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OXSQ Oxford Square Capital

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

_______________________________

FORM 10-Q

_______________________________

 

(Mark One)

    
  

S

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  
  

FOR THE QUARTERLY PERIOD ENDED MARCH31, 2020

  
  

£

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

COMMISSION FILE NUMBER: 814-00638

_______________________________

OXFORD SQUARE CAPITAL CORP.

(Exact name of registrant as specified in its charter)

_______________________________

 

MARYLAND

 

20-0188736

  
  

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

  

8 SOUND SHORE DRIVE, SUITE 255
GREENWICH, CONNECTICUT 06830

(Address of principal executive office)

(203) 983-5275
(Registrant’s telephone number, including area code)

_______________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.01 per share

 

OXSQ

 

NASDAQ Global Select Market LLC

6.50% Notes due 2024

 

OXSQL

 

NASDAQ Global Select Market LLC

6.25% Notes due 2026

 

OXSQZ

 

NASDAQ Global Select Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12months (or for such shorter period that the registrant was required to submit such files). Yes £ No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer£

 

Accelerated filerS

  

Non-accelerated filer£

 

Smaller Reporting company£

  

Emerging growth company£

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes £ No S

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of April28, 2020 was 49,589,607.

 

i

PART I — FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

 

March 31,
20
20

 

December 31,
201
9

  

(unaudited)

  

ASSETS

 

 

 

 

 

 

 

 

Non-affiliated/non-control investments (cost: $450,240,880 and $467,828,907, respectively)

 

$

261,381,550

 

 

$

361,985,203

 

Affiliated investments (cost: $16,836,822 and $16,836,822, respectively)

 

 

384,296

 

 

 

2,816,790

 

Cash equivalents

 

 

7,825,820

 

 

 

14,410,486

 

Restricted cash

 

 

 

 

 

2,050,452

 

Securities sold not settled

 

 

1,732,979

 

 

 

 

Interest and distributions receivable

 

 

1,566,824

 

 

 

3,480,036

 

Other assets

 

 

490,255

 

 

 

523,626

 

Total assets

 

$

273,381,724

 

 

$

385,266,593

 

LIABILITIES

 

 

 

 

 

 

 

 

Notes payable – 6.50% Unsecured Notes (net of deferred issuance costs of $1,299,705 and $1,380,658, respectively)

 

$

63,070,520

 

 

$

62,989,567

 

Notes payable – 6.25% Unsecured Notes (net of deferred issuance costs of $1,418,749 and $1,476,878, respectively)

 

 

43,372,001

 

 

 

43,313,872

 

Notes payable – Credit Facility (net of deferred issuance costs of $10,051)

 

 

 

 

 

28,080,550

 

Base management fee and net investment income incentive fee payable to affiliate

 

 

1,231,210

 

 

 

1,480,653

 

Accrued interest payable

 

 

481,498

 

 

 

632,235

 

Accrued expenses

 

 

487,944

 

 

 

771,174

 

Total liabilities

 

 

108,643,173

 

 

 

137,268,051

 

COMMITMENTS AND CONTINGENCIES (Note 13)

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 100,000,000 shares authorized; 49,589,607 and 48,448,987 shares issued and outstanding, respectively

 

 

495,895

 

 

 

484,489

 

Capital in excess of par value

 

 

457,810,322

 

 

 

451,839,302

 

Total accumulated losses

 

 

(293,567,666

)

 

 

(204,325,249

)

Total net assets

 

 

164,738,551

 

 

 

247,998,542

 

Total liabilities and net assets

 

$

273,381,724

 

 

$

385,266,593

 

Net asset value per common share

 

$

3.32

 

 

$

5.12

 

See Accompanying Notes.

1

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)
March 31, 2020

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION
DATE

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF
NET
ASSETS

Senior Secured Notes

   

 

  

 

  

 

   

 

Aerospace and Defense

   

 

  

 

  

 

   

 

Novetta, LLC

   

 

  

 

  

 

   

 

first lien senior secured notes, 6.00%
(LIBOR + 5.00%), (1.00% floor) due October 16, 2022
(4)(5)(6)(15)

 

November 20, 2014

 

$

5,457,380

 

$

5,411,988

 

$

4,729,147

  

 

Total Aerospace and Defense

   

 

  

$

5,411,988

 

$

4,729,147

 

2.9

%

    

 

  

 

  

 

   

 

Business Services

   

 

  

 

  

 

   

 

Access CIG, LLC

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.53%
(LIBOR + 3.75%), (0.00% floor) due February 27, 2025
(4)(5)(6)(14)(16)

 

June 12, 2018

 

$

490,005

 

$

490,005

 

$

396,292

  

 

second lien senior secured notes, 9.53% (LIBOR + 7.75%), (0.00% floor) due February 27, 2026(4)(5)(14)(16)

 

February 14, 2018

 

 

16,754,000

 

 

16,843,717

 

 

13,989,590

  

 

    

 

  

 

  

 

   

 

Convergint Technologies, LLC

   

 

  

 

  

 

   

 

second lien senior secured notes, 7.74% (LIBOR + 6.75%), (0.75% floor) due February 2, 2026(4)(5)(15)

 

January 29, 2018

 

 

1,500,000

 

 

1,493,073

 

 

1,275,000

  

 

    

 

  

 

  

 

   

 

Imagine! Print Solutions

   

 

  

 

  

 

   

 

second lien senior secured notes, 10.36% (LIBOR + 8.75%), (1.00% floor) due
June 21, 2023
(4)(5)(15)(17)

 

June 14, 2017

 

 

15,000,000

 

 

14,466,334

 

 

1,500,000

  

 

    

 

  

 

  

 

   

 

OMNIA Partners, Inc.

   

 

  

 

  

 

   

 

second lien senior secured notes, 8.95% (LIBOR + 7.50%), (0.00% floor) due
May 22, 2026
(4)(5)(14)(16)

 

May 17, 2018

 

 

14,000,000

 

 

13,942,528

 

 

11,200,000

  

 

    

 

  

 

  

 

   

 

Premiere Global Services, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes,8.24%
(LIBOR + 6.50%), (1.00% floor) due
June 8, 2023
(4)(5)(6)(14)(16)

 

October 1, 2019

 

 

14,299,639

 

 

13,700,738

 

 

8,007,798

  

 

second lien senior secured notes, 0.50% Cash,10.85% PIK (LIBOR + 9.00%) (1.00% floor) due June 6, 2024(3)(4)(5)(14)(16)(17)

 

October 1, 2019

 

 

10,525,601

 

 

9,817,795

 

 

3,683,960

  

 

    

 

  

 

  

 

   

 

Verifone Systems, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.69%
(LIBOR + 4.00%), (0.00% floor) due August 20, 2025
(4)(5)(6)(16)

 

August 9, 2018

 

 

6,912,500

 

 

6,884,274

 

 

4,262,731

  

 

Total Business Services

   

 

  

$

77,638,464

 

$

44,315,371

 

26.9

%

    

 

  

 

  

 

   

 

Diversified Insurance

   

 

  

 

  

 

   

 

AmeriLife Group LLC

   

 

  

 

  

 

   

 

second lien senior secured notes, 9.50% (LIBOR + 8.50%), (1.00% floor) due March 18, 2028(4)(5)(6)(25)

 

March 18, 2020

 

$

7,500,000

 

$

7,350,507

 

$

6,375,000

  

 

Total Diversified Insurance

   

 

  

$

7,350,507

 

$

6,375,000

 

3.9

%

(continued on next page)

See Accompanying Notes.

2

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) — (continued)
March 31, 2020

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION
DATE

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF
NET
ASSETS

Senior Secured Notes –(continued)

   

 

  

 

  

 

   

 

Education

   

 

  

 

  

 

   

 

Edmentum, Inc. (f/k/a Plato, Inc.)

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.14%
(LIBOR + 4.50%), (1.00% floor) Cash, 4.00% PIK due June 9, 2021
(3)(4)(5)(6)(16)

 

April 25, 2013

 

$

6,114,981

 

$

6,093,032

 

$

5,136,584

  

 

Total Education

   

 

  

$

6,093,032

 

$

5,136,584

 

3.1

%

    

 

  

 

  

 

   

 

Financial Intermediaries

   

 

  

 

  

 

   

 

Shift4 Payments, LLC (f/k/a Lighthouse Network, LLC)

   

 

  

 

  

 

   

 

second lien senior secured notes, 10.28% (LIBOR + 8.50%), (1.00% floor) due November 30, 2025(4)(5)(14)(16)

 

November 20, 2017

 

$

16,490,000

 

$

16,359,535

 

$

12,367,500

  

 

Total Financial Intermediaries

   

 

  

$

16,359,535

 

$

12,367,500

 

7.5

%

    

 

  

 

  

 

   

 

Healthcare

   

 

  

 

  

 

   

 

Keystone Acquisition Corp.

   

 

  

 

  

 

   

 

first lien senior secured notes, 6.70%
(LIBOR + 5.25%), (1.00% floor) due
May 1, 2024
(4)(5)(6)(14)(16)

 

May 10, 2017

 

$

7,438,796

 

$

7,413,337

 

$

5,988,231

  

 

second lien senior secured notes, 10.70% (LIBOR + 9.25%), (1.00% floor) due
May 1, 2025
(4)(5)(14)(16)

 

May 10, 2017

 

 

13,000,000

 

 

12,875,981

 

 

9,750,000

  

 

    

 

  

 

  

 

   

 

Viant Medical Holdings, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.20%
(LIBOR + 3.75%), (0.00% floor) due
July 2, 2025
(4)(5)(6)(14)(16)

 

June 26, 2018

 

 

9,850,000

 

 

9,849,014

 

 

8,480,850

  

 

second lien senior secured notes, 9.20% (LIBOR + 7.75%), (0.00% floor) due
July 2, 2026
(4)(5)(14)(16)

 

June 26, 2018

 

 

5,000,000

 

 

4,957,083

 

 

3,437,500

  

 

    

 

  

 

  

 

   

 

Healthport Technologies, LLC

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.70%
(LIBOR + 4.25%), (1.00% floor) due December 1, 2021
(4)(5)(6)(14)(16)

 

April 12, 2019

 

 

16,554,438

 

 

15,117,235

 

 

12,796,581

  

 

    

 

  

 

  

 

   

 

HealthChannels, Inc. (f/k/a ScribeAmerica, LLC)

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.11%
(LIBOR + 4.50%), (0.00% floor) due
April 3, 2025
(4)(5)(6)(14)(15)

 

October 31, 2018

 

 

9,836,810

 

 

9,778,867

 

 

8,558,025

  

 

Total Healthcare

   

 

  

$

59,991,517

 

$

49,011,187

 

29.8

%

    

 

  

 

  

 

   

 

Logistics

   

 

  

 

  

 

   

 

Capstone Logistics Acquisition, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.57%
(LIBOR + 4.50%), (1.00% floor) due October 7, 2021
(4)(5)(6)(14)(25)

 

October 3, 2014

 

$

12,917,066

 

$

12,904,165

 

$

10,979,506

  

 

Total Logistics

   

 

  

$

12,904,165

 

$

10,979,506

 

6.7

%

(continued on next page)

See Accompanying Notes.

3

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) — (continued)
March 31, 2020

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION
DATE

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF
NET
ASSETS

Senior Secured Notes –(continued)

   

 

  

 

  

 

   

 

Software

   

 

  

 

  

 

   

 

ECI Software Solutions, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.70%
(LIBOR + 4.25%), (1.00% floor) due September 27, 2024
(4)(5)(6)(14)(16)

 

June 28, 2018

 

$

2,904,613

 

$

2,908,668

 

$

2,527,013

  

 

second lien senior secured notes, 9.45% (LIBOR + 8.00%), (1.00% floor) due September 29, 2025(4)(5)(14)(16)

 

September 19, 2017

 

 

15,000,000

 

 

14,918,149

 

 

12,000,000

  

 

    

 

  

 

  

 

   

 

Quest Software, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 6.03%
(LIBOR + 4.25%), (0.00% floor) due
May 16, 2025
(4)(5)(6)(14)(16)

 

May 17, 2018

 

 

5,925,000

 

 

5,901,062

 

 

5,347,313

  

 

second lien senior secured notes, 10.03% (LIBOR + 8.25%), (0.00% floor) due
May 18, 2026
(4)(5)(14)(16)

 

May 17, 2018

 

 

15,000,000

 

 

14,871,046

 

 

11,025,000

  

 

Total Software

   

 

  

$

38,598,925

 

$

30,899,326

 

18.8

%

    

 

  

 

  

 

   

 

Telecommunications Services

   

 

  

 

  

 

   

 

Global Tel Link Corp.

   

 

  

 

  

 

   

 

second lien senior secured notes, 9.70% (LIBOR + 8.25%), (0.00% floor) due November 29, 2026(4)(5)(14)(16)

 

November 20, 2018

 

$

17,000,000

 

$

16,728,636

 

$

13,600,000

  

 

Total Telecommunication Services

   

 

  

$

16,728,636

 

$

13,600,000

 

8.3

%

    

 

  

 

  

 

   

 

Utilities

   

 

  

 

  

 

   

 

CLEAResult Consulting, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 4.49%
(LIBOR + 3.50%), (0.00% floor) due August 8, 2025
(4)(5)(6)(14)(15)

 

August 2, 2018

 

$

4,925,000

 

$

4,905,244

 

$

3,964,625

  

 

second lien senior secured notes, 8.05% (LIBOR + 7.25%), (0.00% floor) due August 10, 2026(4)(5)(14)(15)

 

August 3, 2018

 

 

7,650,000

 

 

7,672,262

 

 

6,196,500

  

 

Total Utilities

   

 

  

$

12,577,506

 

$

10,161,125

 

6.2

%

Total Senior Secured Notes

   

 

  

$

253,654,275

 

$

187,574,746

 

113.9

%

    

 

  

 

  

 

   

 

Collateralized Loan Obligation – DebtInvestments

   

 

  

 

  

 

   

 

Structured Finance

   

 

  

 

  

 

   

 

Galaxy XXVIII CLO, Ltd.

   

 

  

 

  

 

   

 

CLO secured class F notes, 10.31%
(LIBOR + 8.48%), due July 15,
2031
(4)(5)(11)(12)(16)

 

June 29, 2018

 

$

1,000,000

 

$

934,875

 

$

471,500

  

 

Total Structured Finance

   

 

  

$

934,875

 

$

471,500

 

0.3

%

Total Collateralized Loan Obligation – Debt Investments

   

 

  

$

934,875

 

$

471,500

 

0.3

%

(continued on next page)

See Accompanying Notes.

4

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) — (continued)
March 31, 2020

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION
DATE

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF
NET
ASSETS

Collateralized Loan Obligation – EquityInvestments

   

 

  

 

  

 

   

Structured Finance

   

 

  

 

  

 

   

AMMC CLO XI, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 14.05% due April 30, 2031(9)(11)(12)(18)(26)

 

March 12, 2015

 

$

6,000,000

 

$

3,786,976

 

$

1,800,000

  
    

 

  

 

  

 

   

AMMC CLO XII, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated
yield 11.89% due November 10,
2030
(9)(11)(12)(18)(26)

 

March 13, 2013

 

 

12,921,429

 

 

7,223,507

 

 

3,230,357

  
    

 

  

 

  

 

   

Atlas Senior Loan Fund XI, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 18.58% due July 26, 2031(9)(11)(12)(18)(26)

 

April 5, 2019

 

 

5,725,000

 

 

4,279,553

 

 

1,717,500

  
    

 

  

 

  

 

   

Babson CLO Ltd. 2015-I

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 8.49% due January 20, 2031(9)(11)(12)(18)

 

July 26, 2018

 

 

2,840,000

 

 

1,723,276

 

 

568,000

  
    

 

  

 

  

 

   

BlueMountain CLO 2014-2 Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 22.46% due October 20, 2030(9)(11)(12)(18)

 

April 3, 2019

 

 

6,374,000

 

 

2,625,764

 

 

1,274,800

  
    

 

  

 

  

 

   

Carlyle Global Market Strategies CLO 2013-2, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 13.00% due January 18, 2029(9)(11)(12)(18)(26)

 

March 19, 2013

 

 

6,250,000

 

 

3,870,305

 

 

2,062,500

  
    

 

  

 

  

 

   

Cedar Funding II CLO, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 7.76% due June 09, 2030(9)(11)(12)(18)

 

October 23, 2013

 

 

18,000,000

 

 

12,622,203

 

 

4,680,000

  
    

 

  

 

  

 

   

Cedar Funding VI CLO, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 10.48% due October 20, 2028(9)(11)(12)(18)

 

May 15, 2017

 

 

7,700,000

 

 

7,288,772

 

 

2,772,000

  
    

 

  

 

  

 

   

CIFC Funding 2014-3, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 12.56% due October 22,
2031(9)(11)(12)(18)(26)

 

January 24, 2017

 

 

10,000,000

 

 

6,093,432

 

 

2,700,000

  
    

 

  

 

  

 

   

Galaxy XXVIII CLO, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 14.29% due July 15, 2031(9)(11)(12)(18)

 

July 25, 2017

 

 

2,000,000

 

 

959,051

 

 

362,770

  
    

 

  

 

  

 

   

Hull Street CLO Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 0.00% due October 18, 2026(9)(11)(12)(18)(26)

 

October 17, 2014

 

 

5,000,000

 

 

1,049,476

 

 

500

  
    

 

  

 

  

 

   

Ivy Hill Middle Market Credit Fund VII, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 7.78% due October 20, 2029(9)(11)(12)(18)(26)

 

October 3, 2013

 

 

10,800,000

 

 

8,648,103

 

 

4,140,993

  

(continued on next page)

See Accompanying Notes.

