Good morning, and thank you for attending the Oxford Lane Capital Corp. announces net asset value and selected financial results for the second fiscal quarter and declaration of distributions on common stock. My name is Braca, and I will be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host, Jonathan Cohen, Chief Executive Officer at Oxford Lane Capital Corp. Thank you. You may proceed, Jonathan.

Good morning, everyone, and welcome to the Oxford Lane Capital Corp.'s Second Fiscal Quarter 2026 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Joe Kupka, our Managing Director. Bruce, could you open the call with the disclosure regarding forward-looking statements?

Thank you, Jonathan. Today's conference call is being recorded. An audio replay of the call will be available for 30 days. Replay information is included in our press release that was issued earlier this morning. Please note that this call is the property of Oxford Lane Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure in this morning's press release regarding forward-looking information. Today's conference call, including forward-looking statements and projections that reflect the company's current views with respect to, among other things, future events and financial performance. We ask that you refer to our most recent filings with the SEC for important factors that can cause actual results to differ materially from those indicated in these projections. We do not undertake to update our forward-looking statements unless required to do so by law. During this call, we will use terms defined in the earnings release and also refer to non-GAAP measures. For definitions and reconciliations to GAAP, please refer to our earnings release posted on our website at www.oxfordlanecapital.com. With that, I'll turn the presentation back over to Jonathan.

Thank you, Bruce. On September 30, our net asset value per share stood at $19.19 compared to a net asset value per share of $20.60 as of the prior quarter. All prior quarter per share amounts being discussed during this call have been adjusted to reflect the 1-for-5 reverse stock split of our common stock, which became effective on September 5. For the quarter ended September, we reported GAAP total investment income of approximately $128.3 million, representing an increase of approximately $4.3 million from the prior quarter. The quarter's GAAP total investment income consisted of approximately $124.6 million from our CLO equity and CLO warehouse investments and approximately $3.7 million from our CLO debt investments and from other income. Oxford Lane recorded GAAP net investment income of approximately $81.4 million or $0.84 per share for the quarter ended September compared to approximately $75.1 million or $0.80 per share for the quarter ended June. Our core net investment income was approximately $120 million or $1.24 per share for the quarter ended September compared with approximately $112.4 million or $1.19 per share for the quarter ended June. As of September 30, we held approximately $366 million in newly issued or newly acquired CLO equity investments that had not yet made their initial distributions to Oxford Lane. For the quarter ended September, we recorded net unrealized depreciation on investments of approximately $68.5 million and net realized losses of approximately $18.1 million. We had a net decrease in net assets resulting from operations of approximately $5.3 million or $0.05 per share for the second fiscal quarter. As of September 30, the following metrics applied. We note that none of these metrics necessarily represented a total return to shareholders. The weighted average yield of our CLO debt investments at current cost was 17.4%, up from…

Thanks, Jonathan. During the quarter ended September 30, 2025, U.S. loan market performance remained steady versus the prior quarter. U.S. loan price index decreased from 97.07% as of June to 97.06% as of September 30. Against this backdrop, median U.S. CLO equity net asset values rose approximately 20 basis points. Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased to 318 basis points compared to 327 basis points last quarter. The 12-month trailing default rate for the loan index increased to 1.47% by principal amount at the end of the quarter from 1.11% at the end of June 2025. We note that out-of-court restructurings, exchanges and subpar buybacks, which are not captured in the cited default rate remain elevated. CLO new issuance for the quarter totaled approximately $53 billion, reflecting an approximate $2 billion increase from the previous quarter. Additionally, the U.S. CLO market saw approximately $105 billion in reset and refinancing activity in Q3 2025 compared to approximately $53 billion in the previous quarter. Oxford Lane remained active this quarter, investing over $145 million in CLO equity debt and warehouses. During the quarter, we also directed or participated in more than 25 resets and refinancings taking advantage of tightening liability spreads to lower the cost of funding and lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio from January 2029 to May 2029. We continue to evaluate existing investments for opportunities to improve the economics of our CLO equity positions. Our primary investment strategy during the quarter was to engage in relative value trading and seek to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio. In the current market environment, we intend to continue to utilize our opportunistic and unconstrained CLO investment strategy across U.S. CLO equity debt and warehouses as we look to maximize our long-term total return. And as a permanent capital vehicle, we have historically been able to take a longer-term view towards our investment strategy. With that, I'll turn the call back over to Jonathan.

