 %
Total(2) $ 340.2 100.0 % $ 420.8 100.0 %
____________
(1) Reflects our equity investments in CLOs as of
(2) Totals may not sum due to rounding.
PORTFOLIO GRADING
We have adopted a credit grading system to monitor the quality of our debt investment portfolio. As ofSeptember 30, 2022 andDecember 31, 2021 , our portfolio had a weighted average grade of 2.2 and 2.1, respectively, based upon the fair value of the debt investments in the portfolio. Equity securities and investments in CLOs are not graded. As ofSeptember 30, 2022 andDecember 31, 2021 , our debt investment portfolio was graded as follows: ($ in millions) September 30, 2022 Percentage Percentage Principal of Debt Portfolio at of Debt Grade Summary Description Value Portfolio Fair Value Portfolio 1 Company is ahead of expectations and/or outperforming financial covenant requirements of the specific tranche and such trend is expected to continue. $ - - % $ - - % 2 Full repayment of the outstanding amount of OXSQ's cost basis and interest is expected for the specific tranche. 225.8 75.1 % 192.9 83.8 % 3 Closer monitoring is required. Full repayment of the outstanding amount of OXSQ's cost basis and interest is expected for the specific tranche. 46.9 15.6 % 36.9 16.0 % 4 A loss of interest income has occurred or is expected to occur and, in most cases, the investment is placed on non-accrual status. Full repayment of the outstanding amount of OXSQ's cost basis is expected for the specific tranche. - - % - - % 5 Full repayment of the outstanding amount of OXSQ's cost basis is not expected for the specific tranche and the investment is placed on non-accrual status 27.8 9.3 % 0.5 0.2 % Total(1)$ 300.6 100.0 %$ 230.3 100.0 % ____________
(1) Totals may not sum due to rounding.
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($ in millions) December 31, 2021
Percentage of Portfolio at Percentage of
Grade Summary Description Principal Value Debt Portfolio Fair Value Debt Portfolio
1 Company is ahead of expectations
and/or outperforming financial
covenant requirements of the specific
tranche and such trend is expected to
continue $ - - % $ - - %
2 Full repayment of the outstanding
amount of OXSQ’s cost basis and
interest is expected for the specific
tranche 256.3 86.1 % 249.2 94.2 %
3 Closer monitoring is required. Full
repayment of the outstanding amount
of OXSQ’s cost basis and interest is
expected for the specific tranche 14.7 4.9 % 13.9 5.3 %
4 A loss of interest income has
occurred or is expected to occur and,
in most cases, the investment is
placed on non-accrual status. Full
repayment of the outstanding amount
of OXSQ’s cost basis is expected for
the specific tranche - - % - - %
5 Full repayment of the outstanding
amount of OXSQ’s cost basis is not
expected for the specific tranche and
the investment is placed on
non-accrual status 26.9 9.0 % 1.3 0.5 %
Total(1) $ 297.8 100.0 % $ 264.5 100.0 %
____________
(1) Totals may not sum due to rounding.
We expect that a portion of our investments will be in the grades 3, 4 or 5 categories from time to time, and, as such, we will be required to work with troubled portfolio companies to improve their business and protect our investment. The number and amount of investments included in grades 3, 4 or 5 may fluctuate from period to period.