5

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) — (continued)
March 31, 2020

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION
DATE

 

PRINCIPAL AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF
NET
ASSETS

Collateralized Loan Obligation – EquityInvestments–(continued)

   

 

  

 

  

 

   

Structured Finance–(continued)

   

 

  

 

  

 

   

Madison Park Funding XIX, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 8.82% due January 22, 2028(9)(11)(12)(18)(26)

 

May 11, 2016

 

$

5,422,500

 

$

4,867,058

 

$

2,711,250

  
    

 

  

 

  

 

   

Nassau 2019-I Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 24.61% due April 15, 2031(9)(11)(12)(14)(18)(26)

 

April 11, 2019

 

 

23,500,000

 

 

19,188,330

 

 

12,220,000

  
    

 

  

 

  

 

   

Octagon Investment Partners 38, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 15.15% due July 20, 2030(9)(11)(12)(18)(26)

 

July 12, 2018

 

 

5,000,000

 

 

4,132,859

 

 

2,250,000

  
    

 

  

 

  

 

   

Regatta XV Funding, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 0.00% due October 25, 2026(9)(10)(11)(12)(18)

 

October 19, 2016

 

 

3,000,000

 

 

 

 

66,000

  
    

 

  

 

  

 

   

Sound Point CLO XVI, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 3.53% due July 25, 2030(9)(11)(12)(14)(18)

 

August 1, 2018

 

 

45,500,000

 

 

40,538,840

 

 

14,560,000

  
    

 

  

 

  

 

   

Telos CLO 2013-3, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 0.00% due July 17, 2026(9)(11)(12)(18)(26)

 

January 25, 2013

 

 

14,447,790

 

 

6,237,524

 

 

144,478

  
    

 

  

 

  

 

   

Telos CLO 2013-4, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 12.09% due January 17, 2030(9)(11)(12)(18)(26)

 

May 20, 2015

 

 

11,350,000

 

 

7,229,894

 

 

2,270,000

  
    

 

  

 

  

 

   

Telos CLO 2014-5, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 13.18% due April 17, 2028(9)(11)(12)(18)

 

April 11, 2014

 

 

28,500,000

 

 

18,179,226

 

 

3,705,000

  
    

 

  

 

  

 

   

Venture XIV, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 0.00% due August 28, 2029(9)(11)(12)(18)(26)

 

January 12, 2017

 

 

2,500,000

 

 

1,401,576

 

 

350,000

  
    

 

  

 

  

 

   

Venture XVII, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 12.43% due April 15, 2027(9)(11)(12)(18)(26)

 

January 27, 2017

 

 

6,200,000

 

 

3,726,182

 

 

1,364,000

  
    

 

  

 

  

 

   

Venture XX, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 0.00% due April 15, 2027(9)(11)(12)(18)(26)

 

July 27, 2018

 

 

3,000,000

 

 

1,216,869

 

 

660,000

  
    

 

  

 

  

 

   

Vibrant CLO V, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 5.79% due January 20, 2029(9)(11)(12)(18)

 

April 27, 2017

 

 

13,475,000

 

 

11,114,096

 

 

2,964,500

  

(continued on next page)

See Accompanying Notes.

6

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) — (continued)
March 31, 2020

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION DATE

 

PRINCIPAL AMOUNT/ SHARES

 

COST

 

FAIR
VALUE(2)

 

% OF
NET
ASSETS

Collateralized Loan Obligation – EquityInvestments–(continued)

   

 

  

 

  

 

   

 

Structured Finance–(continued)

   

 

  

 

  

 

   

 

West CLO 2014-1, Ltd.

   

 

  

 

  

 

   

 

CLO subordinated notes, estimated yield 0.00% due July 18,
2026
(9)(11)(12)(18)(26)

 

May 12, 2017

 

$

9,250,000

 

$

5,278,335

 

$

1,202,500

  

 

    

 

  

 

  

 

   

 

Windriver 2012-1 CLO, Ltd.

   

 

  

 

  

 

   

 

CLO subordinated notes, estimated yield 4.40% due January 15,
2026
(9)(11)(12)(18)

 

June 11, 2015

 

 

7,500,000

 

 

3,610,766

 

 

300,000

  

 

    

 

  

 

  

 

   

 

Zais CLO 6, Ltd.

   

 

  

 

  

 

   

 

CLO subordinated notes, estimated yield 7.84% due July 15, 2029(9)(11)(12)(18)

 

May 3, 2017

 

 

10,500,000

 

 

7,381,533

 

 

2,100,001

  

 

    

 

  

 

  

 

   

 

CLO Equity Side Letter Related Investments(11)(12)(13)

   

 

  

 

1,378,224

 

 

1,158,155

  

 

Total Structured Finance

   

 

  

$

195,651,730

 

$

73,335,304

 

44.5

%

Total Collateralized Loan Obligation – Equity Investments

   

 

  

$

195,651,730

 

$

73,335,304

 

44.5

%

    

 

  

 

  

 

   

 

Common Stock

   

 

  

 

  

 

   

 

IT Consulting

   

 

  

 

  

 

   

 

Unitek Global Services, Inc.

   

 

  

 

  

 

   

 

common equity(7)(27)

 

January 13, 2015

 

 

1,244,188

 

$

684,960

 

$

  

 

Total IT Consulting

   

 

  

$

684,960

 

$

 

0.0

%

Total Common Stock

   

 

  

$

684,960

 

$

 

0.0

%

    

 

  

 

  

 

   

 

Preferred Stock

   

 

  

 

  

 

   

 

IT Consulting

   

 

  

 

  

 

   

 

Unitek Global Services, Inc.

   

 

  

 

  

 

   

 

Series B Preferred Stock(3)(7)(17)(21)(24)(27)

 

June 26, 2019

 

 

11,404,355

 

$

9,002,159

 

$

  

 

Series B Senior Preferred
Stock
(3)(7)(17)(22)(24)(27)

 

June 26, 2019

 

 

5,002,312

 

 

4,535,443

 

 

  

 

Series B Super Senior Preferred
Stock
(3)(7)(17)(23)(24)(27)

 

June 26, 2019

 

 

2,744,973

 

 

2,614,260

 

 

384,296

  

 

Total IT Consulting

   

 

  

$

16,151,862

 

$

384,296

 

0.2

%

Total Preferred Equity

   

 

  

$

16,151,862

 

$

384,296

 

0.2

%

    

 

  

 

  

 

   

 

Total Investments in Securities(8)

   

 

  

$

467,077,702

 

$

261,765,846

 

158.9

%

    

 

  

 

  

 

   

 

Cash Equivalents

   

 

  

 

  

 

   

 

First American Government Obligations Fund(19)

   

 

  

$

7,825,820

 

$

7,825,820

  

 

Total Cash Equivalents

   

 

  

$

7,825,820

 

$

7,825,820

 

4.8

%

Total Investments in Securities and Cash Equivalents

   

 

  

$

474,903,522

 

$

269,591,666

 

163.7

%

____________

(1)      The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). Unless otherwise noted, all of the Company’s investments are deemed to be “restricted securities” under the Securities Act.

(continued on next page)

See Accompanying Notes.

7

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) — (continued)
March 31, 2020

(2)      Fair value is determined in good faith by the Board of Directors of the Company.

(3)      Portfolio includes $16,640,582 of principal and 19,151,641shares of preferred stock investments which contain a PIK provision as of March 31, 2020.

(4)      Notes bear interest at variable rates and are subject to an interest rate floor where disclosed. The rate disclosed is as of March 31, 2020.

(5)      Cost value reflects accretion of original issue discount or market discount, or amortization of premium.

(6)      Cost value reflects repayment of principal.

(7)      Non-income producing at the relevant period end.

(8)      Aggregate gross unrealized appreciation for federal income tax purposes is $66,000; aggregate gross unrealized depreciation for federal income tax purposes is $223,327,128. Net unrealized depreciation is $223,261,128 based upon a tax cost basis of $485,026,974.

(9)      Cost reflects accretion of effective yield less any cash distributions received or entitled to be received from CLO equity investments.

(10)    This investment represents our percent ownership in certain equity securities transferred to OXSQ upon the redemption of this investment on October 25, 2018.

(11)    Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets. As of March 31, 2020, the Company held qualifying assets that represented 73.0% of its total assets.

(12)    Investment not domiciled in the United States.

(13)    Fair value represents discounted cash flows associated with fees earned from CLO equity investments.

(14)    Aggregate investments represent greater than 5% of net assets.

(15)    The principal balance outstanding for this debt investment, in whole or in part, is indexed to 30-day LIBOR.

(16)    The principal balance outstanding for this debt investment, in whole or in part, is indexed to 90-day LIBOR.

(17)    As of March 31, 2020, this investment was on non-accrual status. The aggregate fair value of these investments was approximately $5.6 million.

(18)    The CLO subordinated notes and income notes are considered equity positions in CLO vehicles. Equity investments are entitled to recurring distributions which are generally equal to the remaining cash flow of the payments made by the underlying fund’s securities less contractual payments to debt holders and fund expenses. The estimated yield indicated is based on the prior quarters ending investment cost (for previously existing portfolio investments) or the original cost for those investments made during the current quarter, as well as, a current projection of the future cash flows. Such projections are periodically reviewed and adjusted, and the estimated yield may not ultimately be realized.

(19)    Represents cash equivalents held in money market accounts as of March 31, 2020.

(20)    The fair value of the investment was determined using significant unobservable inputs. See “Note 4. Fair Value.”

(21)    The Company holds preferred stock in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 13.5% per annum payable in additional shares.

(22)    The Company holds preferred stock in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 19.0% per annum payable in additional shares.

(23)    The Company holds preferred stock in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 20.0% per annum payable in additional shares.

(24)    Effective June 26, 2019, the Company entered into an Exchange Agreement with UniTek Global Services, Inc. (the “Exchange Agreement”), to receive 2,371,211 shares of Series B Super Senior Preferred Stock, 4,352,199 shares of Series B Senior Preferred Stock and 10,323,434 shares of Series B Preferred Stock (collectively, “Preferred Stock”) in exchange for all Series A shares of each respective Preferred Stock tranche that was held by OXSQ.

(25)    The principal balance outstanding for this debt investment, in whole or in part, is indexed to 180-day LIBOR.

(26)    The investment is co-invested with the Company’s affiliates. See “Note 7. Related Party Transactions.”

(continued on next page)

See Accompanying Notes.

8

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) — (continued)
March 31, 2020

(27)    These investments are deemed to be an “affiliate,” as defined in the Investment Company Act of 1940 (the “1940 Act”). In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned more than 25% of its voting securities and would be an “affiliate” of a portfolio company if we owned between 5% and 25% of its voting securities. We do not “control” any of our portfolio companies. Fair value as of March 31, 2020 and December 31, 2019 along with transactions during the three months ended March 31, 2020 in these affiliated investments are as follows:

Name of Issuer

 

Title of Issue

 

Amount of
Interest or
Dividends
Credited to
Income(a)

 

Fair Value
as of
December 31,
2019

 

Gross
Additions(b)

 

Gross
Reductions(c)

 

Net
change in
Unrealized
Depreciation

 

Fair Value
as of

March 31,
2020

AFFILIATED INVESTMENT:

   

 

  

 

  

 

  

 

  

 

 

 

 

 

 

Unitek Global Systems, Inc

 

Common Stock

 

$

 

$

 

$

 

$

 

$

 

 

$

  

Series B Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Series B Senior Preferred Stock

 

 

 

 

620,812

 

 

 

 

 

 

(620,812

)

 

 

  

Series B Super Senior Preferred Stock

 

 

 

 

2,195,978

 

 

 

 

 

 

(1,811,682

)

 

 

384,296

Total Affiliated Investment

   

 

 

 

2,816,790

 

 

 

 

 

 

(2,432,494

)

 

 

384,296

Total Control Investment

   

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL CONTROL AND AFFILIATED INVESTMENTS

   

$

 

$

2,816,790

 

$

 

$

 

$

(2,432,494

)

 

$

384,296

____________

(a)      Represents the total amount of interest or distributions credited to income for the portion of the year an investment was an affiliate investment.

(b)      Gross additions include increases in investments resulting from new portfolio investments, paid-in-kind interest or dividends, the amortization of discounts and fees. For the three months ended March 31, 2020, a total of approximately $0.7 million of paid-in-kind dividends were entitled to be received yet deemed uncollectible.

(c)      Gross reductions include decreases in investments resulting from principal collections related to investment repayments or sales, the amortization of premiums and acquisition costs.

See Accompanying Notes.

9

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2019

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION
DATE

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF
NET
ASSETS

Senior Secured Notes

   

 

  

 

  

 

   

 

Aerospace and Defense

   

 

  

 

  

 

   

 

Novetta, LLC

   

 

  

 

  

 

   

 

first lien senior secured notes, 6.80%
(LIBOR + 5.00%), (1.00% floor) due October 16, 2022
(4)(5)(6)(15)(21)

 

November 20, 2014

 

$

5,471,630

 

$

5,425,506

 

$

5,366,301

  

 

Total Aerospace and Defense

   

 

  

$

5,425,506

 

$

5,366,301

 

2.2

%

    

 

  

 

  

 

   

 

Business Services

   

 

  

 

  

 

   

 

Access CIG, LLC

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.44%
(LIBOR + 3.75%), (0.00% floor) due February 27, 2025
(4)(5)(6)(14)(15)(21)

 

June 12, 2018

 

$

491,254

 

$

491,254

 

$

490,232

  

 

second lien senior secured notes, 9.44% (LIBOR + 7.75%), (0.00% floor) due February 27, 2026(4)(5)(14)(15)(21)

 

February 14, 2018

 

 

16,754,000

 

 

16,845,453

 

 

16,628,345

  

 

    

 

  

 

  

 

   

 

Convergint Technologies, LLC

   

 

  

 

  

 

   

 

second lien senior secured notes, 8.55% (LIBOR + 6.75%), (0.75% floor) due February 2, 2026(4)(5)(15)(21)

 

January 29, 2018

 

 

1,500,000

 

 

1,493,025

 

 

1,440,000

  

 

    

 

  

 

  

 

   

 

Imagine! Print Solutions

   

 

  

 

  

 

   

 

second lien senior secured notes, 10.55% (LIBOR + 8.75%), (1.00% floor) due June 21, 2023(4)(5)(15)(17)(21)

 

June 14, 2017

 

 

15,000,000

 

 

14,861,877

 

 

2,250,000

  

 

    

 

  

 

  

 

   

 

OMNIA Partners

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.69% (LIBOR + 3.75%), (0.00% floor) due May 23, 2025(4)(5)(6)(14)(16)(21)

 

May 17, 2018

 

 

5,910,081

 

 

5,910,627

 

 

5,910,081

  

 

second lien senior secured notes, 9.44% (LIBOR + 7.50%), (0.00% floor) due May 22, 2026(4)(5)(14)(16)(21)

 

May 17, 2018

 

 

14,000,000

 

 

13,940,539

 

 

13,720,000

  

 

    

 

  

 

  

 

   

 

Premiere Global Services, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 8.40% (LIBOR + 6.50%), (1.00% floor) due June 8, 2023(4)(5)(6)(16)

 

October 1, 2019

 

 

14,306,068

 

 

13,664,567

 

 

8,490,651

  

 

second lien senior secured notes, 0.50% Cash, 10.98% PIK (LIBOR + 9.00%) (1.00% floor) due June 6, 2024(3)(4)(5)(16)(17)

 

October 1, 2019

 

 

10,232,132

 

 

9,817,795

 

 

3,581,246

  

 

    

 

  

 

  

 

   

 

Verifone Systems, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.90% (LIBOR + 4.00%), (0.00% floor) due August 20, 2025(4)(5)(6)(16)(21)

 

August 9, 2018

 

 

6,930,000

 

 

6,900,223

 

 

6,826,050

  

 

Total Business Services

   

 

  

$

83,925,360

 

$

59,336,605

 

23.9

%

    

 

  

 

  

 

   

 

Diversified Insurance

   

 

  

 

  

 

   

 

AmeriLife Group LLC

   

 

  

 

  

 

   

 

second lien senior secured notes, 10.80% (LIBOR + 9.00%), (0.00% floor) due June 11, 2027(4)(5)(6)(15)

 

March 18, 2020

 

$

10,000,000

 

$

9,900,692

 

$

9,925,000

  

 

Total Diversified Insurance

   

 

  

$

9,900,692

 

$

9,925,000

 

4.0

%

(continued on next page)

See Accompanying Notes.

10

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS — (continued)
December 31, 2019

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION
DATE

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF
NET
ASSETS

Senior Secured Notes – (continued)

   

 

  

 

  

 

   

 

Education

   

 

  

 

  

 

   

 

Edmentum, Inc. (f/k/a Plato, Inc.)

