Overview

Oxford Square Capital Corp. (OXSQ) is a closed-end, non-diversified management investment company that has elected to be regulated as a business development company (BDC) under the Investment Company Act of 1940. OXSQ’s investment objective is to maximize its portfolio’s total return. The company primarily invests in corporate debt securities and, to a lesser extent, in collateralized loan obligations (CLOs).

OXSQ’s investment activities are managed by Oxford Square Management, a registered investment adviser. The company has elected to be treated as a regulated investment company (RIC) for tax purposes.

Portfolio Composition and Investment Activity

As of December 31, 2024, OXSQ’s total investment portfolio had a fair value of approximately $260.9 million, down from $266.9 million at the end of 2023. The decrease was due to principal repayments of $75.0 million, sales of securities totaling $11.8 million, and realized losses of $96.2 million, partially offset by $112.2 million in new investments and a $75.7 million net change in unrealized appreciation.

OXSQ’s portfolio consisted of 21 debt investments with a fair value of $150.7 million, CLO equity investments of $104.6 million, and equity/other investments of $5.6 million. The weighted average yield on debt investments was 15.76% as of December 31, 2024, compared to 13.30% at the end of 2023.

The top industries in OXSQ’s portfolio were structured finance (40.2%), business services (17.4%), and software (16.1%). The company’s CLO investments were diversified across various industries, with the top three being high tech industries (12.0%), healthcare & pharmaceuticals (10.3%), and banking/finance/insurance & real estate (10.1%).

Portfolio Grading

OXSQ uses an internal credit grading system to monitor the quality of its debt investment portfolio. As of December 31, 2024, the weighted average grade was 2.3, unchanged from the prior year. Approximately 58.2% of the debt portfolio was rated a grade 2, indicating full repayment of OXSQ’s cost basis and interest is expected.

Results of Operations

Investment income for the year ended December 31, 2024 was $42.7 million, down from $51.8 million in 2023. The decrease was primarily due to lower stated interest income from debt investments as a result of restructurings and refinancings, as well as lower floating interest rates.

Total operating expenses decreased to $16.2 million in 2024 from $24.5 million in 2023, driven by lower interest expense, incentive fees, and excise tax.

Net investment income for 2024 was $26.4 million, or $0.42 per share, compared to $27.4 million, or $0.51 per share, in 2023. The net increase in net assets resulting from operations was $5.9 million, or $0.09 per share, in 2024, compared to $17.2 million, or $0.32 per share, in 2023.

Liquidity and Capital Resources

As of December 31, 2024, OXSQ had cash and cash equivalents of $34.9 million, up from $5.7 million at the start of the year. The company generated $25.7 million in net cash from operating activities, which was used to fund $100.2 million in new investments, partially offset by $75.0 million in principal repayments and $11.8 million in sales of investments.

OXSQ has $125.3 million in outstanding principal amount of unsecured notes, with a weighted average stated interest rate of 5.77% and a weighted average maturity of 2.8 years as of December 31, 2024. The company’s asset coverage ratio was approximately 227% at the end of 2024.

During 2024, OXSQ raised $29.2 million in net proceeds from its at-the-market (ATM) equity offering program. The company paid total distributions of $0.42 per share for the year.

Conclusion

OXSQ navigated a challenging market environment in 2024, with lower investment income offset by reduced operating expenses. The company maintained a diversified portfolio focused on corporate debt and CLO investments, with a weighted average yield of 15.76% on its debt holdings. OXSQ’s liquidity position and access to capital markets provide flexibility to pursue new investment opportunities while supporting its distribution to shareholders.