RESULTS OF OPERATIONS
Set forth below is a comparison of our results of operations for the three and
nine months ended
Investment Income
Investment income for the three months endedSeptember 30, 2022 andSeptember 30, 2021 was approximately$11.4 million and$9.8 million , respectively. Investment income for the nine months endedSeptember 30, 2022 andSeptember 30, 2021 was approximately$31.2 million and$27.0 million , respectively. The following tables set forth the components of investment income for the three and nine months endedSeptember 30, 2022 andSeptember 30, 2021 : Three Months Three Months Ended Ended September 30, September 30, 2022 2021 Interest Income Stated interest income$ 6,431,801 $ 4,314,099 Original issue discount and market discount income 193,920 183,518 Discount income derived from unscheduled remittances at par 179,618 29,897 Total interest income$ 6,805,339 $ 4,527,514 Income from securitization vehicles and investments$ 4,402,463 $ 5,071,854 Other income Fee letters $ 125,291 $ 112,323 Loan prepayment and bond call fees
- - All other fees 65,039 85,940 Total other income $ 190,330 $ 198,263 Total investment income$ 11,398,132 $ 9,797,631 53 Table of Contents Nine Months Ended Nine Months Ended September 30, September 30, 2022 2021 Interest Income Stated interest income$ 16,669,500 $ 11,286,252 Original issue discount and market discount income 666,603 548,820 Discount income derived from unscheduled remittances at par 393,923 516,868 Total interest income$ 17,730,026 $ 12,351,940 Income from securitization vehicles and investments$ 12,906,127 $ 13,849,299 Other income Fee letters $ 415,712 $ 333,193 Loan prepayment and bond call fees
- 300,000 All other fees 151,688 164,895 Total other income $ 567,400 $ 798,088 Total investment income $
31,203,553
The increase in total investment income for the three and nine months ended
The total principal value of debt investments excluding non-accrual as ofSeptember 30, 2022 andSeptember 30, 2021 was approximately$272.7 million and$259.6 million , respectively. As ofSeptember 30, 2022 , our debt investments had a range of stated interest rates of 6.37% and 12.73% and maturity dates of between 3 and 89 months compared to a range of stated interest rates of 3.83% to 10.25% and maturity dates between 2 and 91 months as ofSeptember 30, 2021 . In addition, our total debt portfolio had a weighted average yield on debt investments of approximately 10.41% as ofSeptember 30, 2022 , compared to approximately 7.49% as ofSeptember 30, 2021 . As ofSeptember 30, 2022 , three debt investments were on non-accrual status with a combined fair value of approximately$0.5 million and total principal value of approximately$27.8 million . As ofSeptember 30, 2021 , three debt investments were on non-accrual status with a combined fair value of approximately$3.7 million and total principal value of approximately$26.5 million . Income from securitization vehicles for the three months endedSeptember 30, 2022 andSeptember 30, 2021 , was approximately$4.4 million and$5.1 million , respectively. Income from securitization vehicles for the nine months endedSeptember 30, 2022 andSeptember 30, 2021 , was approximately$12.9 million and$13.8 million , respectively. The total principal outstanding on our investments in CLOs as ofSeptember 30, 2022 andSeptember 30, 2021 , was approximately$382.1 million and$370.1 million , respectively. The weighted average yield on CLO equity investments as ofSeptember 30, 2022 andSeptember 30, 2021 , was approximately 9.0% and 9.1%, respectively.
Operating Expenses
Total expenses for the three months endedSeptember 30, 2022 and 2021, were approximately$5.8 million and$5.8 million , respectively. Total expenses for the nine months endedSeptember 30, 2022 and 2021, were approximately$17.1 million and$15.4 million , respectively. These amounts consisted of base management fees, interest expense, professional fees, compensation expense, general and administrative expenses, and incentive fees. That increase for the nine months endedSeptember 30, 2022 was primarily due to higher interest expense, partially offset by a decrease in professional fees. The base management fee for the three months endedSeptember 30, 2022 was approximately$1.4 million compared with$1.8 million for the three months endedSeptember 30, 2021 . The base management fee for the nine months endedSeptember 30, 2022 was approximately$4.6 million compared with$4.6 million for the nine months endedSeptember 30, 2021 . Interest expense for the three and nine months endedSeptember 30, 2022 , was approximately$3.1 million and$9.3 million , respectively, which primarily relates to our 5.50% unsecured notes due 2028 (the "5.50% Unsecured Notes"), 6.25% unsecured notes due 2026 (the "6.25% Unsecured Notes") and 6.50% unsecured notes due 2024 (the "6.50% Unsecured Notes"), compared to interest expense of approximately$3.1 million and$7.4 million for the 54