   

 

  

 

  

 

   

 

first lien senior secured notes, 6.43% (LIBOR + 4.50%), (1.00% floor) Cash, 4.00% PIK due June 9, 2021(3)(4)(5)(6)(16)

 

April 25, 2013

 

$

6,080,350

 

$

6,054,371

 

$

5,593,922

  

 

Total Education

   

 

  

$

6,054,371

 

$

5,593,922

 

2.3

%

    

 

  

 

  

 

   

 

Financial Intermediaries

   

 

  

 

  

 

   

 

First American Payment Systems

   

 

  

 

  

 

   

 

second lien senior secured notes, 12.56% (LIBOR + 10.50%), (1.00% floor) due July 5, 2024(4)(5)(16)(21)

 

January 3, 2017

 

$

1,500,000

 

$

1,468,914

 

$

1,470,000

  

 

    

 

  

 

  

 

   

 

Shift4 Payments, LLC (f/k/a Lighthouse Network, LLC)

   

 

  

 

  

 

   

 

first lien senior secured notes, 6.43% (LIBOR + 4.50%), (1.00% floor) due November 30, 2024(4)(5)(6)(14)(16)(21)

 

November 20, 2017

 

 

3,430,000

 

 

3,417,872

 

 

3,438,575

  

 

second lien senior secured notes, 10.43% (LIBOR + 8.50%), (1.00% floor) due November 30, 2025(4)(5)(14)(16)(21)

 

November 20, 2017

 

 

16,490,000

 

 

16,353,183

 

 

16,242,650

  

 

Total Financial Intermediaries

   

 

  

$

21,239,969

 

$

21,151,225

 

8.5

%

    

 

  

 

  

 

   

 

Healthcare

   

 

  

 

  

 

   

 

Keystone Acquisition Corp.

   

 

  

 

  

 

   

 

first lien senior secured notes, 7.19% (LIBOR + 5.25%), (1.00% floor) due May 1, 2024(4)(5)(6)(14)(16)(21)

 

May 10, 2017

 

$

7,457,869

 

$

7,430,191

 

$

7,271,422

  

 

second lien senior secured notes, 11.19% (LIBOR + 9.25%), (1.00% floor) due May 1, 2025(4)(5)(14)(16)(21)

 

May 10, 2017

 

 

13,000,000

 

 

12,868,879

 

 

12,610,000

  

 

    

 

  

 

  

 

   

 

Viant Medical Holdings, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.69% (LIBOR + 3.75%), (0.00% floor) due July 2, 2025(4)(5)(6)(14)(16)(21)

 

June 26, 2018

 

 

9,875,000

 

 

9,873,395

 

 

9,677,500

  

 

second lien senior secured notes, 9.69% (LIBOR + 7.75%), (0.00% floor) due July 2, 2026(4)(5)(14)(16)(21)

 

June 26, 2018

 

 

5,000,000

 

 

4,955,602

 

 

4,725,000

  

 

    

 

  

 

  

 

   

 

Healthport Technologies, LLC

   

 

  

 

  

 

   

 

first lien senior secured notes, 6.05% (LIBOR + 4.25%), (1.00% floor) due December 1, 2021(4)(5)(6)(14)(15)

 

April 12, 2019

 

 

16,597,888

 

 

14,964,163

 

 

15,618,613

  

 

    

 

  

 

  

 

   

 

HealthChannels, Inc.
(f/k/a ScribeAmerica, LLC)

   

 

  

 

  

 

   

 

first lien senior secured notes, 6.24% (LIBOR + 4.50%), (0.00% floor) due April 3, 2025(4)(5)(6)(15)

 

October 31, 2018

 

 

9,861,904

 

 

9,800,587

 

 

9,664,666

  

 

Total Healthcare

   

 

  

$

59,892,817

 

$

59,567,201

 

24.0

%

(continued on next page)

See Accompanying Notes.

11

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS — (continued)
December 31, 2019

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION
DATE

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF
NET
ASSETS

Senior Secured Notes – (continued)

   

 

  

 

  

 

   

 

Logistics

   

 

  

 

  

 

   

 

Capstone Logistics Acquisition, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 6.30% (LIBOR + 4.50%), (1.00% floor) due October 7, 2021(4)(5)(6)(14)(15)(21)

 

October 3, 2014

 

$

12,917,066

 

$

12,902,501

 

$

12,650,716

  

 

Total Logistics

   

 

  

$

12,902,501

 

$

12,650,716

 

5.1

%

    

 

  

 

  

 

   

 

Software

   

 

  

 

  

 

   

 

ECI Software Solutions, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 6.19% (LIBOR + 4.25%), (1.00% floor) due September 27, 2024(4)(5)(6)(14)(16)(21)

 

June 28, 2018

 

$

4,912,060

 

$

4,923,674

 

$

4,903,464

  

 

second lien senior secured notes, 9.94% (LIBOR + 8.00%), (1.00% floor) due September 29, 2025(4)(5)(14)(16)(21)

 

September 19, 2017

 

 

15,000,000

 

 

14,916,392

 

 

14,762,550

  

 

    

 

  

 

  

 

   

 

Quest Software, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 6.18% (LIBOR + 4.25%), (0.00% floor) due May 16, 2025(4)(5)(6)(14)(16)(21)

 

May 17, 2018

 

 

5,940,000

 

 

5,914,552

 

 

5,917,725

  

 

second lien senior secured notes, 10.18% (LIBOR + 8.25%), (0.00% floor) due May 18, 2026(4)(5)(14)(16)(21)

 

May 17, 2018

 

 

15,000,000

 

 

14,865,400

 

 

14,647,500

  

 

Total Software

   

 

  

$

40,620,018

 

$

40,231,239

 

16.2

%

    

 

  

 

  

 

   

 

Telecommunications Services

   

 

  

 

  

 

   

 

Global Tel Link Corp.

   

 

  

 

  

 

   

 

second lien senior secured notes, 10.05% (LIBOR + 8.25%), (0.00% floor) due November 29, 2026(4)(5)(14)(15)

 

November 20, 2018

 

$

17,000,000

 

$

16,722,360

 

$

14,486,380

  

 

Total Telecommunication Services

   

 

  

$

16,722,360

 

$

14,486,380

 

5.8

%

    

 

  

 

  

 

   

 

Utilities

   

 

  

 

  

 

   

 

CLEAResult Consulting, Inc.

   

 

  

 

  

 

   

 

first lien senior secured notes, 5.19% (LIBOR + 3.50%), (0.00% floor) due August 8, 2025(4)(5)(6)(15)(21)

 

August 2, 2018

 

$

4,937,500

 

$

4,916,396

 

$

4,875,781

  

 

second lien senior secured notes, 8.99% (LIBOR + 7.25%), (0.00% floor) due August 10, 2026(4)(5)(15)(21)

 

August 3, 2018

 

 

7,650,000

 

 

7,673,313

 

 

7,363,125

  

 

Total Utilities

   

 

  

$

12,589,709

 

$

12,238,906

 

4.9

%

Total Senior Secured Notes

   

 

  

$

269,273,303

 

$

240,547,495

 

97.0

%

    

 

  

 

  

 

   

 

Collateralized Loan Obligation – Debt Investments

   

 

  

 

  

 

   

 

Structured Finance

   

 

  

 

  

 

   

 

Galaxy XXVIII CLO, Ltd.

   

 

  

 

  

 

   

 

CLO secured class F notes, 10.48% (LIBOR + 8.48%), due July 15,
2031
(4)(5)(11)(12)(16)

 

June 29, 2018

 

$

1,000,000

 

$

933,437

 

$

840,600

  

 

Total Structured Finance

   

 

  

$

933,437

 

$

840,600

 

0.3

%

Total Collateralized Loan Obligation – Debt Investments

   

 

  

$

933,437

 

$

840,600

 

0.3

%

(continued on next page)

See Accompanying Notes.

12

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS — (continued)
December 31, 2019

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION
DATE

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF
NET
ASSETS

Collateralized Loan Obligation – Equity Investments

   

 

  

 

  

 

   

Structured Finance

   

 

  

 

  

 

   

AMMC CLO XI, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 12.29% due April 30, 2031(9)(11)(12)(18)(26)

 

March 12, 2015

 

$

6,000,000

 

$

3,796,477

 

$

2,760,000

  
    

 

  

 

  

 

   

AMMC CLO XII, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield
9.24% due November 10, 2030
(9)(11)(12)(18)(26)

 

March 13, 2013

 

 

12,921,429

 

 

7,175,569

 

 

4,393,286

  
    

 

  

 

  

 

   

Atlas Senior Loan Fund XI, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 17.73% due July 26, 2031(9)(11)(12)(18)(26)

 

April 5, 2019

 

 

5,725,000

 

 

4,319,023

 

 

3,449,313

  
    

 

  

 

  

 

   

Babson CLO Ltd. 2015-I

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 4.93% due January 20, 2031(9)(11)(12)(18)

 

July 26, 2018

 

 

2,840,000

 

 

1,766,500

 

 

1,050,800

  
    

 

  

 

  

 

   

BlueMountain CLO 2014-2 Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 23.58% due October 20, 2030(9)(11)(12)(18)

 

April 3, 2019

 

 

6,374,000

 

 

2,612,626

 

 

2,294,640

  
    

 

  

 

  

 

   

Carlyle Global Market Strategies CLO 2013-2, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 13.61% due January 18, 2029(9)(11)(12)(18)(26)

 

March 19, 2013

 

 

6,250,000

 

 

3,748,818

 

 

2,728,621

  
    

 

  

 

  

 

   

Cedar Funding II CLO, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 11.39% due June 9, 2030(9)(11)(12)(18)

 

October 23, 2013

 

 

18,000,000

 

 

12,940,261

 

 

9,360,000

  
    

 

  

 

  

 

   

Cedar Funding VI CLO, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 14.47% due October 20, 2028(9)(11)(12)(18)

 

May 15, 2017

 

 

7,700,000

 

 

7,363,155

 

 

5,698,000

  
    

 

  

 

  

 

   

CIFC Funding 2014-3, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 14.53% due October 22, 2031(9)(11)(12)(18)(26)

 

January 24, 2017

 

 

10,000,000

 

 

6,182,026

 

 

4,400,000

  
    

 

  

 

  

 

   

Galaxy XXVIII CLO, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 11.28% due July 15, 2031(9)(11)(12)(18)

 

July 25, 2017

 

 

2,000,000

 

 

962,017

 

 

648,665

  
    

 

  

 

  

 

   

Hull Street CLO Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield -21.46% due October 18, 2026(9)(11)(12)(18)(26)

 

October 17, 2014

 

 

5,000,000

 

 

1,049,476

 

 

100,000

  
    

 

  

 

  

 

   

Ivy Hill Middle Market Credit Fund VII, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 7.34% due October 20, 2029(9)(11)(12)(18)(26)

 

October 3, 2013

 

 

10,800,000

 

 

8,659,115

 

 

5,936,641

  
    

 

  

 

  

 

   

Madison Park Funding XIX, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 9.67% due January 22, 2028(9)(11)(12)(18)(26)

 

May 11, 2016

 

 

5,422,500

 

 

4,999,739

 

 

3,904,200

  

(continued on next page)

See Accompanying Notes.

13

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS — (continued)
December 31, 2019

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION
DATE

 

PRINCIPAL
AMOUNT

 

COST

 

FAIR
VALUE
(2)

 

% OF
NET
ASSETS

Collateralized Loan Obligation – Equity Investments– (continued)

   

 

  

 

  

 

   

Structured Finance– (continued)

   

 

  

 

  

 

   

Nassau 2019-I Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 24.71% due April 15, 2031(9)(11)(12)(14)(18)(26)

 

April 11, 2019

 

$

23,500,000

 

$

19,265,413

 

$

16,450,000

  
    

 

  

 

  

 

   

Octagon Investment Partners 38, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 14.27% due July 20, 2030(9)(11)(12)(18)(26)

 

July 12, 2018

 

 

5,000,000

 

 

4,174,948

 

 

3,500,000

  
    

 

  

 

  

 

   

Regatta XV Funding, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 0.00% due October 25, 2026(9)(10)(11)(12)(18)

 

October 19, 2016

 

 

3,000,000

 

 

 

 

75,000

  
    

 

  

 

  

 

   

Sound Point CLO XVI, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 8.86% due July 25, 2030(9)(11)(12)(14)(18)

 

August 1, 2018

 

 

45,500,000

 

 

41,750,653

 

 

23,660,000

  
    

 

  

 

  

 

   

Telos CLO 2013-3, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield -4.23% due July 17, 2026(9)(11)(12)(18)(26)

 

January 25, 2013

 

 

14,447,790

 

 

6,575,881

 

 

2,022,691

  
    

 

  

 

  

 

   

Telos CLO 2013-4, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 17.00% due January 17, 2030(9)(11)(12)(18)(26)

 

May 20, 2015

 

 

11,350,000

 

 

7,018,355

 

 

3,110,420

  
    

 

  

 

  

 

   

Telos CLO 2014-5, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 17.92% due April 17, 2028(9)(11)(12)(18)

 

April 11, 2014

 

 

28,500,000

 

 

17,600,832

 

 

6,575,476

  
    

 

  

 

  

 

   

Venture XIV, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 4.94% due August 28, 2029(9)(11)(12)(18)(26)

 

January 12, 2017

 

 

2,500,000

 

 

1,452,738

 

 

450,000

  
    

 

  

 

  

 

   

Venture XVII, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 11.53% due April 15, 2027(9)(11)(12)(18)(26)

 

January 27, 2017

 

 

6,200,000

 

 

3,614,197

 

 

1,514,369

  
    

 

  

 

  

 

   

Venture XX, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield -53.93% due April 15, 2027(9)(11)(12)(18)(26)

 

July 27, 2018

 

 

3,000,000

 

 

1,347,763

 

 

930,000

  
    

 

  

 

  

 

   

Vibrant CLO V, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 3.90% due January 20, 2029(9)(11)(12)(18)

 

April 27, 2017

 

 

13,475,000

 

 

11,197,902

 

 

6,198,500

  
    

 

  

 

  

 

   

West CLO 2014-1, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield -0.01% due July 18, 2026(9)(11)(12)(18)(26)

 

May 12, 2017

 

 

9,250,000

 

 

5,435,293

 

 

3,330,000

  
    

 

  

 

  

 

   

Windriver 2012-1 CLO, Ltd.

   

 

  

 

  

 

   

CLO subordinated notes, estimated yield 6.73% due January 15, 2026(9)(11)(12)(18)

 

June 11, 2015

 

 

7,500,000

 

 

3,571,607

 

 

959,980

  

(continued on next page)

See Accompanying Notes.

14

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS — (continued)
December 31, 2019

COMPANY/INVESTMENT(1)(20)

 

ACQUISITION
DATE

 

PRINCIPAL
AMOUNT/
SHARES

 

COST

 

FAIR
VALUE
(2)

 

% OF
NET
ASSETS

Collateralized Loan Obligation – Equity Investments– (continued)

   

 

  

 

  

 

   

 

Structured Finance– (continued)

   

 

  

 

  

 

   

 

Zais CLO 6, Ltd.

   

 

  

 

  

 

   

 

CLO subordinated notes, estimated yield 13.15% due July 15, 2029(9)(11)(12)(18)

 

May 3, 2017

 

$

10,500,000

 

$

7,663,559

 

$

3,780,001

  

 

    

 

  

 

  

 

   

 

CLO Equity Side Letter Related Investments(11)(12)(13)

   

 

  

 

1,378,224

 

 

1,316,505

  

 

Total Structured Finance

   

 

  

$

197,622,167

 

$

120,597,108

 

48.6

%

Total Collateralized Loan Obligation – Equity Investments

   

 

  

$

197,622,167

 

$

120,597,108

 

48.6

%

    

 

  

 

  

 

   

 

Common Stock

   

 

  

 

  

 

   

 

IT Consulting

   

 

  

 

  

 

   

 

Unitek Global Services, Inc.

   

 

  

 

  

 

   

 

common equity(7)

 

January 13, 2015

 

 

1,244,188

 

$

684,960

 

$

  

 

Total IT Consulting

   

 

  

$

684,960

 

$

 

0.0

%

Total Common Stock

   

 

  

$

684,960

 

$

 

0.0

%

    

 

  

 

  

 

   

 

Preferred Stock

   

 

  

 

  

 

   

 

IT Consulting

   

 

  

 

  

 

   

 

Unitek Global Services, Inc.

   

 

  

 

  

 

   

 

Series B Preferred Stock(3)(22)(25)

 

June 26, 2019

 

 

11,032,025

 

$

9,002,159

 

$

  

 

Series B Senior Preferred Stock(3)(23)(25)

 

June 26, 2019

 

 

4,775,477

 

 

4,535,443

 

 

620,812

  

 

Series B Super Senior Preferred Stock(3)(24)(25)

 

June 26, 2019

 

 

2,614,260

 

 

2,614,260

 

 

2,195,978

  

 

Total IT Consulting

   

 

  

$

16,151,862

 

$

2,816,790

 

1.1

%

Total Preferred Equity

   

 

  

$

16,151,862

 

$

2,816,790

 

1.1

%

    

 

  

 

  

 

   

 

Total Investments in Securities(8)

   

 

  

$

484,665,729

 

$

364,801,993

 

147.0

%

    

 

  

 

  

 

   

 

Cash Equivalents

   

 

  

 

  

 

   

 

First American Government Obligations Fund(19)

   

 

  

$

14,410,486

 

$

14,410,486

  

 

Total Cash Equivalents

   

 

  

$

14,410,486

 

$

14,410,486

 

5.8

%

Total Investments in Securities and Cash Equivalents

   

 

  

$

499,076,215

 

$

379,212,479

 

152.8

%

____________

(1)      The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). Unless otherwise noted, all of the Company’s investments are deemed to be “restricted securities” under the Securities Act.

