Hello, everyone, and welcome to the Oxford Lane Capital Corp. first fiscal quarter 2023 call. My name is Victoria and I will be coordinating your call today. If you would like to ask a question during the presentation, please press star one on your telephone keypad. When preparing to ask a question, please ensure that your line is unmuted locally. I'll now pass over to Jonathan Cohen, CEO, to begin. Please go ahead.
Thanks very much. Good morning, everyone. Welcome to the Oxford Lane Capital Corp first fiscal quarter 2023 earnings conference call. I'm joined today by Saul Rosenthal, our President, Bruce Rubin, our Chief Financial Officer, and Debdeep Maji, our Senior Managing Director and Portfolio Manager. Bruce, could you open the call with a disclosure regarding forward-looking statements?
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 in 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 defined in 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.oxfordlanecapital.com. With that, I'll turn the presentation back to Jonathan.
Thanks, Bruce. On June 30th, 2022, our net asset value per share stood at $5.07 compared to a net asset value per share at $6.56 as of March 31st, 2022. For the quarter ended June 30th, we reported GAAP total investment income of approximately $53.5 million, representing an increase of approximately $8.4 million from the prior quarter. The quarter's GAAP total investment income from our portfolio consisted of approximately $61 million from our CLO equity and CLO warehouse investments and approximately $2.4 million from our CLO debt investments and from other income.
Oxford Lane also recorded GAAP net investment income of approximately $38.7 million or $0.26 per share for the quarter ended June 30, compared to approximately $32.4 million or $0.24 per share for the quarter ended March 31. Our core net investment income was approximately $82.1 million or $0.55 per share for the quarter ended June 30, compared with approximately $57.9 million or $0.43 per share for the quarter ended March 31. During the quarter ended June 30, we issued a total of approximately 4.6 million shares of our common stock pursuant to an at-the-market offering, resulting in net proceeds of approximately $30.9 million. For the quarter ended June, we reported net realized losses of approximately $7.5 million.
We reported net unrealized appreciation on investments of approximately $200.6 million or $1.49 per share. We had a net decrease in net assets resulting from operations of approximately $189.4 million or $1.28 per share for the first fiscal quarter. As of June 30, 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 13.1%, up from 12.5% as of March 31. The weighted average effective yield of our CLO equity investments at current cost was 15.9%, down from 16.2% as of March 31.
The weighted average cash distribution yield of our CLO equity investments at current cost was 29.4%, down from 29.7% as of March 31st. We note that the cash distribution yields calculated on our CLO equity investment are based on the cash distributions we received or which we were entitled to receive at each respective period end. During the quarter ended June 30th, we made additional CLO investments of approximately $237.8 million, and we received approximately $119.3 million from sales and repayments. On June 28th, our board of directors declared monthly common stock distributions of $0.075 per share for each of the months ending October, November, and December of 2022. With that, I'll turn the call over to our portfolio manager, Debdeep Maji.
Thank you, Jonathan. During the quarter ended June 30, 2022, the U.S. loan market exhibited weakness versus the quarter ended March 31, 2022. U.S. loan prices, as defined by the S&P/LSTA Leveraged Loan Index, decreased from 97.6% of par as of March 31st to 92.16% of par as of June 30th. According to LCD, during the quarter, there was pricing dispersion related to credit quality, with double B-rated loan prices decreasing 399 basis points or 4.06%.
Single-B rated loan prices decreasing 596 basis points or 6.08%, and triple-C rated loan prices decreasing 744 basis points or 8.37% on average. The twelve-month trailing default rate for the S&P/LSTA Leveraged Loan Index increased to 28 basis points by principal amount at the end of the quarter from 19 basis points at the end of March 2022. Additionally, the distressed ratio, defined as the percentage of loans with a price below 80% of par, ended the quarter at approximately 3.65% compared to 1.55% at the end of March 2022. The drop in U.S. loan prices led to a decrease in U.S. CLOs' net asset values.