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three and nine months endedSeptember 30, 2021 , respectively, which relates to our 5.50% Unsecured Notes, 6.25% Unsecured Notes and 6.50% Unsecured Notes. That increase for the nine months endedSeptember 30, 2022 was attributable to the fact that the 5.50% Unsecured Notes were not outstanding prior toMay 20, 2021 . Professional fees, consisting of legal, consulting, valuation, audit and tax fees, were approximately$417,000 for the three months endedSeptember 30, 2022 , compared to approximately$350,000 for the three months endedSeptember 30, 2021 . Professional fees were approximately$1.1 million for the nine months endedSeptember 30, 2022 , compared to approximately$1.6 million for the nine months endedSeptember 30, 2021 . That increase for the three months endedSeptember 30, 2022 was primarily due to increased audit fees. That decrease for the nine months endedSeptember 30, 2022 was primarily due to lower legal fees. Compensation expense was approximately$235,000 for the three months endedSeptember 30, 2022 , compared to approximately$186,000 for the three months endedSeptember 30, 2021 . Compensation expense was approximately$689,000 for the nine months endedSeptember 30, 2022 , compared to approximately$551,000 for the nine months endedSeptember 30, 2021 . Compensation expense reflects the allocation of compensation expenses for the services of our Chief Financial Officer, accounting personnel, and other administrative support staff. General and administrative expenses, consisting primarily of directors' fees, insurance, listing fees, transfer agent and custodian fees, office supplies, facilities costs, excise tax and other expenses, were approximately$691,000 for the three months endedSeptember 30, 2022 , compared to approximately$415,000 for the three months endedSeptember 30, 2021 . General and administrative expenses were approximately$1.4 million for the nine months endedSeptember 30, 2022 , compared to approximately$1.3 million for the nine months endedSeptember 30, 2021 . Office supplies, facilities costs and other expenses are allocated to us under the terms of the Administration Agreement.
Incentive Fees
There was no net investment income incentive fee ("Net Investment Income
Incentive Fee") recorded for the three and nine months ended September 30, 2022
and 2021 due to the total return requirement. The Net Investment Income
Incentive Fee is calculated and payable quarterly in arrears based on the amount
by which (x) the "Pre-Incentive Fee Net Investment Income" for the immediately
preceding calendar quarter exceeds (y) the "Preferred Return Amount" for the
calendar quarter. For this purpose, "Pre-Incentive Fee Net Investment Income"
means interest income, dividend income and any other income accrued during the
calendar quarter minus our operating expenses for the quarter (including the
Base Fee, expenses payable under the Administration Agreement with Oxford Funds,
and any interest expense and dividends paid on any issued and outstanding
preferred stock, but excluding the incentive fee). Refer to "Note 7. Related
Party Transactions" in the notes to our financial statements.
The expense attributable to the capital gains incentive fee (the "Capital Gains
Incentive Fee"), as reported under GAAP, is calculated as if the Company's
entire portfolio had been liquidated at period end, and therefore is calculated
on the basis of net realized and unrealized gains and losses at the end of each
period. That expense (or the reversal of such an expense) related to that
hypothetical liquidation of the portfolio (and assuming no other changes in
realized or unrealized gains and losses) would only become payable to our
investment adviser in the event of a complete liquidation of our portfolio as of
period end and the termination of the Investment Advisory Agreement on such
date. For the three and nine months ended September 30, 2022 , no accrual was
required as a result of the impact of accumulated net unrealized depreciation
and net realized losses on our portfolio.
The amount of the Capital Gains Incentive Fee which will actually be payable is
determined in accordance with the terms of the Investment Advisory Agreement and
is calculated as of the end of each calendar year (or upon termination of the
Investment Advisory Agreement). The terms of the Investment Advisory Agreement
state that the Capital Gains Incentive Fee calculation is based on net realized
gains, if any, offset by gross unrealized depreciation for the calendar year. No
effect is given to gross unrealized appreciation in this calculation. For the
three and nine months ended September 30, 2022 and 2021, such an accrual was not
required under the terms of the Investment Advisory Agreement.