(2)      Fair value is determined in good faith by the Board of Directors of the Company.

(3)      Portfolio includes $16,312,482 of principal and 18,421,762shares of preferred stock investments which contain a PIK provision as of December 31, 2019.

(4)      Notes bear interest at variable rates and are subject to an interest rate floor where disclosed. The rate disclosed is as of December 31, 2019.

(5)      Cost value reflects accretion of original issue discount or market discount, or amortization of premium.

(continued on next page)

See Accompanying Notes.

15

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS — (continued)
December 31, 2019

(6)      Cost value reflects repayment of principal.

(7)      Non-income producing at the relevant period end.

(8)      Aggregate gross unrealized appreciation for federal income tax purposes is $754,844; aggregate gross unrealized depreciation for federal income tax purposes is $135,892,337. Net unrealized depreciation is $135,137,493 based upon a tax cost basis of $499,939,486.

(9)      Cost reflects accretion of effective yield less any cash distributions received or entitled to be received from CLO equity investments.

(10)    This investment represents our percent ownership in certain equity securities transferred to OXSQ upon the redemption of this investment on October 25, 2018.

(11)    Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets. As of December 31 , 2019, the Company held qualifying assets that represented 68.4% of its total assets.

(12)    Investment not domiciled in the United States.

(13)    Fair value represents discounted cash flows associated with fees earned from CLO equity investments.

(14)    Aggregate investments represent greater than 5% of net assets.

(15)    The principal balance outstanding for this debt investment, in whole or in part, is indexed to 30-day LIBOR.

(16)    The principal balance outstanding for this debt investment, in whole or in part, is indexed to 90-day LIBOR.

(17)    As of December 31, 2019, this debt investment was on non-accrual status. The aggregate fair value of these investments was approximately $5.8 million.

(18)    The CLO subordinated notes and income notes are considered equity positions in CLO vehicles. Equity investments are entitled to recurring distributions which are generally equal to the remaining cash flow of the payments made by the underlying fund’s securities less contractual payments to debt holders and fund expenses. The estimated yield indicated is based on the prior quarters ending investment cost (for previously existing portfolio investments) or the original cost for those investments made during the current quarter, as well as, a current projection of the future cash flows. Such projections are periodically reviewed and adjusted, and the estimated yield may not ultimately be realized.

(19)    Represents cash equivalents held in money market accounts as of December 31, 2019.

(20)    The fair value of the investment was determined using significant unobservable inputs. See “Note 4. Fair Value.”

(21)    All or a portion of this investment represents collateral under the Credit Facility.

(22)    The Company holds preferred stock in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 13.5% per annum payable in additional shares.

(23)    The Company holds preferred stock in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 19.0% per annum payable in additional shares.

(24)    The Company holds preferred stock in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 20.0% per annum payable in additional shares.

(25)    Effective June 26, 2019, the Company entered into an Exchange Agreement with UniTek Global Services, Inc. (the “Exchange Agreement”), to receive 2,371,211 shares of Series B Super Senior Preferred Stock, 4,352,199 shares of Series B Senior Preferred Stock and 10,323,434 shares of Series B Preferred Stock (collectively, “Preferred Stock”) in exchange for all Series A shares of each respective Preferred Stock tranche that was held by OXSQ.

(26)    The investment is co-invested with the Company’s affiliates. See “Note 7. Related Party Transactions.”

(continued on next page)

See Accompanying Notes.

16

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS — (continued)
December 31, 2019

(27)    These investments are deemed to be an “affiliate,” as defined in the Investment Company Act of 1940 (the “1940 Act”). In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned more than 25% of its voting securities and would be an “affiliate” of a portfolio company if we owned between 5% and 25% of its voting securities. We do not “control” any of our portfolio companies. Fair value as of December 31, 2019 and December 31, 2018 along with transactions during the year ended December 31, 2019 in these affiliated investments are as follows:

Name of Issuer

 

Title of Issue

 

Amount of
Interest or
Dividends
Credited to
Income(a)

 

Fair Value
as of
December 31,
2018

 

Gross
Additions(b)

 

Gross
Reductions(c)

 

Net
change in
Unrealized
Depreciation

 

Fair Value
as of
December 31,
2019

AFFILIATED INVESTMENT:

   

 

  

 

  

 

  

 

  

 

 

 

 

 

 

Unitek Global Systems, Inc

 

Common Stock

 

$

 

$

149,303

 

$

 

$

 

$

(149,303

)

 

$

  

Series B Preferred Stock

 

 

5,325,159

 

 

8,217,887

 

 

5,325,159

 

 

 

 

(13,543,046

)

 

 

  

Series B Senior Preferred Stock

 

 

1,773,022

 

 

3,963,240

 

 

1,773,022

 

 

 

 

(5,115,450

)

 

 

620,812

  

Series B Super Senior Preferred Stock

 

 

612,624

 

 

2,161,767

 

 

612,624

 

 

 

 

(578,413

)

 

 

2,195,978

Total Affiliated Investment

   

 

7,710,805

 

 

14,492,197

 

 

7,710,805

 

 

 

 

(19,386,212

)

 

 

2,816,790

Total Control Investment

   

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL CONTROL AND AFFILIATED INVESTMENTS

   

$

7,710,805

 

$

14,492,197

 

$

7,710,805

 

$

 

$

(19,386,212

)

 

$

2,816,790

____________

(a)      Represents the total amount of interest or distributions credited to income for the portion of the year an investment was an affiliate investment.

(b)      Gross additions include increases in investments resulting from new portfolio investments, paid-in-kind interest or dividends, the amortization of discounts and fees.

(c)      Gross reductions include decreases in investments resulting from principal collections related to investment repayments or sales, the amortization of premiums and acquisition costs.

See Accompanying Notes.

17

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 

Three Months
Ended
March 31,
2020

 

Three Months
Ended
March 31,
2019

INVESTMENT INCOME

 

 

 

 

 

 

 

 

From non-affiliated investments:

 

 

 

 

 

 

 

 

Interest income – debt investments

 

$

5,654,255

 

 

$

7,148,481

 

Income from securitization vehicles and investments

 

 

4,759,070

 

 

 

6,846,925

 

Other income

 

 

411,363

 

 

 

229,708

 

Total investment income from non-affiliated investments

 

 

10,824,688

 

 

 

14,225,114

 

Total investment income

 

 

10,824,688

 

 

 

14,225,114

 

EXPENSES

 

 

 

 

 

 

 

 

Interest expense

 

 

2,173,468

 

 

 

2,149,841

 

Base management fees

 

 

1,231,210

 

 

 

1,626,538

 

Professional fees

 

 

473,989

 

 

 

367,251

 

Compensation expense

 

 

200,348

 

 

 

232,928

 

General and administrative

 

 

373,182

 

 

 

328,517

 

Total expenses before incentive fees

 

 

4,452,197

 

 

 

4,705,075

 

Net investment income incentive fees

 

 

 

 

 

1,156,051

 

Total expenses

 

 

4,452,197

 

 

 

5,861,126

 

Net investment income

 

 

6,372,491

 

 

 

8,363,988

 

Net change in unrealized (depreciation)/appreciation on investments:

 

 

 

 

 

 

 

 

Non-Affiliated investments

 

 

(83,015,626

)

 

 

4,228,650

 

Affiliated investments

 

 

(2,432,494

)

 

 

1,450,286

 

Total net change in unrealized (depreciation)/appreciation on investments

 

 

(85,448,120

)

 

 

5,678,936

 

Net realized losses:

 

 

 

 

 

 

 

 

Non-Affiliated investments

 

 

(277,173

)

 

 

(1,278,866

)

Extinguishment of debt

 

 

(5,211

)

 

 

(14,106

)

Total net realized losses

 

 

(282,384

)

 

 

(1,292,972

)

Net (decrease)/increase in net assets resulting from operations

 

$

(79,358,013

)

 

$

12,749,952

 

Net increase in net assets resulting from net investment income per common share (Basic and Diluted)

 

$

0.13

 

 

$

0.18

 

Net (decrease)/increase in net assets resulting from operations per common share (Basic and Diluted)

 

$

(1.62

)

 

$

0.27

 

Weighted average shares of common stock outstanding
(Basic and Diluted)

 

 

49,137,570

 

 

 

47,650,959

 

Distributions per share

 

$

0.20

 

 

$

0.20

 

See Accompanying Notes.

18

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)

 

Three Months
Ended
March 31,
2020

 

Three Months
Ended
March 31,
2019

(Decrease)/increase in net assets from operations:

 

 

 

 

 

 

 

 

Net investment income

 

$

6,372,491

 

 

$

8,363,988

 

Net change in unrealized (depreciation)/appreciation on investments

 

 

(85,448,120

)

 

 

5,678,936

 

Net realized losses

 

 

(282,384

)

 

 

(1,292,972

)

Net (decrease)/increase in net assets resulting from operations

 

 

(79,358,013

)

 

 

12,749,952

 

Distributions to stockholders:

 

 

 

 

 

 

 

 

Distributions from net investment income

 

 

(8,204,055

)

 

 

(8,100,663

)

Tax return of capital distributions

 

 

(1,680,349

)

 

 

(1,429,529

)

Total distributions to stockholders

 

 

(9,884,404

)

 

 

(9,530,192

)

Capital share transactions:

 

 

 

 

 

 

 

 

Issuance of common stock (net of underwriting fees and offering costs of $51,779)

 

 

5,821,240

 

 

 

 

Reinvestment of distributions

 

 

161,186

 

 

 

 

Net increase in net assets from capital share transactions

 

 

5,982,426

 

 

 

 

Total (decrease)/increase in net assets

 

 

(83,259,991

)

 

 

3,219,760

 

Net assets at beginning of period

 

 

247,998,542

 

 

 

314,724,247

 

Net assets at end of period

 

$

164,738,551

 

 

$

317,944,007

 

Capital share activity:

 

 

 

 

 

 

 

 

Shares issued

 

 

1,098,277

 

 

 

 

Shares issued from reinvestment of distributions

 

 

42,343

 

 

 

 

Net increase in capital share activity

 

 

1,140,620

 

 

 

 

See Accompanying Notes.

19

OXFORD SQUARE CAPITAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

 

Three Months
Ended
March 31,
2020

 

Three Months
Ended
March 31,
2019

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net (decrease)/increase in net assets resulting from operations

 

$

(79,358,013

)

 

$

12,749,952

 

Adjustments to reconcile net (decrease)/increase in net assets resulting from operations to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Accretion of discounts on investments

 

 

(285,707

)

 

 

(134,992

)

Amortization of deferred debt issuance costs

 

 

149,131

 

 

 

118,890

 

Increase in investments due to PIK interest income

 

 

(62,155

)

 

 

(89,290

)

Purchases of investments

 

 

(7,350,000

)

 

 

 

Repayments of principal

 

 

11,983,682

 

 

 

436,790

 

Proceeds from the sale of investments

 

 

9,321,620

 

 

 

3,613,882

 

Net realized losses on investments

 

 

277,173

 

 

 

1,278,866

 

Reductions to CLO equity cost value

 

 

1,970,437

 

 

 

1,393,203

 

Net change in unrealized depreciation/(appreciation) on investments

 

 

85,448,120

 

 

 

(5,678,936

)

Decrease in interest and distributions receivable

 

 

1,913,212

 

 

 

113,385

 

Decrease/(increase) in other assets

 

 

33,371

 

 

 

(69,300

)

Decrease in accrued interest payable

 

 

(150,737

)

 

 

(149,201

)

Decrease in base management fee and net investment income incentive fee payable

 

 

(249,443

)

 

 

(444,867

)

(Decrease)/increase in accrued expenses

 

 

(283,230

)

 

 

54,671

 

Net cash provided by operating activities

 

 

23,357,461

 

 

 

13,193,053

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Distributions paid (net of stock issued under distribution reinvestment plan of $161,186 and $0, respectively)

 

 

(9,723,218

)

 

 

(9,530,192

)

Proceeds from the issuance of common stock

 

 

5,873,019

 

 

 

 

Underwriting fees and offering costs for the issuance of common stock

 

 

(51,779

)

 

 

 

Repayment of notes payable – Credit Facility

 

 

(28,090,601

)

 

 

(8,259,851

)

Net cash used in financing activities

 

 

(31,992,579

)

 

 

(17,790,043

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(8,635,118

)

 

 

(4,596,990

)

Cash equivalents and restricted cash, beginning of period

 

 

16,460,938

 

 

 

17,080,864

 

Cash equivalents and restricted cash, end of period

 

$

7,825,820

 

 

$

12,483,874

 

  

 

 

 

 

 

 

 

NON-CASH FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Value of shares issued in connection with distribution reinvestment plan

 

$

161,186

 

 

$

 

  

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,180,287

 

 

$

2,194,258

 

  

 

 

 

 

 

 

 

NON-CASH OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Securities sold not settled

 

$

1,732,979

 

 

$

 

Securities purchased not settled

 

$

 

 

$

4,433,875

 

See Accompanying Notes.

20

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 1. UNAUDITED INTERIM FINANCIAL STATEMENTS

Interim consolidated financial statements of Oxford Square Capital Corp. (“OXSQ” and, together with its subsidiary, the “Company”), are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles6, 10 and 12 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited financial results included herein contain all adjustments, consisting solely of normal accruals, considered necessary for the fair statement of financial statements for the interim period included herein. The current period’s consolidated results of operations are not necessarily indicative of results that may be achieved for the year. The interim consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December31, 2019, as filed with the Securities and Exchange Commission (“SEC”).

NOTE 2. ORGANIZATION

OXSQ was incorporated under the General Corporation Laws of the State of Maryland on July21, 2003 and is a non-diversified, closed-end investment company. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, the Company has elected to be treated for tax purposes as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s investment objective is to maximize its total return, by investing primarily in corporate debt securities and collateralized loan obligations (“CLO”), which are structured finance investments that own corporate debt securities.

The Company’s investment activities are managed by Oxford Square Management, LLC (“Oxford Square Management”). Oxford Square Management is an investment adviser registered 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 the Company’s Board of Directors (the “Board”) who holds a minority, non-controlling interest in Oxford Square Management. Under the investment advisory agreement with Oxford Square Management (the “Investment Advisory Agreement”), the Company has agreed to pay Oxford Square Management an annual base management fee based on its gross assets as well as an incentive fee based on its performance. For further details please refer to “Note 7. Related Party Transactions.”

The Company’s consolidated operations include the activities of its wholly-owned subsidiary, Oxford Square Funding 2018, LLC (“OXSQ Funding”) for the periods during which it was held. OXSQ Funding, a special purpose vehicle, was formed for the purpose of entering into a credit facility (the “Credit Facility”) with Citibank, N.A. Refer to “Note 6. Borrowings” for additional information on the Company’s borrowings.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, OXSQ Funding for the periods during which it was held. All inter-company accounts and transactions have been eliminated upon consolidation.

The Company follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946,Financial Services — Investment Companies.Certain prior period figures have been reclassified from those originally published in quarterly and annual reports to conform to the current period presentation for comparative purposes.

21

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont.)

In the normal course of business, the Company may enter into contracts that contain a variety of representations and provide indemnifications. The Company’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Company that have not yet occurred. However, based upon experience, the Company expects the risk of loss to be remote.

USE OF ESTIMATES

The consolidated financial statements have been prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates, and these differences could be material.

CONSOLIDATION

As provided under Regulation S-X and ASC Topic 946-810,Consolidation, the Company will generally not consolidate its investment in a company other than a wholly-owned investment company or a controlled operating company whose business consists of providing services to the Company for the periods during which it was held. The Company consolidates OXSQ Funding in its financial statements, for the periods which it is held in accordance with ASC 946-810.

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash equivalents consist of demand deposits and highly liquid investments with original maturities of three months or less. The Company places its cash equivalents with financial institutions and, at times, cash held in bank accounts may exceed the Federal Deposit Insurance Corporation insured limit. Cash equivalents are classified as Level 1 assets and are included on the Company’s consolidated schedule of investments. Cash equivalents are carried at cost or amortized cost which approximates fair value.

Restricted cash represents the cash held by the trustee of OXSQ Funding. The amount is held by the trustee for payment of interest expense and operating expenses of the entity, principal repayments on borrowings, or new investments, based upon the terms of the respective indenture, and are not available for general corporate purposes. As of March31, 2020, there was no restricted cash due to the full repayment of the Credit Facility during the period. As of December31, 2019, there was approximately $2.1million of restricted cash.

INVESTMENT VALUATION

The Company measures its investment portfolio at fair value in accordance with the provisions of ASC 820,Fair Value Measurement.Estimates made in the preparation of the Company’s consolidated financial statements include the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded. The Company believes 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 the Company makes.