During the quarter, we observed the median U.S. CLO equity NAV declined from approximately 52% of par to approximately 2% of par. However, median junior overcollateralization cushion rose to approximately 4.68% compared to 4.2% last quarter. Additionally, we observed loan pools within CLO portfolios modestly increased their weighted average spreads to 349 basis points compared to 345 basis points last quarter. The CLO primary market continues to be challenged, with triple-A's continuing to widen out past 200+ basis points. Driven by existing warehouses need to price, U.S. CLO new issuance still reached approximately $80 billion compared to approximately $90 billion over the same period last year.
However, given widening liabilities and a challenging new issue arbitrage, issuance during the second half of this year is expected to slow down, and full year estimates for U.S. CLO issuance are now expected to come in well below last year's issuance of approximately $180 billion. Oxford Lane continued to be active in the secondary market during the quarter, trading over $200 million notional in CLO equity and junior debt. We are also active in the primary market, having four new issue CLO equity investments and two new issue CLO debt investments during the quarter. As a function of our overall activity in both markets this quarter, we were able to lengthen the weighted average reinvestment period of Oxford Lane CLO equity portfolio from February of 2025 to July of 2025.
In the current market environment, we intend to continue to utilize an opportunistic and unconstrained CLO investment strategy across U.S. CLO equity, debt, and warehouses as we look to maximize our long-term total return. As a permanent capital vehicle, we have historically been able to take a longer term view towards our investment strategy. With that, I will turn the call back over to Jonathan.
Thanks very much, Deep. I'd like to note that the additional information about Oxford Lane's first fiscal quarter performance has been uploaded to our website at www.oxfordlanecapital.com. With that, operator, we're happy to open the discussion for any questions.
Perfect. Thank you. We will now start our Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. When preparing to ask a question, please ensure that your line is unmuted locally. Now our first question comes from Mickey Schleien at Ladenburg Thalmann. Please go ahead.
Yes. Good morning, Jonathan and Deep. Jonathan, I'd like to start by asking how you would describe secondary trading in CLO equity in terms of the volumes and bid-ask spreads during the quarter and, you know, perhaps how they look today, now that we're, you know, well into the next quarter.
Sure, Mickey. Deep will take that question.
Sure. CLO trading volumes were definitely a little weaker towards the end of last quarter. That being said, with the rebound in the LSTA from, you know, 92.16% at the end of June to 93.68% as of yesterday, we've definitely seen liquidity improve, trading volumes improve, especially after the July distributions.
Thanks for that, Deep. You mentioned that. I think I heard you say the triple A's in the primary market are above 200 basis points. Is that right?
That, that's correct. Yep.
At that level, you know, who's buying in the primary market, I guess is my question. Does the arbitrage even work with triple A's at that level given that spreads, you know, are relatively stable?
Spreads are relatively stable, but the loan prices are clearly more depressed, you know, being kind of around between 92%-93% over the last handful of two months or so. I think it's been challenging. The triple-A buyers are some historic buyers, including Japanese banks. You know, we've seen a range of buyers.
Okay. There's this enormous imbalance between the CLO equity portfolio's cash flows at cost, which, as you mentioned, are almost 30%, and that's about as high as I can remember for all the years that I've been following Oxford Lane, compared to what those yields would be at fair value, which is extremely high. It seems that the market's implying that we're either gonna see a very high default cycle, and the distressed ratio doesn't seem to be implying that now, or, you know, someone could argue that the fair values are just too conservative. I'm not picking on your valuation process. I'm just talking about the market in general. Which track do you believe is more likely, and how are you positioning Oxford Lane to take advantage of that outlook?