Thank you, Joe. Additional information about Oxford Lane's second fiscal quarter performance has been uploaded to our website at www.oxfordlanecapital.com. And with that, operator, we're happy to open the call up for any questions.

[Operator Instructions] And the first question we have comes from Mickey Schleien with Clear Street.

Jonathan, how would you characterize trends in loan spreads in October relative to September?

So I think year-to-date, the year was dominated by this repricing wave. Through October, we've definitely seen a softness in the loan market with the LSTA selling off a bit. So that had put a bit of a pause on the repricing wave. With that said, now the loan market is now about over 40% trading above par. So I don't expect the repricing wave we've seen year-to-date to continue at this pace, but I think there's still a bit of repricing activity to come.

Okay. My next question relates to cash yield. What drove the decrease in the CLO equity portfolio's cash yield quarter-to-quarter? And how do we reconcile that against an increase in your core NII?

So the decrease in the cash yields was driven by two factors. One, we performed a lot of these resets and refinancings, which in the short term take a bit of a hit to the cash yield just because of the expenses coming out. And -- but the main driver was just this repricing wave that kind of compressed the ARB across all CLO equity vehicles and across the whole market. In terms of the core NII, that number tends to move around a bit due to first-time payers, which we've had a significant amount of these past several quarters and also repayments in terms of liquidated CLOs.

That's helpful, Joe. First Brands filed for bankruptcy at the very end of the quarter, and as we know, it was widely held among many CLOs with some having over a 1% allocation to it. So I'd like to understand what was the impact of its bankruptcy on your portfolio's value?

I would say it was pretty muted overall, even though there were some CLOs that had 1% positions. Overall, the average position was somewhere between 20 to 30 basis points. So there wasn't a significant impact, I would say, just given the diversified nature of CLOs in general. We also didn't see a huge impact to OC ratios, especially considering the robust OC ratios we've had in our portfolio. In fact, we saw a decrease quarter-over-quarter.

Yes, that was actually my next question, and -- I'm sorry.

No, sorry. Go ahead.

No, I was going to ask about the OC cushion, which, as you said, held up. And do you expect it to have a modest impact on portfolio yields going forward? I'm referring to First Brands.

We don't really make those sorts of public pronouncements, Mickey, but I think Joe's comments sort of frame the issue from our point of view.

Okay. And Jonathan, if First Brands wasn't a big driver, what -- apart from loan spread compression, what drove this quarter's realized and unrealized losses?

It was primarily loan spread compression, Mickey. I don't really think there was a secondary or tertiary element that was nearly as pronounced as that fact.

And within the realized losses, Jonathan, could you give us a sense of -- you're obviously trading and looking for some value plays. What's appealing to you? And what are you trading out of? And what are you trading into that's driving those realized losses?

With about 300 line items, Mickey, you can appreciate, of course, that we're not really pursuing thematic trading strategies. We're typically selling things we think we can sell well, and we're buying things that we think we can buy better.

And a couple more questions, if I might. What would you say is the current level of AAA CLO debt, Jonathan, in the market? And could you quantify the remaining opportunity in your portfolio to refinance or reset liabilities?

Sure. So currently, the for Tier 1 AAAs, they just broke 120, so like 119, the best level currently. In terms of resets, that number is a bit back, call it, low 120s in terms of our go-forward opportunities. We were very active this quarter, resetting and refinancing any of our in-the-money positions. I don't expect that to be repeated this quarter. But starting next quarter, we see several more CLOs come out of their non-call period, which we see a lot of opportunity for continued resetting refinancing starting next year.