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 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: Level1, defined as observable inputs such as quoted prices in active markets; Level2, which includes inputs such as quoted prices

22

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont.)

for similar securities in active markets and quoted prices for identical securities in markets that are not active; and Level3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company considers the attributes of current market conditions on an on-going basis and has determined that due to the general illiquidity of the market for its investment portfolio, whereby little or no market data exists, all of OXSQ’s investments are based upon “Level 3” inputs as of March 31, 2020.

The Board determines the value of its 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. The Company may engage third-party valuation firms to provide assistance in valuing certain of its syndicated loans and bilateral investments, including related equity investments, although the Board ultimately determines the appropriate valuation of each such investment. Changes in fair value, as described above, are recorded in the consolidated statements of operations as net change in unrealized appreciation/depreciation on investments.

Syndicated Loans

In accordance with ASC 820-10, the Company’s 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 the Company obtains indicative bid quotes for purposes of determining the fair value of its syndicated loan investments has shown attributes of illiquidity as described by ASC 820-10. During such periods of illiquidity, when the Company believes that the non-binding indicative bids received from agent banks for certain syndicated loan investments that it owns may not be determinative of their fair value or when no market indicative quote is available, the Company may engage third-party valuation firms to provide assistance in valuing certain syndicated investments that OXSQ owns. In addition, Oxford Square Management analyzes each syndicated loan by reviewing the portfolio 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. All information is presented to the Board for its determination of fair value of these investments.

Collateralized Loan Obligations — Debt and Equity

The Company holds a number of debt and equity positions in collateralized loan obligation (“CLO”) investment vehicles and CLO warehouse investments. These investments are special purpose financing vehicles. In valuing such investments, the Company considers 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. The Company also considers those instances in which the record date for an equity distribution payment falls on or before 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.

23

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2
020
(unaudited)

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont.)

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, the Company considers the operating metrics of the specific investment vehicle, including compliance with collateralization tests, defaulted and restructured securities, and payment defaults, if any. In periods of illiquidity and volatility, the Company may rely more heavily on other metrics, including but not limited to, the collateral manager, time left in the reinvestment period, expected cash flows and overcollateralization ratios, instead of the Company’s generated valuation yields. 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 the Board for its determination of fair value of these investments.

Bilateral Investments (Including Equity)

Bilateral investments 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 the Board, upon the recommendation of the Valuation Committee, a third-party valuation firm will prepare valuations for each of OXSQ’s bilateral investments that, when combined with all other investments in the same portfolio company, (i) have a value as of the previous quarter of greater than or equal to 2.5% of its total assets as of the previous quarter, and (ii) have a value as of the current quarter of greater than or equal to 2.5% of its total assets as of the current quarter, after taking into account any repayment of principal during the current 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: Grade1, at least annually; Grade2, at least semi-annually; Grades3,4, and5, 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. All information is presented to the Board for its determination of fair value of these 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 original issue discount (“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 the Company otherwise does not expect the borrower to be able to service its debt and other obligations, the Company will place the loan on non-accrual status and will 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. The Company generally restores non-accrual loans to accrual status when past due principal and interest is paid and, in the Company’s judgment, is likely to remain current. As of March31, 2020 and as of December31, 2019, the Company had two debt investments on non-accrual status.

Interest income also includes a payment-in-kind (“PIK”) provision on certain investments in the Company’s portfolio. Refer to the section below, “Payment-In-Kind,” for a description of the PIK provision and its impact on interest income.

24

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont.)

Payment-In-Kind

The Company has debt and preferred equity investments in its portfolio which contain a contractual PIK provision. Certain PIK investments offer issuers the option at each payment date of making payments in cash or additional securities. PIK interest and preferred equity dividends are computed at the contractual rate and are accrued into income and recorded as interest and dividend income, respectively. The PIK amounts are added to the principal balance on the capitalization date. Upon capitalization, the PIK component is subject to the fair value estimates associated with their related investments. At the point the Company believes PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are 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 PIK will be realized. For the quarter ended March31, 2020, no PIK preferred equity dividends were recognized as dividend income as they were not expected to be fully realized.

Income from Securitization Vehicles and Investments

Income from investments in the equity class securities of CLO vehicles (typically income notes or subordinated notes) is recorded using the effective interest method in accordance with the provisions of ASC 325-40, based upon estimated cash flows, their expected timing and expected redemption, including those CLO equity investments that have not made their inaugural distribution for the relevant period end. The Company monitors the expected residual payments, and effective yield is determined and updated periodically, as needed. Accordingly, investment income recognized on CLO equity securities in the consolidated statement of operations differs from both the tax-basis investment income and from the cash distributions actually received by the Company during the period.

Other Income

Other income includes prepayment, amendment, and other fees earned by the Company’s 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, and are recorded as other income when earned. The Company may also earn success fees associated with its investments in certain securitization vehicles or CLO warehouse facilities, which are contingent upon a repayment of the warehouse by a permanent CLO securitization structure; such fees are earned and recognized when the repayment is completed.

DEFERRED DEBT ISSUANCE COSTS

Deferred debt issuance costs consist of fees and expenses incurred in connection with the closing or amending of credit facilities and debt offerings, and are capitalized at the time of payment. These costs are amortized using the straight line method over the terms of the respective credit facilities and debt securities. The amortized expenses are included in interest expense in the Company’s consolidated financial statements. The unamortized deferred debt issuance costs are included on the Company’s statement of assets and liabilities as a direct deduction from the related debt liability. Upon early termination or partial principal pay down of debt, or a credit facility, the unamortized costs related to such debt are accelerated into realized losses on extinguishment of debt on the Company’s consolidated statement of operations.

EQUITY OFFERING COSTS

Equity offering costs consist of fees and expenses incurred in connection with the registration and public offer and sale of the Company’s common stock, including legal, accounting and printing fees. These costs are deferred at the time of incurrence and are subsequently charged as a reduction to capital when the offering takes place or as shares are issued. Deferred costs are periodically reviewed and expensed if the related registration is no longer active.

25

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont.)

SHARE REPURCHASES

From time to time, the Board may authorize a share repurchase program under which shares are purchased in open market transactions. Since the Company is incorporated in the State of Maryland, state law requires share repurchases to be accounted for as a share retirement. The cost of repurchased shares is charged against capital on the settlement date.

SECURITIES TRANSACTIONS

Securities transactions are recorded on the trade date. Realized gains and losses on investments sold are recorded on the basis of specific identification. Distributions received on CLO equity investments which were optionally redeemed are first applied to the remaining cost basis until it is reduced to zero, after which distributions are recorded as realized gains. An optional redemption feature of a CLO allows a majority of the holders of the equity securities issued by the CLO issuer, after the end of a specified non-call period, to cause the redemption of the secured notes issued by the CLO with proceeds of either the liquidation of the CLO’s assets or through a refinancing with new debt. The optional redemption is effectively a voluntary prepayment of the secured debt issued by the CLO prior to the stated maturity of such debt.

SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE

The Company has entered into an agreement whereby it may sell securities to be repurchased at an agreed-upon price and date. Under this agreement, the Company will account for these transactions as collateralized financing transactions which are recorded at the contracted repurchase amount plus interest. The Company’s securities sold under the agreement to repurchase are carried at cost. As of March31, 2020, there was no outstanding principal, or securities sold under the repurchase facility. Refer to “Note 6. Borrowings” for further details.

U.S. FEDERAL INCOME TAXES

The Company intends to operate so as to qualify to be taxed as a RIC under Subchapter M of the Code and, as such, to not be subject to U.S. federal income tax on the portion of its taxable income and gains distributed to stockholders. To qualify for RIC tax treatment, the Company is required to distribute at least 90% of its investment company taxable income annually, meet diversification requirements quarterly and file Form 1120-RIC, as defined by the Code.

Because U.S. federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

The Company recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained, assuming examination by tax authorities. Through March31, 2020, management has analyzed the Company’s tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Company’s 2020 tax returns. The Company identifies its major tax jurisdictions as U.S Federal and Connecticut State; however, the Company is not aware of any tax position for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12months. For tax purposes, the cost basis of the portfolio investments as of March31, 2020 and December31, 2019, was approximately $485,026,974 and $499,939,486, respectively.

26

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont.)

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016- 13”), which amends the financial instruments impairment guidance so that an entity is required to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance in FASB ASC Subtopic No. 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, related to the subsequent measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets under the effective yield method. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December15, 2019, including interim periods within those fiscal years. Management has adopted the amendments in ASU 2016-13 as of January1, 2020 and upon adoption the total investment income increased approximately $0.4million for the quarter ended March31, 2020.

NOTE 4. FAIR VALUE

The Company’s assets measured at fair value on a recurring basis as of March31, 2020 were as follows:

 

Fair Value Measurements at Reporting Date Using

  

Assets ($ in millions)

 

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total

Senior Secured Notes

 

$

 

$

 

$

187.6

 

$

187.6

CLO Debt

 

 

 

 

 

 

0.5

 

 

0.5

CLO Equity

 

 

 

 

 

 

73.3

 

 

73.3

Equity and Other Investments

 

 

 

 

 

 

0.4

 

 

0.4

Total Investments at fair value

 

 

 

 

 

 

261.8

 

 

261.8

Cash equivalents

 

 

7.8

 

 

 

 

 

 

7.8

Total assets at fair value

 

$

7.8

 

$

 

$

261.8

 

$

269.6

The Company’s assets measured at fair value on a recurring basis at December31, 2019 were as follows:

 

Fair Value Measurements at Reporting Date Using

  

Assets ($ in millions)

 

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total

Senior Secured Notes

 

$

 

$

 

$

240.5

 

$

240.5

CLO Debt

 

 

 

 

 

 

0.8

 

 

0.8

CLO Equity

 

 

 

 

 

 

120.6

 

 

120.6

Equity and Other Investments

 

 

 

 

 

 

2.8

 

 

2.8

Total Investments at fair value(1)

 

 

 

 

 

 

364.8

 

 

364.8

Cash equivalents

 

 

14.4

 

 

 

 

 

 

14.4

Total assets at fair value

 

$

14.4

 

$

 

$

364.8

 

$

379.2

____________

(1)      Totals may not sum due to rounding.

27

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 4. FAIR VALUE(cont.)

Significant Unobservable Inputs for Level 3 Investments

The following tables provide quantitative information about the Company’s Level 3 fair value measurements as of March31, 2020 and December31, 2019, respectively. The Company’s valuation policy, as described above, establishes parameters for the sources and types of valuation analysis, as well as the methodologies and inputs that the Company uses in determining fair value. If the Valuation Committee or Oxford Square Management determines that additional techniques, sources or inputs are appropriate or necessary in a given situation, such additional work will be undertaken. The tables, therefore, are not all-inclusive, but provide information on the significant Level 3 inputs that are pertinent to the Company’s fair value measurements. The weighted average calculations in the table below are based on principal balances for all debt related calculations and CLO equity.

 

Quantitative Information about Level 3 Fair Value Measurements

  

Assets ($ in millions)

 

Fair Value
as of
March 31,
2020

 

Valuation Techniques/
Methodologies

 

Unobservable Input

 

Range/Weighted
Average
(1)

 

Impact to
Fair Value
from an
Increase in
Input
(2)

Senior Secured
Notes

 

$

152.3

 

Market quotes

 

NBIB(3)

 

10.0% – 87.0%/71.1%

 

NA

  

 

28.9

 

Recent transactions

 

Actual trade/payoff(4)

 

73.5% – 90.3%/79.7%

 

NA

  

 

6.4

 

Yield Analysis

 

Discount Margin

 

12.0%/ncm(6)

 

Decrease

CLO Debt

 

 

0.5

 

Market quotes

 

NBIB(3)

 

47.2%/ncm(6)

 

NA

CLO Equity

 

 

72.0

 

Market quotes

 

NBIB(3)

 

0.0% – 52.0%/25.8%

 

NA

  

 

1.2

 

Discounted cash flow(7)

 

Discount rate(8)

 

9.5% – 17.3%/12.3%

 

Decrease

  

 

0.1

 

Liquidation net asset value(5)

 

NBIB(3)

 

2.2%/ncm(6)

 

NA

Equity and Other Investments

 

 

0.4

 

Enterprise value(9)

 

EBITDA/
Market multiples
(10)

 

$21.4 million/ncm(6)
5.5x –6.5x/ncm(6)

 

Increase Increase

Total Fair Value for Level 3 Investments

 

$

261.8

        

____________

(1)      Weighted averages are calculated based on fair value of investments.

(2)      The impact on the fair value measurement of an increase in each unobservable input is in isolation. The discount rate is the rate used to discount future cash flows in a discounted cash flow calculation. An increase in the discount rate, in isolation, would result in a decrease in a fair value measurement. Market/EBITDA multiples refer to the input (often derived from the value of a comparable company) that is multiplied by the historic and/or expected EBITDA of a company in order to estimate the company’s value. An increase in the Market/EBITDA multiple, in isolation, net of adjustments, would result in an increase in a fair value measurement.

(3)      The Company generally uses prices provided by an independent pricing service, or broker or agent bank non-binding indicative bid prices (“NBIB”), on or near the valuation date as the primary basis for the fair value determinations for syndicated notes, and CLO debt and equity investments, which may be adjusted for pending equity distributions as of valuation date. These bid prices are non-binding, and may not be determinative of fair value. Each bid price is evaluated by the Valuation Committee in conjunction with additional information compiled by Oxford Square Management, including financial performance, recent business developments, and, in the case of CLO debt and equity investments, performance and covenant compliance information as provided by the independent trustee.

(4)      Prices provided by independent pricing services are evaluated in conjunction with actual trades and payoffs and, in certain cases, the value represented by actual trades or payoffs may be more representative of fair value as determined by the Valuation Committee.

(5)      The fair value of those CLO equity positions which have been optionally redeemed are generally valued using a liquidation net asset value basis which represents the estimated expected residual value of the CLO as of the end of the period.

(6)      The calculation of weighted average for a range of values, for a single investment within a given asset category, is not considered to provide a meaningful representation (“ncm”).

28

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 4. FAIR VALUE(cont.)

(7)      The Company will calculate the fair value of certain CLO equity investments based upon the net present value of expected contractual payment streams discounted using estimated market yields for the equity tranche of the respective CLO vehicle. The Company will also consider those investments in which the record date for an equity distribution payment falls on or before the last day of the period, and the likelihood that a prospective purchaser would require an adjustment to the transaction price representing substantially all of the pending distribution.

(8)      Discount rate represents the rate at which future cash flows are discounted to calculate a present value, reflecting market assumptions for risk.

(9)      For equity investments, third-party valuation firms evaluate the financial and operational information of the portfolio companies that the Company provides to them, as well as independent market and industry information that they consider appropriate in forming an opinion as to the fair value of the Company’s securities. In those instances where the carrying value and/or internal credit rating of the investment does not require the use of a third-party valuation firm, a valuation is prepared by Oxford Square Management, which may include liquidation analysis or which may utilize a subsequent transaction to provide an indication of fair value.

(10)    EBITDA, or earnings before interest expense, taxes, depreciation and amortization, is an unobservable input which is generally based on the most recently available twelve month financial statements provided by the portfolio company. Market multiples, also an unobservable input, represent an estimation of where market participants might value an enterprise based upon information available for comparable companies in the market.

 

Quantitative Information about Level 3 Fair Value Measurements

  

Assets ($ in millions)

 

Fair Value
as of
December 31,2019

 

Valuation Techniques/
Methodologies

 

Unobservable Input

 

Range/Weighted
Average(1)

 

Impact to
Fair Value
from an
Increase in
Input(2)

Senior Secured
Notes

 

$

201.9

 

Market quotes

 

NBIB(3)

 

15.0% – 100.3%/86.5%

 

NA

  

 

38.7

 

Recent transactions

 

Actual trade/payoff(4)

 

92.0% – 100.0%/97.3%

 

NA

CLO debt

 

 

0.8

 

Market quotes

 

NBIB(3)

 

84.1%/ncm(6)

 

NA

CLO equity

 

 

104.5

 

Market quotes

 

NBIB(3)

 

2.0% – 74.0%/43.7%

 

NA

  

 

11.3

 

Yield Analysis

 

Yield

 

17.3% – 23.9%/19.7%

 

Decrease

  

 

3.4

 

Recent transactions

 

Actual trade/payoff(4)

 

60.3%/ncm(6)

 

NA

  

 

1.3

 

Discounted cash flow(7)

 

Discount rate(8)

 

10.1% – 14.7%/11.9%

 

Decrease

  

 

0.1

 

Liquidation net asset value(5)

 

NBIB(3)

 

2.5%/ncm(6)

 

NA

Equity and Other Investments

 

 

2.8

 

Enterprise value(9)

 

EBITDA/
Market multiple
(10)

 

 $25.1 million/ncm(6)
5.7x – 6.6x/ncm
(6)

 

Increase
Increase

Total Fair Value for Level 3 Investments(11)

 

$

364.8

        

____________

(1)      Weighted averages are calculated based on fair value of investments.

(2)      The impact on the fair value measurement of an increase in each unobservable input is in isolation. The discount rate is the rate used to discount future cash flows in a discounted cash flow calculation. An increase in the discount rate, in isolation, would result in a decrease in a fair value measurement. Market/EBITDA multiples refer to the input (often derived from the value of a comparable company) that is multiplied by the historic and/or expected EBITDA of a company in order to estimate the company’s value. An increase in the Market/EBITDA multiple, in isolation, net of adjustments, would result in an increase in a fair value measurement.