Realized and Unrealized Gains/Losses on Investments
For the three months endedSeptember 30, 2022 , we recognized net realized gains on investments of approximately$56,000 , which reflects the sale of a CLO equity investment. 55 Table of Contents
For the three months endedSeptember 30, 2022 , our net change in unrealized depreciation was approximately$16.8 million , composed of$2.3 million in gross unrealized appreciation,$19.4 million in gross unrealized depreciation and approximately$371,000 relating to the reversal of prior period net unrealized depreciation as investment gains and losses were realized. This includes net unrealized appreciation of approximately$3.9 million resulting from reductions to the cost value of our CLO equity investments representing the difference between distributions received, or entitled to be received, on our investments held in CLO equity subordinated notes and fee notes, of approximately$8.2 million and the effective yield interest income recognized on our CLO equity subordinated notes and the amortized cost adjusted income on our CLO equity fee notes of approximately$4.4 million . The most significant components of the net change in unrealized depreciation during the three months endedSeptember 30, 2022 , were as follows (in millions): Changes in Unrealized Portfolio Company Depreciation Quest Software, Inc. $ (6.2 ) ConvergeOne Holdings, Inc. (4.9 ) RSA Security, LLC (1.0 )
HealthChannels, Inc. (f/k/aScribeAmerica, LLC )
(0.9 ) Nassau 2019-I Ltd. (0.7 ) Net all other (3.0 ) Total(1) $ (16.8 ) ____________
(1) Totals may not sum due to rounding.
For the nine months endedSeptember 30, 2022 , we recognized net realized losses on investments of approximately$438,000 , which reflects the sale of multiple CLO equity investments. For the nine months endedSeptember 30, 2022 , our net change in unrealized depreciation was approximately$76.5 million , composed of$1.6 million in gross unrealized appreciation,$78.1 million in gross unrealized depreciation and approximately$8,000 relating to the reversal of prior period net unrealized depreciation as investment gains and losses were realized. This includes net unrealized appreciation of approximately$18.1 million resulting from reductions to the cost value of our CLO equity investments representing the difference between distributions received, or entitled to be received, on our investments held in CLO equity subordinated notes and fee notes, of approximately$30.9 million and the effective yield interest income recognized on our CLO equity subordinated notes and the amortized cost adjusted income on our CLO equity fee notes of approximately$12.8 million . The most significant components of the net change in unrealized depreciation during the nine months endedSeptember 30, 2022 , were as follows (in millions): Portfolio Company Changes in Unrealized Depreciation Quest Software, Inc. $ (8.4 ) Sound Point CLO XVI, Ltd. (7.2 ) ConvergeOne Holdings, Inc. (6.9 ) Octagon Investment Partners 49, Ltd. (6.0 ) Nassau 2019-I Ltd. (4.6 ) Net all other (43.4 ) Total $ (76.5 )
Net Increase in Net Assets Resulting from Net Investment Income
Net investment income for the three months endedSeptember 30, 2022 andSeptember 30, 2021 was approximately$5.6 million and$4.0 million , respectively. Net investment income for the nine months endedSeptember 30, 2022 andSeptember 30, 2021 was approximately$14.1 million and$11.6 million , respectively. That increase in net investment income was primarily due to an increase in interest income, partially offset by an increase in operating expenses and a decrease in income from securitization vehicles and investments. 56 Table of Contents For the three months and nine months endedSeptember 30, 2022 , the net increase in net assets resulting from net investment income per common share was$0.11 and$0.28 (basic and diluted), compared to the net increase in net assets resulting from net investment income per share of$0.08 and$0.23 (basic and diluted) for the three and nine months endedSeptember 30, 2021 . The per share increase was primarily due to an increase in interest income, partially offset by an increase in operating expenses and a decrease in income from securitization vehicles and investments.