And portfolio rotation.

Right, right. And I see that your average AAA spread is 133. So there has to be at least a handful that are in the money, right, Joe?

Yes, exactly.

We would, yes, I think so.

Okay. And lastly, and I appreciate your patience. Could you give us a sense of your target balance sheet leverage ratio under these current market conditions? I mean it's pretty low right now.

Sure, Mickey. We don't publish or announce a target leverage ratio by virtue of the fact that there are so many variables for us to consider, principally amongst them, the overall level of leverage on our balance sheet, which, as you referenced, I think, is on the relatively low side at the moment. But most profoundly, the cost of capital and ultimately, the use of proceeds. So we don't have a target that's specifically higher than where we're sitting right now. But as you can imagine, we're looking at that cost of capital, and we're looking at those uses of proceeds, essentially on a real-time basis.

Let me ask it a different way, Jonathan. Are you open to operating at a little bit higher leverage to take advantage of all the opportunities in the market, given how much volatility we're seeing?

Yes, we are open to that possibility.

Your next question comes from Steven Bavaria with Inside the Income Factory.

Jonathan, Steve Bavaria here. You guys obviously were the first ones to bring CLOs, previously an institutional asset class, obviously, to the retail market. And while you -- it was a while ago, I'd say we're all -- certainly my readers, we're all still scrambling to kind of catch up with what -- it's a complex asset class and how to analyze it, especially within a closed-end fund wrapper, so to speak. And one of the things that comes up a lot, and I'm not sure I even have it right, but you could help me. It seems because you're required to pay out 90% or so of your pretax income to your -- as a distribution and I guess an even higher percentage of any capital gains, you're not in a position like a regular bank. CLOs unlike regular banks can't and you certainly can't set up reserves for future loan losses, the way JPMorgan and others normally do. So it would seem if I'm right, that a lot of the losses in CLOs kind of appear at the end when the CLOs are winding down, that you're often forced to pay out distributions that in fact, are not going to be necessarily fully earned once a particular CLO winds down. If that's correct, then you're always going to have a certain amount of NAV erosion that's normal. In judging you, we should be looking at your total return, your total distribution, say minus any NAV erosion. And if that number is still an attractive number, then that's fine. Am I -- are we looking -- am I looking at that right? Is that essentially the proper lens to be evaluating your performance in?

We believe so, Steve. I mean that's certainly how we view our mandate and how we run the portfolio within Oxford Lane. So we are a total return-focused investor. And the manifestation of that return can appear through the income that we receive from our CLO equity and junior debt investments. It can appear in the form of capital gains, potentially. It can appear to the investor through the distributions they receive and changes in the NAV, which can be positive or negative for any period. Certainly, we've had years, individual years where the total return has greatly exceeded the amount of the distribution. And we've had years where the total return has not equaled the amount of distribution, and therefore, there's been mathematically a diminishment to the NAV in those periods. But I think from a philosophical point of view, Steve, you're certainly thinking of it in a manner that's aligned with our own.

And there will -- because of that requirement that you pay out all of your -- or most of your pretax income, even though later on post -- once you absorb some of those, the losses that are normal, normal default credit losses are normal even in healthy CLOs, healthy loan portfolios, that there will always be a certain amount of over time NAV erosion that we should kind of expect that. And it's then a question of determining what NAV erosion is normal and what is abnormal? Is that essentially correct?

Well, I mean, it's an opinion. So it's hard to say if it's correct or incorrect, but I think it's a logically consistent opinion, and it's one that we generally share in those markets. I mean -- but the reason, Steve, that -- or I should say, the result of the way that you've just described it, is that we have pursued for the last -- since 2011 when Oxford Lane Capital Corp. came public, we have pursued an active portfolio management strategy. In other words, we've basically committed ourselves to reviewing the body of our portfolio, essentially on a daily or real-time basis and making determinations and decisions based on relative value and absolute value in pursuit of this total return mandate. And the result of that is that you will see and you have seen historically that we've had relatively high levels of trading volumes, by virtue of the fact that, as Joe referenced earlier, we're looking to push out our maturity windows. We're looking to push out our reinvestment periods. We're looking essentially to actively manage this portfolio very much in view of the dynamic you've just described.