(3)      The Company generally uses prices provided by an independent pricing service, or broker or agent bank non-binding indicative bid prices (“NBIB”), on or near the valuation date as the primary basis for the fair value determinations for syndicated notes, and CLO debt and equity investments, which may be adjusted for pending equity distributions as of valuation date. These bid prices are non-binding, and may not be determinative of fair value. Each bid price is evaluated by the Valuation Committee in conjunction with additional information compiled by Oxford Square Management, including financial performance, recent business developments, and, in the case of CLO debt and equity investments, performance and covenant compliance information as provided by the independent trustee.

29

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 4. FAIR VALUE(cont.)

(4)      Prices provided by independent pricing services are evaluated in conjunction with actual trades and payoffs and, in certain cases, the value represented by actual trades or payoffs may be more representative of fair value as determined by the Valuation Committee.

(5)      The fair value of those CLO equity positions which have been optionally redeemed are generally valued using a liquidation net asset value basis which represents the estimated expected residual value of the CLO as of the end of the period.

(6)      The calculation of weighted average for a range of values, for a single investment within a given asset category, is not considered to provide a meaningful representation (“ncm”).

(7)      The Company will calculate the fair value of certain CLO equity investments based upon the net present value of expected contractual payment streams discounted using estimated market yields for the equity tranche of the respective CLO vehicle. The Company will also consider those investments in which the record date for an equity distribution payment falls on or before the last day of the period, and the likelihood that a prospective purchaser would require an adjustment to the transaction price representing substantially all of the pending distribution.

(8)      Discount rate represents the rate at which future cash flows are discounted to calculate a present value, reflecting market assumptions for risk.

(9)      For equity investments, third-party valuation firms evaluate the financial and operational information of the portfolio companies that the Company provides to them, as well as independent market and industry information that they consider appropriate in forming an opinion as to the fair value of the Company’s securities. In those instances where the carrying value and/or internal credit rating of the investment does not require the use of a third-party valuation firm, a valuation is prepared by Oxford Square Management, which may include liquidation analysis or which may utilize a subsequent transaction to provide an indication of fair value.

(10)    EBITDA, or earnings before interest expense, taxes, depreciation and amortization, is an unobservable input which is generally based on the most recently available twelve month financial statements provided by the portfolio company. Market multiples, also an unobservable input, represent an estimation of where market participants might value an enterprise based upon information available for comparable companies in the market.

(11)    Total may not sum due to rounding.

Financial Instruments Disclosed, But Not Carried, At Fair Value

The following table presents the carrying value and fair value of the Company’s financial liabilities disclosed, but not carried, at fair value as of March31, 2020 and the level of each financial liability within the fair value hierarchy:

($ in millions)

 

Carrying
Value
(1)

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

6.50% Unsecured Notes(2)

 

$

63.1

 

$

48.3

 

$

 

$

48.3

 

$

6.25% Unsecured Notes(3)

 

 

43.4

 

 

33.6

 

 

 

 

33.6

 

 

Total(4)

 

$

106.4

 

$

81.9

 

$

 

$

81.9

 

$

____________

(1)      Carrying value is net of deferred debt issuance costs. As of March 31, 2020, the total unamortized deferred issuance costs for the 6.50% Unsecured Notes and 6.25% Unsecured Notes was approximately $1.3 million and $1.4 million, respectively.

(2)      For the 6.50% Unsecured Notes, fair value is based upon the closing price on the last day of the period. The 6.50% Unsecured Notes are listed on the NASDAQ Global Select Market (trading symbol “OXSQL”).

(3)      For the 6.25% Unsecured Notes, fair value is based upon the closing price on the last day of the period. The 6.25% Unsecured Notes are listed on the NASDAQ Global Select Market (trading symbol “OXSQZ”).

(4)      Totals may not sum due to rounding.

30

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 4. FAIR VALUE(cont.)

The following table presents the carrying value and fair value of the Company’s financial liabilities disclosed, but not carried, at fair value as of December31, 2019 and the level of each financial liability within the fair value hierarchy:

($ in millions)

 

Carrying
Value
(1)

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

6.50% Unsecured Notes(3)

 

$

63.0

 

$

65.6

 

$

 

$

65.6

 

$

6.25% Unsecured Notes(4)

 

 

43.3

 

 

45.6

 

 

 

 

45.6

 

 

Credit Facility(2)

 

 

28.1

 

 

28.1

 

 

 

 

 

 

28.1

Total(5)

 

$

134.4

 

$

139.3

 

$

 

$

111.2

 

$

28.1

____________

(1)      Carrying value is net of deferred debt issuance costs. Deferred debt issuance costs associated with the Credit Facility totaled approximately $10,000 as of December 31, 2019. Deferred debt issuance costs associated with the 6.50% Unsecured Notes totaled approximately $1.4 million as of December 31, 2019. Deferred debt issuance costs associated with the 6.25% Unsecured Notes totaled approximately $1.5 million as of December 31, 2019.

(2)      Fair value represents the par amount of the Credit Facility.

(3)      For the 6.50% Unsecured Notes, fair value is based upon the closing price on the last day of the period. The 6.50% Unsecured Notes are listed on the NASDAQ Global Select Market (trading symbol “OXSQL”).

(4)      For the 6.25% Unsecured Notes, fair value is based upon the closing price on the last day of the period. The 6.25% Unsecured Notes are listed on the NASDAQ Global Select Market (trading symbol “OXSQZ”).

(5)      Totals may not sum due to rounding.

A reconciliation of the fair value of investments for the three months ended March31, 2020, utilizing significant unobservable inputs, is as follows:

($ in millions)

 

Senior
Secured
Notes

 

CLO
Debt

 

CLO
Equity

 

Equityand
Other
Investments

 

Total(2)

Balance at December 31, 2019

 

$

240.5

 

 

$

0.8

 

 

$

120.6

 

 

$

2.8

 

 

$

364.8

 

Net realized losses included in earnings

 

 

(0.3)

 

 

 

 

 

 

 

 

 

 

 

 

(0.3

)

Net unrealized depreciation included in earnings

 

 

(37.4

)

 

 

(0.4

)

 

 

(45.3

)

 

 

(2.4

)

 

 

(85.4

)

Accretion of discount

 

 

0.3

 

 

 

 

 

 

 

 

 

 

 

 

0.3

 

Purchases

 

 

7.4

 

 

 

 

 

 

 

 

 

 

 

 

7.4

 

Repayments and Sales

 

 

(23.0

)

 

 

 

 

 

 

 

 

 

 

 

(23.0

)

Reductions to CLO Equity cost value(1)

 

 

 

 

 

 

 

 

(2.0

)

 

 

 

 

 

(2.0

)

Non-cash interest and dividend income due to PIK

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

0.1

 

Transfers in and/or (out) of Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020(2)

 

$

187.6

 

 

$

0.5

 

 

$

73.3

 

 

$

0.4

 

 

$

261.8

 

Net change in unrealized depreciation on
Level 3 investments still held as of
March 31, 2020

 

$

(37.3

)

 

$

(0.4

)

 

$

(45.3

)

 

$

(2.4

)

 

$

(85.4)

 

____________

(1)      Reduction to cost value on the Company’s CLO equity investments represents the difference between distributions received, or entitled to be received, of approximately $6.7million and the effective yield interest income of approximately $4.8million.

(2)      Totals may not sum due to rounding.

31

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 4. FAIR VALUE(cont.)

A reconciliation of the fair value of investments for the year ended December31, 2019, utilizing significant unobservable inputs, is as follows:

($ in millions)

 

Senior
Secured
Notes

 

CLO
Debt

 

CLO
Equity

 

Equity and
Other
Investments

 

Total(2)

Balance at December 31, 2018

 

$

282.7

 

 

$

0.9

 

 

$

146.8

 

 

$

14.5

 

 

$

445.0

 

Realized losses included in earnings

 

 

 

 

 

 

 

 

(1.2

)

 

 

(0.5

)

 

 

(1.7

)

Unrealized depreciation included in earnings

 

 

(18.1

)

 

 

(0.1

)

 

 

(32.4

)

 

 

(18.9

)

 

 

(69.5

)

Accretion of discount

 

 

0.8

 

 

 

 

 

 

 

 

 

 

 

 

0.8

 

Purchases

 

 

28.9

 

 

 

 

 

 

25.8

 

 

 

 

 

 

54.8

 

Repayments and Sales

 

 

(54.2

)

 

 

 

 

 

(5.6

)

 

 

 

 

 

(59.8

)

Reductions to CLO equity cost value(1)

 

 

 

 

 

 

 

 

(12.8

)

 

 

 

 

 

(12.8

)

Non-cash interest and dividend
income due to PIK

 

 

0.4

 

 

 

 

 

 

 

 

 

7.7

 

 

 

8.0

 

Transfers in and/or (out) of level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019(2)

 

$

240.5

 

 

$

0.8

 

 

$

120.6

 

 

$

2.8

 

 

$

364.8

 

Net change in unrealized depreciation on Level 3 investments still
held as of December 31, 2019(2)

 

$

(19.1

)

 

$

(0.1

)

 

$

(34.0

)

 

$

(19.3

)

 

$

(72.5

)

____________

(1)      Reduction to cost value on the Company’s CLO equity investments represents the difference between distributions received, or entitled to be received, of approximately $38.0million and the effective yield interest income of approximately $25.2million.

(2)      Totals may not sum due to rounding.

A reconciliation of the fair value of investments for the three months ended March31, 2019, utilizing significant unobservable inputs, is as follows:

($ in millions)

 

Senior
Secured
Notes

 

CLO
Debt

 

CLO
Equity

 

Equity and
Other
Investments

 

Total

Balance at December 31, 2018

 

$

282.7

 

 

$

0.9

 

$

146.8

 

 

$

14.5

 

$

445.0

 

Realized losses included in earnings

 

 

 

 

 

 

 

(1.3

)

 

 

 

 

(1.3

)

Unrealized (depreciation) appreciation included in earnings

 

 

(4.0

)

 

 

 

 

8.2

 

 

 

1.5

 

 

5.7

 

Accretion of discount

 

 

0.1

 

 

 

 

 

 

 

 

 

 

0.1

 

Purchases

 

 

4.4

 

 

 

 

 

 

 

 

 

 

4.4

 

Repayments and Sales

 

 

(3.4

)

 

 

 

 

(0.6

)

 

 

  

 

(4.0

)

Reductions to CLO equity cost value(1)

 

 

 

 

 

 

 

(1.4

)

 

 

 

 

(1.4

)

Non-cash interest and dividend income due to PIK

 

 

0.1

 

 

 

 

 

 

 

 

 

 

0.1

 

Transfers in and/or (out) of Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019(2)

 

$

280.0

 

 

$

0.9

 

$

151.7

 

 

$

15.9

 

$

448.6

 

Net change in unrealized (depreciation) appreciation onLevel 3 investments still held as ofMarch 31, 2019

 

$

(4.0

)

 

$

 

$

6.7

 

 

$

1.4

 

$

4.1

 

____________

(1)      Reduction to cost value on the Company’s CLO equity investments represents the difference between distributions received, or entitled to be received, of approximately $8.2million and the effective yield interest income of approximately $6.8million.

(2)      Totals may not sum due to rounding.

32

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 4. FAIR VALUE(cont.)

The following table shows the fair value of the Company’s portfolio of investments by asset class as of March31, 2020 and December31, 2019:

 

March 31, 2020

 

December 31, 2019

($ in millions)

 

Investments at
Fair Value

 

Percentage of
Total Portfolio

 

Investments at
Fair Value

 

Percentage of
Total Portfolio

Senior Secured Notes

 

$

187.6

 

71.7%

 

 

$

240.5

 

65.9%

 

CLO Debt

 

 

0.5

 

0.2%

 

 

 

0.8

 

0.2%

 

CLO Equity

 

 

73.3

 

28.0%

 

 

 

120.6

 

33.1%

 

Equity and Other Investments

 

 

0.4

 

0.1

%

 

 

2.8

 

0.8%

 

Total(1)

 

$

261.8

 

100.0

%

 

$

364.8

 

100.0

%

____________

(1)      Totals may not sum due to rounding.

NOTE 5. CASH, CASH EQUIVALENTS AND RESTRICTED CASH

As of March31, 2020 and December31, 2019, respectively, cash, cash equivalents and restricted cash were as follows:

 

March 31,
20
20

 

December 31,
201
9

Cash

 

$

 

$

Cash Equivalents

 

 

7,825,820

 

 

14,410,486

Total Cash and Cash Equivalents

 

$

7,825,820

 

$

14,410,486

Restricted Cash

 

$

 

$

2,050,452

Total Cash, Cash Equivalents and Restricted Cash

 

$

7,825,820

 

$

16,460,938

For further details regarding the composition of cash, cash equivalents and restricted cash refer to “Note 3. Summary of Significant Accounting Policies.”

33

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 6. BORROWINGS

In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 150% immediately after such borrowing. As of March31, 2020 and December31, 2019, the Company’s asset coverage for borrowed amounts was 248.4% and 278.6%, respectively.

The following are the Company’s outstanding principal amounts, carrying values and fair values of the Company’s borrowings as of March31, 2020 and December31, 2019. The fair value of the 6.50% Unsecured Notes and 6.25% Unsecured Notes are based upon the closing price on the last day of the period and are listed on the NASDAQ Global Select Market (trading symbol OXSQL and OXSQZ, respectively). The Credit Facility was fully repaid on March24, 2020. As of December31, 2019, the Credit Facility’s fair value represents the par amount of the debt obligation.

 

As of

  

March 31, 2020

 

December 31, 2019

($ in millions)

 

Principal
Amount

 

Carrying
Value
(1)

 

Fair
Value

 

Principal
Amount

 

Carrying
Value
(1)

 

Fair
Value

6.50% Unsecured Notes

 

$

64.4

 

$

63.1

 

$

48.3

 

$

64.4

 

$

63.0

 

$

65.6

Credit Facility

 

 

 

 

 

 

 

 

28.1

 

 

28.1

 

 

28.1

6.25% Unsecured Notes

 

 

44.8

 

 

43.4

 

 

33.6

 

 

44.8

 

 

43.3

 

 

45.6

Total(2)

 

$

109.2

 

$

106.4

 

$

81.9

 

$

137.3

 

$

134.4

 

$

139.3

____________

(1)      Represents the aggregate principal amount outstanding less the unamortized deferred issuance costs. As of March 31, 2020, the total unamortized deferred issuance costs for the 6.25% Unsecured Notes and 6.50% Unsecured Notes was approximately $1.4 million and $1.3 million, respectively. As of December 31, 2019, the total unamortized deferred issuance costs for the Credit Facility, 6.25% Unsecured Noted, and 6.50% Unsecured Notes was approximately $10,000, $1.5 million, and $1.4 million, respectively.

(2)      Totals may not sum due to rounding.

The weighted average stated interest rate and weighted average maturity on the Company’s debt outstanding as of March31, 2020 were 6.40% and 4.9 years, respectively, and as of December31, 2019 were 5.94% and 4.2 years, respectively.

The table below summarizes the components of interest expense for the three months ended March31, 2020 and March31, 2019:

 

Three Months Ended March 31, 2020

($ in thousands)

 

Stated
Interest
Expense

 

Amortization of
Deferred Debt
Issuance Costs

 

Total

6.50% Unsecured Notes

 

$

1,046.0

 

$

81.0

 

$

1,127.0

6.25% Unsecured Notes

 

 

699.9

 

 

58.1

 

 

758.0

Credit Facility(1)

 

 

262.2

 

 

4.8

 

 

267.0

Repo Facility

 

 

21.5

 

 

 

 

21.5

Total

 

$

2,029.6

 

$

143.9

 

$

2,173.5

____________

(1)      The Credit Facility was fully repaid on March 24, 2020.

34

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 6. BORROWINGS(cont.)

 

Three Months Ended March 31, 2019

($ in thousands)

 

Stated
Interest
Expense

 

Amortization of
Deferred Debt
Issuance Costs

 

Total

6.50% Unsecured Notes

 

$

1,046.0

 

$

80.1

 

$

1,126.1

Credit Facility

 

 

999.0

 

 

24.7

 

 

1,023.7

Total

 

$

2,045.0

 

$

104.8

 

$

2,149.8

Notes Payable —6.50% Unsecured Notes Due 2024

On April12, 2017, the Company completed an underwritten public offering of approximately $64.4million in aggregate principal amount of 6.50% Unsecured Notes. The 6.50% Unsecured Notes will mature on March30, 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 after March30, 2020. The 6.50% Unsecured Notes bear interest at a rate of 6.50% per year payable quarterly on March30, June30, September30, and December 30 of each year.

The aggregate accrued interest payable on the 6.50% Unsecured Notes as of March31, 2020 was approximately $12,000. As of March31, 2020, the Company had unamortized deferred debt issuance costs of approximately $1.3million relating to the 6.50% Unsecured Notes. The deferred debt issuance costs are being amortized over the term of the 6.50% Unsecured Notes and are included in interest expense in the consolidated statements of operations. The cash paid and the effective annualized interest rate for the three months ended March31, 2020 were approximately $1.0million and 7.02%, respectively. The cash paid and the effective annualized interest rate for the three months ended March31, 2019 were approximately $1.0million and 7.09%, respectively.

