OXSQ

Oxford Square Capital Corp. (OXSQ) - Q2 2026 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2026. Oxford Square Capital Corp. is a closed-end management investment company regulated as a Business Development Company (BDC) and taxed as a Regulated Investment Company (RIC). The Company's investment objective is to maximize total return by investing primarily in corporate debt securities and, to a lesser extent, Collateralized Loan Obligations (CLOs).

Key Financial Metrics

Material Changes vs. Prior Period

• Operating Loss: The Company reported a net decrease in net assets from operations of $21.53 million for the six months ended June 30, 2026, compared to a decrease of $3.74 million in the same period in 2025. This deterioration was primarily driven by significant net realized losses of $35.95 million.
• Realized Losses: Net realized losses increased substantially year-over-year, attributed to write-downs and sales of portfolio investments. Significant unrealized appreciation reversals occurred upon realization of gains/losses.
• Investment Income: Total investment income decreased by approximately $1.34 million year-over-year for the six-month period, largely due to a decline in income from securitization vehicles (CLOs).
• Interest Expense: Interest expense increased to $5.59 million for the six months ended June 30, 2026, compared to $3.89 million in the prior year period, reflecting the issuance of 7.75% Unsecured Notes in August 2025.
• NAV Decline: NAV per share declined from $1.69 at December 31, 2025, to $1.29 at June 30, 2026.

Guidance, Outlook, and Risks

• Portfolio Composition: As of June 30, 2026, the portfolio consisted of 58.2% Senior Secured Notes ($147.2 million), 35.7% CLO Equity ($90.3 million), and 6.1% Equity and Other Investments ($15.4 million). The weighted average annualized yield on debt investments was approximately 14.95%.
• Capital Activities: The Company raised approximately $30.1 million net of costs through its At-the-Market (ATM) equity program during the six months ended June 30, 2026. No shares were repurchased under the authorized $25.0 million share repurchase program.
• Distributions: The Company paid distributions of $0.105 per share for the quarter ended June 30, 2026. The Board has declared subsequent quarterly distributions of $0.035 per share through the end of 2026.
• Risks and Contingencies:
  • Valuation Risk: Substantially all investments are Level 3 assets valued using unobservable inputs, requiring significant management judgment.
  • Credit Risk: The portfolio includes investments in distressed or non-performing assets. As of June 30, 2026, 23.6% of the debt portfolio by principal value was graded as "3" (closer monitoring required), though no debt was on non-accrual status.
  • Liquidity: Cash and cash equivalents decreased by approximately $17.3 million during the six-month period due to investment purchases and operating cash outflows.
  • Interest Rate Risk: The Company is exposed to interest rate volatility; a 100 basis point increase in base rates is estimated to increase investment income by 4.8%.

Investor Verification Checklist

• Verify the tax characterization of distributions, as a portion may be a return of capital given the net operating loss for the period.
• Review the specific portfolio companies contributing to the $35.95 million in net realized losses (e.g., Telos CLO 2014-5, RSA Security, Tungsten Automation).
• Monitor the asset coverage ratio (currently 185%) to ensure compliance with the 150% minimum requirement under the 1940 Act.
• Assess the impact of the 7.75% Unsecured Notes on future interest expense and net investment income.
• Confirm the status of qualifying assets (69.4% of total assets), which is below the 70% threshold required for acquiring additional non-qualifying assets.