Net decrease in net assets resulting from operations for the three months endedSeptember 30, 2022 was approximately$11.1 million compared with a net increase in net assets resulting from operations of approximately$11.3 million for the three months endedSeptember 30, 2021 . Net decrease in net assets resulting from operations for the nine months endedSeptember 30, 2022 was approximately$62.8 million compared with a net increase in net assets resulting from operations of approximately$39.6 million for the nine months endedSeptember 30, 2021 . For the three months endedSeptember 30, 2022 , the net decrease in net assets resulting from operations per common share was$0.22 (basic and diluted), compared to a net increase in net assets resulting from operations per share of$0.23 (basic and diluted) for the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , the net decrease in net assets resulting from operations per common share was$1.26 (basic and diluted), compared to a net increase in net assets resulting from operations per share of$0.80 (basic and diluted) for the nine months endedSeptember 30, 2021 .
LIQUIDITY AND CAPITAL RESOURCES
As ofSeptember 30, 2022 , cash and cash equivalents were approximately$14.4 million as compared to approximately$9.0 million as ofDecember 31, 2021 . For the nine months endedSeptember 30, 2022 , net cash provided by operating activities for the period, consisting primarily of the items described in "- Results of Operations," was approximately$18.8 million , largely reflecting purchases of investments of approximately$78.2 million , partially offset by proceeds from principal repayments and sales of investments of approximately$64.4 million . For the nine months endedSeptember 30, 2022 , net cash used in financing activities was approximately$13.4 million , primarily reflecting
the payment of distributions. Contractual Obligations A summary of our significant contractual payment obligations as ofSeptember 30, 2022 , is as follows: Payments Due by Period Principal Less than More than
Contractual obligations (in millions) Amount 1 year 1 - 3 years 3 - 5 years 5 years Long-term debt obligations: 6.50% Unsecured Notes$ 64.4 $ -$ 64.4 $ - $ - 6.25% Unsecured Notes 44.8 - - 44.8 - 5.50% Unsecured Notes 80.5 -
- - 80.5
$ 189.7 $ - $ 64.4 $ 44.8 $ 80.5
Refer to “Note 6. Borrowings” in the notes to our financial statements.
Off-Balance Sheet Arrangements
In the normal course of business, we enter into a variety of undertakings containing a variety of warranties and indemnifications that may expose us to some risk of loss. The risk of future loss arising from such undertakings, while not quantifiable, is expected to be remote. As ofSeptember 30, 2022 , we did not have any commitments to purchase additional investments. 57 Table of Contents Share Issuance Program OnAugust 1, 2019 , we entered into an Equity Distribution Agreement withLadenburg Thalmann & Co. through which we may offer for sale, from time to time, up to$150.0 million of the Company's common stock through an At-the-Market ("ATM") offering. For the three and nine months endedSeptember 30, 2022 and 2021, we did not sell any shares of common stock pursuant to the ATM offering.
Borrowings
In accordance with the 1940 Act, with certain limited exceptions, as ofSeptember 30, 2022 , we were only allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, was at least 150%, immediately after such borrowing. As ofSeptember 30, 2022 andDecember 31, 2021 , our asset coverage for borrowed amounts was approximately 186% and 227%, respectively. OnApril 6, 2018 , the Board, including a "required majority" (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act. As a result, the Company's asset coverage requirements for senior securities was changed from 200% to 150%, effective as ofApril 6, 2019 . The weighted average stated interest rate and weighted average maturity on all of the Company's debt outstanding as ofSeptember 30, 2022 , were 6.02% and 3.8 years, respectively, and as ofDecember 31, 2021 , were 6.02% and 4.6 years, respectively. OnApril 12, 2017 , we completed an underwritten public offering of approximately$64.4 million in aggregate principal amount of the 6.50% Unsecured Notes. The 6.50% Unsecured Notes will mature onMarch 30, 2024 , and may be redeemed in whole or in part at any time or from time to time at the Company's option on or afterMarch 30, 2020 . The 