Notes Payable — 6.25% Unsecured Notes Due 2026

On April3, 2019, the Company completed an underwritten public offering of approximately $44.8million in aggregate principal amount of 6.25% Unsecured Notes. The 6.25% Unsecured Notes will mature on April30, 2026, and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after April30, 2022. The 6.25% Unsecured Notes bear interest at a rate of 6.25% per year payable quarterly on January31, April30, July31, and October31, of each year.

The aggregate accrued interest payable on the 6.25% Unsecured Notes as of March31, 2020 was approximately $0.5million. As of March31, 2020, the Company had unamortized deferred debt issuance costs of approximately $1.4million relating to the 6.25% Unsecured Notes. The deferred debt issuance costs are being amortized over the term of the 6.25% Unsecured Notes and are included in interest expense in the consolidated statements of operations. The cash paid and the effective annualized interest rate for the three months ended March31, 2020 were approximately $0.7million and 6.79%, respectively.

Repurchase Transaction Facility

On October18, 2019, the Company entered into a $10million repurchase transaction facility (the “Repo Facility”) with Nomura Securities International, Inc. (“Nomura”). Pursuant to the Master Repurchase Agreement (“MRA”) and a transaction facility confirmation, the Company may sell securities to Nomura from time to time with a corresponding repurchase obligation at an agreed-upon price 30 to 60 days after the sale date (“Reverse Repo”). The Repo Facility has a funding cost of 1-month LIBOR plus 2.05% per annum for each Reverse Repo transaction and is subject to a facility fee of 0.85% per annum on the full $10million facility amount. The Repo Facility expires on October18, 2020, subject to optional termination or extension that is mutually agreed. The Company accounts for these Reverse Repo transactions as secured financings for financial reporting purposes in accordance with GAAP.

35

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 6. BORROWINGS(cont.)

As of March31, 2020, there was no outstanding principal, or securities sold under the Repo Facility. The Company accrued approximately $21,000 in undrawn fees as of March31, 2020, which is classified as interest expense on the consolidated statement of operations. The cash paid for undrawn fees for the three months ended March 31, 2020 was approximately $21,000.

Notes Payable — Credit Facility

On June21, 2018, OXSQ Funding entered into the Credit Facility with Citibank, N.A. Subject to certain exceptions, pricing under the Credit Facility was based on the London Interbank Offered Rate for an interest period equal to three months plus a spread of 2.25% per annum payable quarterly on March21, June21, September 21 and December 21. Pursuant to the terms of the credit agreement governing the Credit Facility, OXSQ Funding borrowed approximately $95.2million. The Credit Facility had a mandatory amortization schedule such that 15.0% of the principal amount outstanding as of June21, 2018 was due and payable on June 21, 2019. On each payment date occurring thereafter, an additional 6.25% of the remaining principal amount outstanding was due and payable. On June21, 2020, all remaining principal and accrued and unpaid interest would have been due and payable.

The Credit Facility was collateralized by a pool of loans initially consisting of loans sold by OXSQ to OXSQ Funding. OXSQ could sell and contribute additional loans to OXSQ Funding from time to time. OXSQ acted as the collateral manager of the loans owned by OXSQ Funding, and retained a residual interest through its ownership of OXSQ Funding.

On October12, 2018, OXSQ Funding amended the Credit Facility with Citibank, N.A. Under the amended Credit Facility, an additional borrowing amount of approximately $37.3million was made under the same terms as the existing credit agreement. The Company posted additional collateral with a principal amount of approximately $76.4million. All other existing terms of the Credit Facility remained unchanged.

The Company made partial principal repayments under the Credit Facility for the year ended December 31, 2019 and December 31, 2018 of approximately $57.6million and $46.8million, respectively. For the year ended December31, 2019 and December31, 2018, the Company recognized a net extinguishment loss of approximately $ 73,000 and $61,000, respectively, which consisted of unamortized deferred debt issuance costs. These costs are recorded within realized losses on extinguishment of debt in the consolidated statements of operations.

The Company made a partial principal repayment under the Credit Facility on March23, 2020 of approximately $11.0million and repaid the remaining outstanding principal on March24, 2020 of approximately $17.1million. For the three months ended March31, 2020, the Company recognized a net extinguishment loss of approximately $5,000, which consisted of unamortized deferred debt issuance costs. These costs are recorded within realized losses on extinguishment of debt in the consolidated statements of operations. The cash paid and effective annualized interest rate for the three months ended March31, 2020 was approximately $0.4million and 4.09%, respectively. The cash paid and the effective annualized interest rate for the three months ended March31, 2019 were approximately $1.1million and 5.07%, respectively.

NOTE 7. RELATED PARTY TRANSACTIONS

The Company pays Oxford Square Management a fee for its services under the Investment Advisory Agreement consisting of two components — a base management fee (the “Base Fee”) based on its gross assets, as described below, and an incentive fee based on its performance. The cost of both the Base Fee and any incentive fees earned by Oxford Square Management are ultimately borne by the Company’s common stockholders.

36

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 7. RELATED PARTY TRANSACTIONS(cont.)

Base Management Fee

Through March31, 2016, the Base Fee was calculated at an annual rate of 2.00%. Effective April1, 2016, the Base Fee is calculated at an annual rate of 1.50%. The Base Fee is payable quarterly in arrears, and is calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any equity or debt capital raises, repurchases or redemptions during the current calendar quarter (however, no Base Fee will be payable on the cash proceeds received by the Company in connection with any share or debt issuances until such proceeds have been invested in accordance with the Company’s investment objective). Accordingly, the Base Fee will be payable regardless of whether the value of the Company’s gross assets has decreased during the quarter. The Base Fee for any partial quarter will be appropriately prorated.

The following table represents the Base Fee for the three months ended March31, 2020 and March31, 2019, respectively:

 

Three Months
Ended
March 31,
20
20

 

Three Months
Ended
March 31,
201
9

Base Fee

 

$

1,231,210

 

$

1,626,538

The Base Fee payable to Oxford Square Management as of March31, 2020 and December31, 2019 was approximately $1.2million and $1.5million, respectively.

Incentive Fee

The incentive fee has two parts: the “Net Investment Income Incentive Fee” and the “Capital Gains Incentive Fee”. 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 current calendar quarter. For this purpose, Pre-Incentive Fee Net Investment Income means interest income, dividend income and any other income (including any accrued income that we have not yet received in cash and any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses accrued during the calendar quarter (including the Base Fee, expenses payable under a separate agreement with Oxford Funds (the “Administration Agreement”), and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee).

Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Oxford Square Management is not under any obligation to reimburse the Company for any part of the incentive fee it received that was based on accrued income that it never received as a result of a default by an entity on the obligation that resulted in the accrual of such income. Pre-Incentive Fee Net Investment Income does not include any realized gains, realized losses or unrealized appreciation or depreciation. Given that this portion of the incentive fee is payable without regard to any gain, loss or unrealized depreciation that may occur during the quarter, this portion of Oxford Square Management’s incentive fee may also be payable notwithstanding a decline in net asset value that quarter.

Effective April1, 2016, a Preferred Return Amount is calculated on a quarterly basis by multiplying 1.75% by the Company’s net asset value at the end of the immediately preceding calendar quarter. The Net Investment Income Incentive Fee is then calculated as follows: (a) no Net Investment Income Incentive Fee is payable to Oxford Square Management in any calendar quarter in which the Pre-Incentive Fee Net Investment Income does not exceed the

37

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 7. RELATED PARTY TRANSACTIONS(cont.)

Preferred Return Amount; (b) 100% of the Pre-Incentive Fee Net Investment Income for such quarter, if any, that exceeds the Preferred Return Amount but is less than or equal to a “Catch-Up Amount” determined on a quarterly basis by multiplying 2.1875% by the Company’s net asset value at the end of such calendar quarter; and (c) for any quarter in which the Pre-Incentive Fee Net Investment Income exceeds the Catch-Up Amount, the Net Investment Income Incentive Fee will be 20% of the amount of the Pre-Incentive Fee Net Investment Income for such quarter. There is no accumulation of amounts from quarter to quarter for the Preferred Return Amount, and accordingly there is no claw back of amounts previously paid to Oxford Square Management if the Pre-Incentive Fee Net Investment Income for subsequent quarters is below the quarterly Preferred Return Amount, and there is no delay of payment of incentive fees to Oxford Square Management if the Pre-Incentive Fee Net Investment Income for prior quarters is below the quarterly Preferred Return Amount for the quarter for which the calculation is being made.

In addition, effective April1, 2016, the calculation of the Company’s Net Investment Income Incentive Fee is subject to a “Total Return Requirement”, which provides that a net investment income incentive fee will not be payable to Oxford Square Management except to the extent 20% of the cumulative net increase in net assets resulting from operations (which is the amount, if positive, of the sum of the Pre-Incentive Fee Net Investment Income, realized gains and losses and unrealized appreciation and depreciation on investments) during the calendar quarter for which such fees are being calculated and the eleven (11) preceding quarters (or if shorter, the number of quarters since April1, 2016) exceeds the cumulative net investment income incentive fees accrued and/or paid for such eleven (11) preceding quarters (or if shorter, the number of quarters since April1, 2016). Under the revised fee structure, under no circumstances will the aggregate fees earned from April1, 2016 by Oxford Square Management in any quarterly period be higher than the aggregate fees that would have been earned prior to the adoption of these changes.

From January1, 2005 through March31, 2016, the Pre-Incentive Fee Net Investment Income, which was expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, was compared to one-fourth of an annual hurdle rate that was determined as of the immediately preceding December 31st by adding 5.00% to the interest rate then payable on the most recently issued five-year U.S. Treasury Notes, up to a maximum annual hurdle rate of 10.00%. The annual hurdle used to calculate the Pre-Incentive Fee Net Investment Income for the quarters ended March31, 2020 and March31, 2019 were 6.69% and 7.51%, respectively.

The following table represents the Net Investment Income Incentive Fees for each of the three months ended March31, 2020 and 2019, respectively:

 

Three Months
Ended
March 31,
20
20

 

Three Months
Ended
March 31,
201
9

Net Investment Income Incentive Fee

 

$

 

$

1,156,051

There was no Net Investment Income Incentive Fee payable to Oxford Square Management as of March 31, 2020 and December31, 2019.

The Capital Gains Incentive Fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20% of the Company’s “Incentive Fee Capital Gains,” which consists of its realized gains on investments for each calendar year, computed net of all realized losses on investments and unrealized capital depreciation on investments for that calendar year. However, for accounting purposes only, in order to reflect the theoretical Capital Gains Incentive Fee that would be payable for a given period as if all unrealized gains on investments were realized, the Company will accrue a Capital Gains Incentive Fee based upon net realized gains/losses on investments and unrealized depreciation on investments for that calendar year (in accordance with the terms of the Investment Advisory Agreement), plus unrealized appreciation on investments held at the end of the period. It should be noted that a fee so calculated and

38

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 7. RELATED PARTY TRANSACTIONS(cont.)

accrued for accounting purposes would not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of Capital Gains Incentive Fees in subsequent periods. Amounts paid under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement.

The amount of Capital Gains Incentive Fee expense related to the hypothetical liquidation of the portfolio (and assuming no other changes in realized or unrealized gains and losses on investments) would only become payable to Oxford Square Management in the event of a complete liquidation of the Company’s portfolio as of period end and the termination of the Investment Advisory Agreement on such date. Also, the Capital Gains Incentive Fee expense fluctuates with the Company’s overall investment results.

There were no Capital Gains Incentive Fees incurred during the three months ended March31, 2020 and 2019. There were no accrued Capital Gains Incentive Fees payable to Oxford Square Management as of March 31, 2020 and December31, 2019.

Administration Agreement

The Company has also entered into the Administration Agreement with Oxford Funds under which Oxford Funds provides administrative services to the Company. The Company pays Oxford Funds an allocable portion of overhead and other expenses incurred by Oxford Funds in performing its obligations under the Administration Agreement, including a portion of the rent and the compensation of the Chief Financial Officer, Treasurer, Controller, accounting staff and other administrative support personnel, which creates potential conflicts of interest that the Board must monitor. The Company also reimburses Oxford Funds for the costs associated with the functions performed by the Company’s Chief Compliance Officer that Oxford Funds pays on the Company’s behalf pursuant to the terms of an agreement between the Company and Alaric Compliance Services, LLC.

Oxford Square Management is controlled by Oxford Funds, its managing member. Charles M. Royce, a member of the Board, holds a minority, non-controlling interest in Oxford Square Management. Oxford Funds manages the business and internal affairs of Oxford Square Management. Jonathan H. Cohen, the Company’s Chief Executive Officer, as well as a Director, is the managing member of Oxford Funds. Saul B. Rosenthal, the Company’s President and Chief Operating Officer, is also the President of Oxford Square Management and a member of Oxford Funds.

For the three months ended March31, 2020 and 2019, the Company incurred approximately $0.2million and $0.2million respectively, in compensation expenses for the services of employees allocated to the administrative activities of the Company, pursuant to the Administration Agreement with Oxford Funds. Further, the Company incurred approximately $14,000 and $16,000 for facility costs allocated under the Administration Agreement for the three months ended March31, 2020 and 2019, respectively. As of March31, 2020, there was approximately $26,000 payable under the Administration Agreement. As of December31, 2019, there were no amounts payable under the Administration Agreement.

Co-Investment Exemptive Relief

On June14, 2017, the SEC 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.

39

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 7. RELATED PARTY TRANSACTIONS(cont.)

Pursuant to the Order, the Company is permitted to co-invest in such investment opportunities with its affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of its 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 the Company and its stockholders and do not involve overreaching in respect of the Company or its stockholders on the part of any person concerned, and (2) the potential co-investment transaction is consistent with the interests of the Company’s stockholders and is consistent with the Company’s then-current investment objective and strategies.

NOTE 8. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net increase in net assets resulting from net investment income per share for the three months ended March31, 2020 and 2019, respectively:

 

Three Months
Ended
March 31,
20
20

 

Three Months
Ended
March 31,
201
9

Net investment income

 

$

6,372,491

 

$

8,363,988

Weighted average common shares outstanding

 

 

49,137,570

 

 

47,650,959

Net increase in net assets resulting from net investment income per
common share

 

$

0.13

 

$

0.18

The following table sets forth the computation of basic and diluted net (decrease)/increase in net assets resulting from operations per share for the three months ended March31, 2020 and 2019:

 

Three Months
Ended
March 31,
20
20

 

Three Months
Ended
March 31,
201
9

Net (decrease)/increase in net assets resulting from operations

 

$

(79,358,013

)

 

$

12,749,952

Weighted average common shares outstanding

 

 

49,137,570

 

 

 

47,650,959

Net (decrease)/increase in net assets resulting from operations per
common share

 

$

(1.62

)

 

$

0.27

NOTE 9. DISTRIBUTIONS

The Company intends to continue to operate so as to qualify to be taxed as a RIC under the Code and, as such, the Company would not be subject to federal income tax on the portion of its taxable income and gains distributed to stockholders. To qualify to be taxed as a RIC, the Company is required, among other requirements, to distribute at least 90% of its annual investment company taxable income, as defined by the Code. The amount to be paid out as a distribution each quarter is determined by the Board and is based upon the annual taxable income estimated by the management of the Company. Income calculated in accordance with U.S. federal income tax regulations differs substantially from GAAP income. To the extent that the Company’s taxable earnings fall below the amount of distributions declared, however, a portion of the total amount of the Company’s distributions for the fiscal year may be deemed a return of capital for tax purposes to the Company’s stockholders.

The Company intends to comply with the applicable provisions of the Code pertaining to RICs to make distributions of taxable income sufficient to relieve it of substantially all federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on such income. The Company will accrue excise tax on estimated excess taxable income, if any, as required.

40

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 9. DISTRIBUTIONS(cont.)

The Company has adopted an “opt out” distribution reinvestment plan for its common stockholders. As a result, if the Company makes a cash distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of the Company’s common stock, unless they specifically “opt out” of the distribution reinvestment plan so as to receive cash distributions. During the three months ended March31, 2020, the Company issued 42,343shares of common stock for $0.2million, in connection with the distribution reinvestment plan. During the three months ended March31, 2019, the Company did not issue any shares of common stock to stockholders in connection with the distribution reinvestment plan. Also during the three months ended March31, 2020 and 2019, as part of the Company’s dividend reinvestment plan for its common stockholders, the Company’s dividend reinvestment administrator purchased 20,446shares and 18,790shares, respectively, of common stock for $0.1million and $0.1million, respectively, in the open market to satisfy the reinvestment portion of the Company’s dividends. On January31, 2020, February28, 2020 and March31, 2020, the Company paid distributions of approximately $3.3million, $3.3million, and $3.3million, respectively or $0.067 per share.

On December22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted which changed various technical rules governing the tax treatment of RICs. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the Company will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term losses rather than being considered all short-term as under previous law.