Sure, Mickey. I think what you've seen historically is that we've taken an opportunistic approach to the markets that we face. Those of you who've been covering the company, the fund for a very long time, you've seen long periods where we've been very active in the primary market, where we've participated in warehouses, where we've put substantial amounts of capital to work in the new issue market. Similarly, you've also seen extended periods where we've not done very much at all in the primary market, where we've been extremely active trading secondary markets. We feel like our approach and our investment philosophy lends itself, we think, to an ability to migrate between those strategies and different parts of those strategies. We'll continue to be opportunistic.
The other part of your question, I think, related to our fair value marks, and you said that.
Not, not yours specifically, Jonathan. I'm just saying in general, they look, either the fair values are too low or the cash flows are gonna come down, one or the other, right?
We'll see. We don't have a defined position on that issue.
Okay. Jonathan, the fund's leverage is around 0.6 when you measure by debt to equity. How does that level compare to sort of your comfort level or your target range in the current market environment?
It's probably at the higher end of the range right now, Mickey. You're unlikely to see us increase our leverage in the intermediate term, absent raising additional equity first.
Okay. My last question. In 2021, about a quarter of the fund's distributions were a return of capital. Looking at this year, you know, core NII is running way above the distribution. Can you give us any sense of where you know, UTI stands and the potential for special distributions to manage that liability?
Sure, Mickey. Just one small correction. The 2021 return of capital was, I think as you mentioned, out on a tax basis. That was a tax.
Yeah, I'm talking about that. Yeah. Yes.
Yeah. No, we're not really able to give any forward guidance with respect to tax character of our distribution. Those really are manifested in the PFIC statements, the Passive Foreign Investment Company tax reporting statements that we receive in the subsequent calendar year. Our most recent information, so far as tax character is concerned, is the information that would be up on our website.
All right. Appreciate that. That's it for me this morning. Thank you for your time.
Thanks, Mickey, very much.
Thank you very much, Mickey, for your question. Our next question comes from Matthew Howlett at B. Riley. Please go ahead.
Oh, hey, good morning. Hi, Jonathan. Thanks for taking my question. You just look at the improvement and you know the spread and the junior OC level, and you're definitely doing a good job taking advantage of you know the discounted market. You know, going forward, I mean, given where leveraged loan prices are, I mean, and I know there's been some you know shift in downgrade beginning. Do you still feel good about the ability for your portfolio to continue building the OC level?
I think we feel generally constructive, Matt, but obviously, as you note, a great deal depends on what happens to the syndicated corporate loan market, what happens to default rates going forward, how all of these kind of macroeconomic fundamentals are distilled in the markets that we participate in. As a general thought, I feel like we are constructive at this moment.
Matt, one thing I would just add is, you know, if you look at over the last 2- 3 months, CLO managers have definitely been able to take any sort of prepayment and also make, you know, kind of relative trading assessment and build, you know, 100, you know, many basis points of par kind of month-over-month and quarter-over-quarter because of the depressed loan market. Again, we are constructive on it.
Yeah, that's right. I'm sort of getting at this could be sort of a Goldilocks environment where, you know, it if we do get a recession, it's gonna be slow, it's gonna be mild and it's gonna take time. Meanwhile, you know, the portfolio can really take advantage of these deep discounts. I guess that's the question is on the core measure, it jumped up a lot sequentially. You know, I notice that you don't have any CLOs diverting cash flow. You had a small amount, but now it's zero. First, what explained the big pickup in the core number?
Sure. I think the biggest driver of that was quarter-over-quarter, we had a lot of first-time payers come on board. Some of the investments that we put on the ground in the calendar quarter, fourth quarter or the quarter ending 12/31, those made those first-
Yeah.
their first distributions in April.
That's gonna continue, right? I mean, you showed there's been a few still in their kinda like ramp stage, right?
Yeah. Absent diversion or the sales of those positions, yes, the cash flows are expected to continue.