6.50% Unsecured Notes bear interest at a rate of 6.50% per year payable quarterly onMarch 30 ,June 30 ,September 30 , andDecember 30 of each year. The 6.50% Unsecured Notes are listed on the NASDAQ Global Select Market under the trading symbol "OXSQL." OnApril 3, 2019 , we completed an underwritten public offering of approximately$44.8 million in aggregate principal amount of the 6.25% Unsecured Notes. The 6.25% Unsecured Notes will mature onApril 30, 2026 , and may be redeemed in whole or in part at any time or from time to time at our option on or afterApril 30, 2022 . The 6.25% Unsecured Notes bear interest at a rate of 6.25% per year payable quarterly onJanuary 31 ,April 30 ,July 31 , andOctober 31 of each year. The 6.25% Unsecured Notes are listed on the NASDAQ Global Select Market under the trading symbol "OXSQZ." OnMay 20, 2021 , we completed an underwritten public offering of approximately$80.5 million in aggregate principal amount of the 5.50% Unsecured Notes. The 5.50% Unsecured Notes will mature onJuly 31, 2028 , and may be redeemed in whole or in part at any time or from time to time at our option (on or afterMay 31, 2024 ). The 5.50% Unsecured Notes bear interest at a rate of 5.50% per year payable quarterly onJanuary 31 ,April 30 ,July 31 , andOctober 31 , of each year. The 5.50% Unsecured Notes are listed on the NASDAQ Global Select Market under the trading symbol "OXSQG."
Refer to “Note 6. Borrowings” in the notes to our financial statements.
Distributions
In order to qualify for tax treatment as a RIC, and to avoid corporate level tax on the income we distribute to our stockholders, we are required, under Subchapter M of the Code, to distribute at least 90% of our ordinary income and short-term capital gains to our stockholders on an annual basis. To the extent our taxable earnings fall below the total amount of our distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to our stockholders. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our taxable ordinary income or capital gains. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is taxable ordinary income or capital gains. The final determination of the nature of our distributions can only be made upon the filing of our tax return. We have untilOctober 15, 2023 , to file our federal income tax return for the year
endedDecember 31, 2022 . 58 Table of Contents For the quarter endedSeptember 30, 2022 , management estimated that there was no tax return of capital. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage requirements applicable to us as a BDC under the 1940 Act. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of favorable regulated investment company tax treatment. We cannot assure stockholders that they will receive any distributions.
The following table reflects common stock distributions (including cash
distributions and distributions reinvested), as declared by our Board, since the
beginning of the 2021 fiscal year:
Distributions in
Excess of/(Less
GAAP Net than) GAAP
Payment Total Investment Net Investment
Date Declared Record Date Date Distributions Income Income(1)
Fiscal 2023(1)
March 17, March 31,
February 14, February
October 20, 2022 2023 28, 2023 0.035 N/A -
January 17, January 31,
October 20, 2022 2023 2023 0.035 N/A -
Total (First
Quarter 2023) 0.105 - (3) -
Fiscal 2022(1)
December 16, December
July 21, 2022 2022 30, 2022 $ 0.035 $ N/A $ -
November 16, November
July 21, 2022 2022 30, 2022 0.035 N/A -
October 17, October 31,
July 21, 2022 2022 2022 0.035 N/A -
Total (Fourth
Quarter 2022) 0.105 - (3) -
September September
April 21, 2022 16, 2022 30, 2022 $ 0.035 $ N/A $ -
August 17, August 31,
April 21, 2022 2022 2022 0.035 N/A -
July 15, July 29,
April 21, 2022 2022 2022 0.035 N/A -
Total (Third
Quarter 2022) 0.105 0.11 (3) (0.01 )
June 16, June 30,
March 1, 2022 2022 2022 $ 0.035 $ N/A $ -
May 31,
March 1, 2022 May 17, 2022 2022 0.035 N/A -
April 15, April 29,
March 1, 2022 2022 2022 0.035 N/A -
Total (Second
Quarter 2022) 0.105 0.09 0.02
March 17, March 31,
October 22, 2021 2022 2022 $ 0.035 $ N/A $ -
February 14, February
October 22, 2021 2022 28, 2022 0.035 N/A -
January 17, January 31,
October 22, 2021 2022 2022 0.035 N/A -
Total (First
Quarter 2022) 0.105 0.09 0.02
Fiscal 2021(1)
December 17, December
July 22, 2021 2021 31, 2021 $ 0.035 $ N/A $ -
November 16, November
July 22, 2021 2021 30, 2021 0.035 N/A -
October 15, October 29,