The tax character of distributions for the three months ended March31, 2020 represented, on an estimated basis, $0.17 per share from ordinary income and $0.03 per share as a tax return of capital. For the three months ended March31, 2020, the amounts and sources of distributions reported are only estimates (based on an average of the reported tax character historically) and are not being provided for U.S. tax reporting purposes. Because the Company believes the historical tax characteristics of distributions is the most useful information which is readily available, the Company has used the average of all years from inception of the Company in providing the estimates herein. However, the timing and character of distributions for federal income tax purposes (which are determined in accordance with the U.S. federal tax rules which may differ from GAAP) may be materially different than the historical information the Company used in providing the estimates herein. The final determination of the source of all distributions in 2019 and 2020 will be made after year-end and the amounts represented may be 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.

NOTE 10. NET ASSET VALUE PER SHARE

The Company’s net asset value per share as of March31, 2020 and December31, 2019 was $3.32 and $5.12 respectively. In determining the Company’s net asset value per share, the Board determined in good faith the fair value of the Company’s portfolio investments for which reliable market quotations are not readily available.

NOTE 11. SHAREISSUANCEPROGRAM

On August1, 2019, the Company entered into an Equity Distribution Agreement with Ladenburg Thalmann & Co. through which the Company may offer for sale, from time to time, up to $150.0million of the Company’s common stock through an At-the-Market (“ATM”) offering. The Company sold a total of 1,098,277shares of common stock pursuant to the ATM offering during the three months ended March31, 2020. The total amount of capital raised net of underwriting fees and offering costs was approximately $5.8million during the three months ended March31, 2020.

41

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 12. INVESTMENT INCOME

The following table sets forth the components of investment income for the three months ended March 31, 2020 and 2019, respectively:

 

Three Months
Ended
March 31,
20
20

 

Three Months
Ended
March 31,
201
9

Interest income

 

 

  

 

 

Stated interest income

 

$

5,174,745

 

$

6,910,526

Original issue discount and market discount income

 

 

285,707

 

 

134,992

Payment-in-kind interest income

 

 

62,155

 

 

89,288

Discount income derived from unscheduled remittances at par

 

 

131,648

 

 

13,675

Total interest income

 

$

5,654,255

 

$

7,148,481

Income from securitization vehicles

 

$

4,759,070

 

$

6,846,925

Other income

 

 

  

 

 

Fee letters

 

$

163,851

 

$

101,800

Loan prepayment and bond call fees

 

 

200,000

 

 

All other fees

 

 

47,512

 

 

127,908

Total other income

 

$

411,363

 

$

229,708

Total investment income

 

$

10,824,688

 

$

14,225,114

The 1940 Act requires that a BDC offer significant managerial assistance to its portfolio companies. The Company may receive fee income for managerial assistance it renders to portfolio companies in connection with its investments. For the three months ended March31, 2020 and 2019, respectively, the Company received no fee income for managerial assistance.

NOTE 13. COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company enters into a variety of undertakings containing a variety of warranties and indemnifications that may expose the Company to some risk of loss. The risk of future loss arising from such undertakings, while not quantifiable, is expected to be remote. As of March31, 2020, the Company did not have any commitments to purchase additional debt investments.

The Company is not currently subject to any material legal proceedings. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies. While the outcome of these legal proceedings, if any, cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon its consolidated results of operations and financial condition.

42

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 14. FINANCIAL HIGHLIGHTS

Financial highlights for the three months ended March31, 2020 and 2019, respectively, are as follows:

Per Share Data

 

Three Months
Ended
March 31,
20
20

 

Three Months
Ended
March 31,
201
9

Net asset value as of beginning of period

 

$

5.12

 

 

$

6.60

 

Net investment income(1)

 

 

0.13

 

 

 

0.18

 

Net realized and unrealized (losses)/gains(2)

 

 

(1.73)

 

 

 

0.09

 

Net (decrease)/increase in net asset value from operations

 

 

(1.60)

 

 

 

0.27

 

Distributions per share from net investment income

 

 

(0.17

)

 

 

(0.17

)

Tax return of capital distributions(3)

 

 

(0.03

)

 

 

(0.03

)

Total distributions

 

 

(0.20

)

 

 

(0.20

)

Effect of shares issued/repurchased, gross

 

 

 

 

 

 

Net asset value at end of period

 

$

3.32

 

 

$

6.67

 

Per share market value at beginning of period

 

$

5.44

 

 

$

6.47

 

Per share market value at end of period

 

$

2.55

 

 

$

6.50

 

Total return based on Market Value(4)

 

 

(50.73

)%

 

 

3.55

%

Total return based on Net Asset Value(5)

 

 

(31.25

)%

 

 

4.09

%

Shares outstanding at end of period

 

 

49,589,607

 

 

 

47,650,959

 

  

 

 

 

 

 

 

 

Ratios/Supplemental Data(8)

 

 

 

 

 

 

 

 

Net assets at end of period (000’s)

 

$

164,739

 

 

$

317,944

 

Average net assets (000’s)

 

 

207,092

 

 

 

316,334

 

Ratio of operating expenses to average net assets(6)

 

 

8.60

%

 

 

7.41

%

Ratio of net investment income to average net assets(6)

 

 

12.31

%

 

 

10.58

%

Portfolio turnover rate(7)

 

 

2.17

%

 

 

0.91

%

____________

(1)      Represents per share net investment income for the period, based upon weighted average shares outstanding.

(2)      Net realized and unrealized (losses)/gains include rounding adjustments to reconcile change in net asset value per share.

(3)      Management monitors available taxable earnings, including net investment income and realized capital gains, to determine if a tax return of capital may occur for the year. To the extent the Company’s taxable earnings fall below the total amount of the Company’s distributions for that fiscal year, a portion of those distributions may be deemed a tax return of capital to the Company’s stockholders. The ultimate tax character of the Company’s earnings cannot be determined until tax returns are prepared after the end of the fiscal year.

(4)      Total return based on market value equals the increase or decrease of ending market value over beginning market value, plus distributions, assuming distribution reinvestment prices obtained under the Company’s distribution reinvestment plan, excluding any discounts, divided by the beginning market value. Total return is not annualized.

(5)      Total return based on net asset value equals the increase or decrease of ending net asset value over beginning net asset value, plus distributions, divided by the beginning net asset value. Total return is not annualized.

(6)      Annualized.

(7)      Portfolio turnover rate is calculated using the lesser of the year-to-date cash investment sales and debt repayments or year-to-date cash investment purchases over the average of the total investments at fair value.

43

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 14. FINANCIAL HIGHLIGHTS(cont.)

(8)      The following table provides supplemental performance ratios (annualized) measured for the three months ended March 31, 2020 and 2019:

 

Three Months
Ended
March 31,
20
20

 

Three Months
Ended
March 31,
201
9

Ratio of operating expenses to average net assets:

  

 

  

 

Operating expenses before incentive fees

 

8.60

%

 

5.95

%

Net investment income incentive fees

 

%

 

1.46

%

Ratio of expenses, excluding interest expense

 

4.40

%

 

4.69

%

NOTE 15. RISKS AND UNCERTAINTIES

The U.S. capital markets are experiencing a period of extreme volatility and disruption. In December 2019, a novel strain of coronavirus (also known as “COVID-19”) surfaced in China and has since been detected in numerous countries, including the United States. COVID-19 spread quickly and has been identified as a global pandemic by the World Health Organization. In response, governmental authorities have imposed restrictions on travel and the temporary closure of many corporate offices, retail stores, restaurants and manufacturing facilities and factories in affected jurisdictions, including, beginning in March 2020, in the United States. The pandemic and the resulting economic dislocations have had adverse consequences for the business operations of some of the Company’s portfolio companies and CLO investments and have adversely affected, and threaten to continue to adversely affect, the Company’s operations. The operational and financial performance of the portfolio companies in which the Company makes investments depends on future developments, including the duration and spread of the outbreak, and such uncertainty may in turn impact the valuation of its investments.

Although it is difficult to predict the extent of the impact of the COVID-19 outbreak on the underlying CLO vehicles the Company invests in, the failure by a CLO vehicle to satisfy certain financial covenants, including with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to us. In the event that a CLO vehicle fails certain tests, holders of debt senior to us may be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to receive. Separately, the Company may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting CLO vehicle or any other investment we may make. If any of these occur, it could materially and adversely affect the Company’s operating results and cash flows.

As a BDC, the Company is required to carry its investments at fair value as determined in good faith by or under the direction of its Board. Decreases in fair values of the Company’s investments are recorded as unrealized depreciation. Depending on market conditions, the Company could incur substantial losses in future periods, which could have a material adverse impact on its business, financial condition and results of operations.

The interests the Company has acquired in CLO vehicles are generally thinly traded or have only a limited trading market. CLO vehicles are typically privately offered and sold, even in the secondary market. As a result, investments in CLO vehicles may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLO vehicles carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the fact that the Company’s investments in CLO tranches will likely be subordinate to other senior classes of note tranches thereof; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO vehicle or unexpected investment results. The Company’s net asset value may also decline over time if the Company’s principal recovery with respect to CLO equity investments is less than the price that the Company paid for those investments.

44

OXFORD SQUARE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

NOTE 15. RISKS AND UNCERTAINTIES(cont.)

The Company places its cash in an overnight money market account and, at times, cash and cash equivalents may exceed the Federal Deposit Insurance Corporation insured limit. In addition, the Company’s portfolio may be concentrated in a limited number of portfolio companies, which will subject the Company to a risk of significant loss if any of these companies defaults on its obligations under any of its debt securities that the Company holds or if those sectors experience a market downturn.

NOTE 16. SUBSEQUENT EVENTS

The following distributions payable to stockholders are shown below:

Per Share Distribution
Amount Declared

 

Record Dates

 

Payable Dates

 $0.067

 

April15, 2020

 

April30, 2020

 $0.067

 

May14, 2020

 

May29, 2020

 $0.067

 

June15, 2020

 

June30, 2020

The Company’s management evaluated subsequent events through the date of issuance of these consolidated financial statements and noted no other events that necessitate adjustments to or disclosure in the financial statements.

45

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 about Oxford 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 ability to achieve objectives as a result of the current COVID-19 pandemic;

•        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 and the impact of the COVID-19 pandemic thereon;

•        the impact of any protracted decline in the liquidity of credit markets on our business and the impact of the COVID-19 pandemic thereon;

•        our future operating results and impacts of the COVID-19 pandemic thereon;

•        the ability of our portfolio companies and CLO investments to achieve their objectives, including as a result of the current COVID-19 pandemic;

•        the valuation of our investments in portfolio companies and CLOs, particularly those having no liquid trading market, and the impact of the COVID-19 pandemic thereon;

•        market conditions and our ability to access alternative debt markets and additional debt and equity capital, and the impact of the COVID-19 pandemic thereon;

•        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 the impact of the COVID-19 pandemic thereon; and

•        the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments and the impacts of the COVID-19 pandemic thereon.

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, including as a result of the current COVID-19 pandemic, 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;

•        a contraction of available credit and/or an inability to access the equity markets, including as a result of the current COVID-19 pandemic, 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;

46

•        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 U.S. dollars; and

•        the risks, uncertainties and other factors we identify inItem 1A. — Risk Factors contained in our Annual Report on Form 10-K for the year ended December31, 2019, elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.

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 inItem 1A. — Risk Factors contained in our Annual Report on Form 10-K for the year ended December31, 2019, 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 to Oxford Square Capital Corp. together with its subsidiary Oxford Square Funding 2018, LLC (“OXSQ Funding”); “Oxford Square Management” refers to Oxford Square Management, LLC; and “Oxford Funds” refers to Oxford Funds, LLC.

The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated 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 obligation (“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, non-diversified management investment company and have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We have elected to be treated for tax purposes as a regulated investment company (“RIC”), under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our 2003 taxable year.

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 Oxford Square Capital Corp.’s Board of Directors (the “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 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 $5million and $50million 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 few investments, if any, exceeding 5.0% of the total portfolio. As of March31, 2020, our debt investments had

47

stated interest rates of between 4.49% and 10.85% and maturity dates of between 14 and 136months. In addition, our total portfolio had a weighted average annualized yield on debt investments of approximately 8.77% as of March31, 2020.

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 March31, 2020, 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 quarter ended March31, 2020, the U.S. loan market exhibited a heightened level of volatility. While U.S. loan prices remained relatively stable throughout February 2020, the increasingly negative sentiment associated with the economic ramifications of the rapid spread of COVID-19 led to a precipitous decline in U.S. loan prices during March 2020, with the S&P/LSTA Leveraged Loan Index declining to a low of 76.23% of par value on March23, 2020 and ending March31, 2020 at 82.85% of par value. As of March31, 2020, the Company’s Board of Directors approved the fair value of the Company’s investment portfolio of approximately $261.8million in good faith in accordance with the Company’s valuation procedures. The Company’s Board of Directors approved the fair value of the Company’s investment portfolio as of March31, 2020 with input from Oxford Square Management based on information available at the time of approval, including trailing data and forward looking data. We believe that the COVID-19 pandemic represents an extraordinary circumstance that materially impacts the fair value of the Company’s investments. As a result, the fair value of the Company’s portfolio investments may be further negatively impacted after March31, 2020 by circumstances and events that are not yet known.

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the 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 consolidated 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 measure our investment portfolio at fair value in accordance with the provisions of ASC 820,Fair Value Measurement and Disclosure. Estimates made in the preparation of our consolidated financial statements include the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments

48

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 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: Level1, defined as observable inputs such as quoted prices in active markets; Level2, 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 Level3, 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 ongoing basis and have determined that due to the general illiquidity of the market for our investment portfolio, whereby little or no market data exists, all of our investments are based upon “Level 3” inputs as of March31, 2020.

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 may 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 consolidated statement of operations as net change in unrealized appreciation/depreciation.

Syndicated Loans

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 its 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 it owns 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. In addition, Oxford Square Management prepares an analysis of each syndicated loan, financial summary, covenant compliance review, 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. All information is presented to the Board for its determination of fair value of these investments.

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. In periods of illiquidity and volatility,

49

we may rely more heavily on other metrics, including but not limited to, the collateral manager, time left in the reinvestment period, expected cash flows and overcollateralization ratios, instead of the Company’s generated valuation yields. 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 our Board for its determination of fair value of these investments.

Bilateral Investments (Including Equity)

Bilateral investments 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, (i) have a value as of the previous quarter of greater than or equal to 2.5% of its total assets as of the previous quarter, and (ii) have a value as of the current quarter of greater than or equal to 2.5% of its total assets as of the current quarter, after taking into account any repayment of principal during the current 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: Grade1, at least annually; Grade2, at least semi-annually; Grades3,4, and5, 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. All information is presented to our Board for its determination of fair value of these 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 of March31, 2020 and December31, 2019, we had two debt investments on non-accrual status.

Interest income also includes a payment-in-kind (“PIK”) provision on certain investments in our portfolio. Refer to the section below, “Payment-In-Kind,” for a description of the PIK provision and its impact on interest income.

Payment-In-Kind

We have debt and preferred equity investments in our portfolio which contain a contractual PIK provision. Certain PIK investments offer issuers the option at each payment date of making payments in cash or additional securities. PIK interest and preferred equity dividends are computed at the contractual rate is accrued into income and recorded as interest and dividend income, respectively. The PIK amounts are added to the principal balance on the capitalization date. Upon capitalization, the PIK component is subject to the fair value estimates associated with their related investments. At the point we believe the PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. PIK investments on non-accrual status are restored to accrual status once it becomes probable that PIK will be realized. For the quarter ended March31, 2020, no PIK preferred equity dividends were recognized as dividend income as they were not expected to be fully realized.

50

Income from Securitization Vehicles and Investments

Income from investments in the equity class securities of CLO vehicles (typically income notes or subordinated notes) is recorded using the effective interest method in accordance with the provisions of ASC 325-40, based upon estimated cash flows, their expected timing and expected redemption, 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 consolidated statement of operations differs from both the tax-basis investment income and from the cash distributions actually received by us during the period.

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, 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 securitization structure; such fees are earned and recognized when the repayment is completed.

Recently Issued Accounting Standards

Refer to “Note 3. Summary of Significant Account Policies” to our consolidated financial statements for a description of recent accounting pronouncements, including the impact on our consolidated financial statements.

PORTFOLIO COMPOSITION AND INVESTMENT ACTIVITY

The total fair value of our investment portfolio was approximately $261.8million and $364.8million as of March31, 2020 and December31, 2019, respectively. The decrease in the value of investments during the three month period ended March31, 2020 was due primarily to net unrealized depreciation on our investment portfolio of approximately $85.4million (which incorporates reductions to CLO equity cost value of $2.0million) and debt repayments and sales of securities totaling approximately $23.0million partially offset by purchases of investments of approximately $7.4million. A reconciliation of the investment portfolio for the three months ended March31, 2020 and the year ended December31, 2019 follows:

($ in millions)

 

March 31,
2020

 

December 31,
2019

Beginning investment portfolio

 

$

364.8

 

 

$

445.0

 

Portfolio investments acquired

 

 

7.4

 

 

 

54.8

 

Debt repayments

 

 

(12.0

)

 

 

(43.9

)

Sales of securities

 

 

(11.1

)

 

 

(15.9

)

Reductions to CLO equity cost value(1)

 

 

(2.0

)

 

 

(12.8

)

Non-cash interest income due to PIK

 

 

0.1

 

 

 

8.0

 

Accretion of discounts on investments(2)

 

 

0.3

 

 

 

0.8