Yeah. I mean, look, that puts you in just a tremendous, you know, position in the portfolio. So, you know, you're well covered on a dividend on a GAAP basis and even, you know, 2x on a core basis. I'll spare the dividend questions. I think you covered that. You guys have been around the longest in this space. You're the first mover, you know, in this asset class during the Great Recession. When you look at, you know, secondary acquisitions going forward, you've always said sort of, you know, it's all about sort of pricing. Do you feel like getting defensive to being just the top tier, most defensive, you know, buyer in secondary paper?
Would you wanna, you know, or would you wanna look at these deeper value elsewhere, whether it could be deals that could be, you know, sailing those seas that could come back? I mean, how do you look at value in the space today entering into what could be softer economic conditions?
Sure, Matt. We look at value very broadly. The direct answer to your question is both. We would look and we continue to look every day at top-tier manager deals that have plenty of reinvestment period left in them and are very tightly structured with respect to their liability stack. At the same time, we look at deals that may have more challenged collateral pools, are managed by second or third tier collateral managers that are even outside of their reinvestment periods. For us, the ultimate reflection of value is the relationship between the cash flows that we expect to receive and the price that we're forced to pay for those cash flows.
To the extent that we can take a better risk-adjusted position at one end of the continuum versus the other, we're generally fairly comfortable doing that.
Includes CLO debt, CLO equity, everything that you sort of look at.
Sure. Very much so, Matt. Yes.
The last question, just on the. I mean, great job extending the reinvestment period. I mean, I think it's so critical that you keep that window open. I mean, do you expect any? Is the goal still to kinda continue pushing that out, or would you look at, you know, you know, would you sacrifice, you know, a shorter reinvestment window for just deeper value?
Sure. This is, Debdeep, Matthew. I think, you know, our goal is always to try to extend the weighted average reinvestment periods. Clearly, with the primary market being even more challenged, you know, now than it was in the past quarter, in the past, you know, six or twelve months, that becomes a little bit more difficult from a primary creation point of view. That being said, we can, you know, of course, go into the secondary market, and we have been adding longer-dated reinvestment period equity in the secondary market. As Jonathan mentioned that, you know, we're happy to look at shorter-dated equity, especially majority positions, at the right price. If there's value there, we're gonna take advantage of it.
Exactly right, Matt. I mean, we place, as Deep said, a very high value on duration and the optionality embedded with that duration in some cases. That said, there tends to be a price for everything, including that duration.
Absolutely. I guess that's just my last comment is sort of this, you know, the NAV went down because of mark-to-market issues, but the cash flows and the core number went up, and you have this disconnect, which is probably a very great environment to be a top CLO investor like you are. How do you explain to the investors that disconnect that NAV doesn't really capture really forward cash flows, in your model?
I mean, at the end of the day, Matt, we are an investor, at least on a derivative basis, in the syndicated corporate loan market. Syndicated corporate loans, as reflected by the LSTA index, fell about 550 basis points during the quarter, which is a fairly substantial drop. Now, they've regained about 150 basis points of that drop since the end of the quarter, which is a generally positive development. But in terms of reflecting this to the investor community, relating that to the move in our NAV, at the end of the day, it really is mostly, in many ways about the change in the loan market.
Right. Just on the other end, I just think, you know, the cash flows, you could make that up longer term with these, you know, dividends and cash flows. It's just that, you know, for analysts and investors, sometimes it's tough to really be able to you know, convey that to the market, given the complexity.
Sure.
Of CLOs.
Absolutely, Matt. We'll be announcing our July month-end NAV in a few days from now. We'll be able to update the market.
The last check was 93 something.
93.68 as of last night, up from 92.16 as of June 30.
Great. Thanks a lot. Thanks for taking my questions.
Thank you very much for the questions, Matt. We appreciate it.
Thank you so much for your questions, Matthew. At this time, there are no further questions, and I would like to pass back over to Jonathan Cohen for any final remarks.
Thank you very much. I'd like to thank everybody on the call and listening to the replay for their interest in Oxford Lane Capital Corp., and we look forward to speaking to you again soon. Thank you.
Thank you, everyone, for joining today's conference call. You may now disconnect.