July 22, 2021 2021 2021 0.035 N/A -
Total (Fourth
Quarter 2021) 0.105 0.09 0.02
September September
April 22, 2021 16, 2021 30, 2021 $ 0.035 $ N/A $ -
August 17, August 31,
April 22, 2021 2021 2021 0.035 N/A -
July 16, July 30,
April 22, 2021 2021 2021 0.035 N/A -
Total (Third
Quarter 2021) 0.105 0.08 0.02
June 16, June 30,
February 23, 2021 2021 2021 $ 0.035 $ N/A $ -
May 28,
February 23, 2021 May 14, 2021 2021 0.035 N/A -
April 16, April 30,
February 23, 2021 2021 2021 0.035 N/A -
Total (Second
Quarter 2021) 0.105 0.06 0.05
March 17, March 31,
October 22, 2020 2021 2021 $ 0.035 $ N/A $ -
February 12, February
October 22, 2020 2021 26, 2021 0.035 N/A -
January 15, January 29,
October 22, 2020 2021 2021 0.035 N/A -
Total (First
Quarter 2021) 0.105 0.10 -
Total (2021) $ 0.42 $ 0.32 (2) $ 0.10 (2)
_________
(1) The tax characterization of cash distributions for the years endingDecember 31, 2023 andDecember 31, 2022 , and year endedDecember 31, 2021 will not be known until the tax return for such years are finalized. For the years endingDecember 31, 2023 andDecember 31, 2022 , and year endedDecember 31, 2021 , the amounts and sources of distributions reported are only estimates and are not being provided forU.S. tax reporting purposes. The final determination of the source of all distributions in 2023, 2022, and 2021 will be made after year-end and the amounts represented may be 59 Table of Contents materially different from the amounts disclosed in the final Form 1099-DIV notice. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Company's investment performance and may be subject to change based on tax regulations. (2) Totals may not sum due to rounding. (3) We have not yet reported investment income for this period.
Related Parties
We have a number of business relationships with affiliated or related parties,
including the following:
• We have entered into the Investment Advisory Agreement with Oxford Square Management. Oxford Square Management is controlled by Oxford Funds, its managing member. In addition to Oxford Funds, Oxford Square Management is owned byCharles M. Royce , a member of our Board, who holds a minority, non-controlling interest in Oxford Square Management as the non-managing member. Oxford Funds, as the managing member of Oxford Square Management, manages the business and internal affairs of Oxford Square Management. In addition, Oxford Funds provides us with office facilities and administrative services pursuant to the Administration Agreement. • Messrs. Cohen and Rosenthal also currently serve as Chief Executive Officer and President, respectively, atOxford Gate Management, LLC , the investment adviser to theOxford Gate Funds andOxford Bridge II, LLC . Oxford Funds is the managing member ofOxford Gate Management, LLC . In addition,Bruce L. Rubin serves as the Chief Financial Officer and Secretary, andGerald Cummins serves as the Chief Compliance Officer, respectively, ofOxford Gate Management, LLC . • Messrs. Cohen and Rosenthal currently serve as Chief Executive Officer and President, respectively, of Oxford Lane Capital Corp., a closed-end management investment company that invests primarily in equity and junior debt tranches of CLO vehicles, and its investment adviser,Oxford Lane Management, LLC . Oxford Funds provides Oxford Lane Capital Corp. with office facilities and administrative services pursuant to an administration agreement and also serves as the managing member ofOxford Lane Management, LLC . In addition,Bruce L. Rubin serves as the Chief Financial Officer, Treasurer and Corporate Secretary of Oxford Lane Capital Corp. and Chief Financial Officer and Treasurer ofOxford Lane Management, LLC , andMr. Cummins serves as the Chief Compliance Officer of Oxford Lane Capital Corp. andOxford Lane Management, LLC . As a result, certain conflicts of interest may arise with respect to the management of our portfolio by Messrs. Cohen and Rosenthal on the one hand, and the obligations of Messrs. Cohen and Rosenthal to manage Oxford Lane Capital Corp.,Oxford Bridge II, LLC and the Oxford Gate Funds, respectively, on the other hand. Oxford Square Management,Oxford Lane Management, LLC andOxford Gate Management, LLC are subject to a written policy with respect to the allocation of investment opportunities among the Company, Oxford Lane Capital Corp.,Oxford Bridge II, LLC and the Oxford Gate Funds. Where investments are suitable for more than one