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, sales of securities, and realized losses, partially offset by new investments and net unrealized appreciation.

During 2024, OXSQ purchased $112.2 million in new investments, including $31.0 million in existing portfolio companies and $81.2 million in new portfolio companies. The company had $75.0 million in principal repayments and $11.8 million in sales of securities.

OXSQ’s portfolio consisted of 57.8% senior secured notes, 40.1% CLO equity, and 2.1% equity and other investments as of December 31, 2024. The top industries represented were structured finance (40.2%), business services (17.4%), and software (16.1%).

Portfolio Grading

OXSQ uses an internal credit grading system to monitor the quality of its debt investment portfolio. As of December 31, 2024, the portfolio had a weighted average grade of 2.3, with 74.5% of the debt portfolio in Grade 2 (full repayment of OXSQ’s cost basis and interest expected) and 25.2% in Grade 3 (requiring closer monitoring).

Results of Operations

OXSQ’s total investment income decreased from $51.8 million in 2023 to $42.7 million in 2024, primarily due to lower stated interest income from debt investments. Total operating expenses decreased from $24.5 million in 2023 to $16.2 million in 2024, driven by lower interest expense, incentive fees, and excise tax.

Net investment income was $26.4 million in 2024 compared to $27.4 million in 2023. The net increase in net assets resulting from operations was $5.9 million in 2024 versus $17.2 million in 2023, as net realized and unrealized losses increased from $10.1 million to $20.6 million.

Liquidity and Capital Resources

OXSQ’s cash and cash equivalents increased from $5.7 million at the start of 2024 to $34.9 million by the end of the year. The company generated $25.7 million in net cash from operating activities and raised $29.2 million in net proceeds from its at-the-market (ATM) equity offering program, which was partially offset by $25.8 million in distributions paid.

As of December 31, 2024, OXSQ had $125.3 million in principal amount of unsecured notes outstanding, with a weighted average stated interest rate of 5.77% and a weighted average maturity of 2.8 years.

Outlook

OXSQ continues to focus on maximizing the total return of its investment portfolio by selectively deploying capital into corporate debt securities and CLOs. The company’s ability to generate investment income and manage credit risk will be key factors in determining its future performance and distributions to shareholders.