We now have the next question from -- we have Erik Zwick with Lucid Capital Markets.

I wanted to start just Jonathan, maybe get your view. Your spreads remain very tight in the primary market, yet there's still a great deal of uncertainty with regard to the macroeconomic outlook. There's been noted weakness in lower end consumer. The impact of higher tariffs are still unknown. You got the government shutdown, which could have primary as well as secondary impact. So just kind of curious, putting that together, do you think lenders and CLO buyers are being appropriately compensated for the level of risk in the economy today?

I wouldn't make, Erik, that blanket statement. What I would say instead is that in the primary market, in new CLOs that we are involved with and purchasing. And in the secondary market, in terms of the trading opportunities that we see, we have and continue to see opportunities that we believe are compelling and are providing us with an adequate level of risk-adjusted return. But in terms of the market overall, there are certainly CLO transactions in the primary market and CLO transactions in the secondary market that we would not participate in because we don't think they're sufficiently compelling like every other market. I think to go into this asset class and to essentially buy the market has never been something that we've embraced. We've always been, I'd like to think anyways, and I believe more discerning and selective than that.

Yes, that makes sense. And I guess kind of given that commentary, if you look at your pipeline, today are -- has the size of the pipeline changed relative to maybe 9, 12 months ago? Are you seeing fewer kind of attractive risk-adjusted opportunities given some of the macroeconomic overlay? Or is it still fairly robust? And maybe kind of part 2 to that question would be, in your view, are the more attractive opportunities today in the primary or the secondary market?

Sure. Well, keeping in mind, Erik, that a forward pipeline really only refers to the primary market. We don't know what's going to be available to us at what price in 1 or 2 or 3 months in the secondary market. But Joe, why don't you speak a little bit to what we're seeing in the primary market right now?

Yes. I think to your question, things have definitely changed with what we're focusing on. Earlier this year and last year, we were very heavily investing in the primary market. Now to your point, that has changed a bit. We're very focused on the secondary market, while we're a little more patiently ramping in the primary and kind of waiting for the right moment to term out some of the CLOs. So I would say we're still seeing a large number of relatively attractive opportunities, but the type of those opportunities has and continues to change very rapidly given the tightening liability and the repricing wave we've seen.

And the macroeconomic factors, Erik, that you referenced earlier.

Yes. Great. And in terms of the net unrealized depreciation in the most recent quarter, curious, was that more reflective of individual security fair value changes or more due to broad market factors? Just curious what the drivers there were.

I think it was more broadly based, Erik, principally predicated on the U.S. syndicated corporate loan spread compression dynamic that Joe was referencing earlier.

Yes. And then if so, I guess, if we were to see spreads widen a little bit, you could certainly see some recapture of that unrealized depreciation in future periods if we were to see that. .

Ceteris paribus, yes.

Yes, yes. Okay. And then curious if I might have missed it if you said it earlier, quantity of new investments that have yet to make their first payments. Do you have that number handy?

I believe it was $366 million as of 9/30.

$366 million, Erik.

Okay. And you would expect most of those to make their first payments here in calendar 4Q?

About half to make next quarter and then the other half, the following quarter.

I can confirm that does conclude the question-and-answer session. I'd like to hand it back to Jonathan Cohen for some final closing comments.

I'd like to thank everybody on the call and listening in the replay for their interest and their participation, and we look forward to speaking to you again soon. Thanks very much.

Thank you. I can confirm that does conclude today's conference call with Oxford Lane Capital Corp. Thank you all for your participation, and you may now disconnect.