entity, the allocation policy generally provides that, depending on size and subject to current and anticipated cash availability, the absolute size of the investment as well as its relative size compared to the total assets of each entity, current and anticipated weighted average costs of capital, among other factors, an investment amount will be determined by the adviser to each entity. If the investment opportunity is sufficient for each entity to receive its investment amount, then each entity receives the investment amount; otherwise, the investment amount is reduced pro rata. OnJune 14, 2017 , theSecurities and Exchange Commission issued an order permitting the Company and certain of its affiliates to complete negotiated co-investment transactions in portfolio companies, subject to certain conditions (the "Order"). Subject to satisfaction of certain conditions to the Order, the Company and certain of its affiliates are now permitted, together with any future BDCs, registered closed-end funds and certain private funds, each of whose investment adviser is the Company's investment adviser or an investment adviser controlling, controlled by, or under common control with the Company's investment adviser, to co-invest in negotiated investment opportunities where doing so would otherwise be prohibited under the 1940 Act, providing the Company's stockholders with access to a broader array of investment opportunities. Pursuant to the Order, we are permitted to co-invest in such investment opportunities with our affiliates if a "required majority" (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including, but not limited to, that (1) the terms of the potential co-investment transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not 60
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involve overreaching in respect of us or our stockholders on the part of any person concerned, and (2) the potential co-investment transaction is consistent with the interests of our stockholders and is consistent with our then-current investment objective and strategies. In the ordinary course of business, we may enter into transactions with portfolio companies that may be considered related party transactions. In order to ensure that we do not engage in any prohibited transactions with any persons affiliated with us, we have implemented certain policies and procedures whereby our executive officers screen each of our transactions for any possible affiliations between the proposed portfolio investment, us, companies controlled by us and our employees and directors. We will not enter into any agreements unless and until we are satisfied that doing so will not raise concerns under the 1940 Act or, if such concerns exist, we have taken appropriate actions to seek board review and approval or exemptive relief for such transaction. Our Board reviews these procedures on an annual basis. We have also adopted a Code of Business Conduct and Ethics which applies to our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as all of our officers, directors and employees. Our Code of Business Conduct and Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individual's personal interests and our interests. Pursuant to our Code of Business Conduct and Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict. Our Audit Committee is charged with approving any waivers under our Code of Business Conduct and Ethics. As required by the NASDAQ Global Select Market corporate governance listing standards, the Audit Committee of our Board is also required to review and approve any transactions with related parties (as such term is defined in Item 404 of Regulation S-K). Information concerning related party transactions is included in the financial statements and related notes, appearing elsewhere in this quarterly report
on Form 10-Q. RECENT DEVELOPMENTS
The following distributions payable to stockholders are shown below:
Per Share
Distribution
Date Declared Record Date Payable Dates Amount Declared
July 21, 2022 October 17, 2022 October 31, 2022 $0.035
July 21, 2022 November 16, 2022 November 30, 2022 $0.035
July 21, 2022 December 16, 2022 December 30, 2022 $0.035
October 20, 2022 January 17, 2023 January 31, 2023 $0.035
October 20, 2022 February 14, 2023 February 28, 2023 $0.035
October 20, 2022 March 17, 2023 March 31, 2023 $0.035
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