OXSQ

Business Context and Reporting Period

This summary covers the Form 10-Q filed by TICC Capital Corp. (Note: The input text identifies the registrant as TICC Capital Corp., despite the metadata reference to Oxford Square Capital Corp.) for the quarterly period ended June 30, 2013. TICC is a non-diversified, closed-end management investment company and a Business Development Company (BDC) that invests primarily in corporate debt securities and structured finance vehicles (CLOs). The company is managed by TICC Management, LLC, and administered by BDC Partners, LLC.

Key Financial Metrics

Operating Results (Six Months Ended June 30, 2013)

• Total Investment Income: $47.2 million (vs. $35.2 million in prior year period).
• Net Investment Income: $26.6 million (vs. $23.2 million in prior year period).
• Net Realized Gains: $8.5 million (vs. $1.8 million in prior year period).
• Net Unrealized Depreciation: $(12.8) million (vs. $1.4 million appreciation in prior year period).
• Net Increase in Net Assets from Operations: $22.3 million (vs. $26.3 million in prior year period).
• Net Investment Income per Share (Basic): $0.54 (vs. $0.65 in prior year period).

Material Changes vs. Prior Period

• Portfolio Growth: Total investments increased by approximately $238.2 million (35.7%) from December 31, 2012, driven by $407.3 million in new purchases, partially offset by repayments and sales.
• Debt Expansion: Total debt obligations increased significantly due to the utilization of the "accordion" feature in the TICC CLO 2012-1 securitization. The company issued an additional $120 million in secured notes and $40 million in subordinated notes in 2013, bringing the total face amount of secured notes in that vehicle to $240 million.
• Expense Increase: Total expenses before incentive fees rose to $20.6 million for the six months ended June 30, 2013, compared to $8.8 million in the prior year period. This increase is primarily attributable to higher interest expense from new debt issuances and increased base management fees due to higher gross assets.
• Unrealized Losses: The company recorded net unrealized depreciation of $12.8 million for the six-month period, a reversal from the $1.4 million appreciation recorded in the same period in 2012. Significant depreciation was noted in CLO equity investments and specific portfolio companies such as Pegasus Solutions, Inc. and Catamaran CLO Ltd.

Guidance, Outlook, and Risks

• Capital Raising: The company completed two public equity offerings in the first half of 2013, raising approximately $100.7 million in gross proceeds, and utilized an "at-the-market" issuance plan to raise an additional $13.7 million.
• Dividends: The company declared a quarterly distribution of $0.29 per share for the second quarter (paid June 28, 2013) and a subsequent distribution of $0.29 per share for the third quarter (declared July 30, 2013).
• Interest Rate Sensitivity: The portfolio is heavily weighted toward variable-rate debt investments ($693.7 million principal). Management estimates that a 1% increase in underlying interest rates would decrease net investment income by approximately $1.7 million annually due to interest rate floors on certain investments.
• Risk Factors: Key risks include leverage (which magnifies gains and losses), the illiquidity of the portfolio (substantially all investments are Level 3 fair value), and potential conflicts of interest with the investment adviser and related entities (Oxford Lane Capital Corp., T2 Income Fund CLO I Ltd.).
• Non-Accrual Status: As of June 30, 2013, one loan (RBS International Direct Marketing, par amount ~$22.7 million) was on non-accrual status.

Investor Verification Checklist

• Debt Maturity Profile: Verify the maturity dates of the $456.3 million in outstanding debt, noting that the Convertible Notes mature in 2017 and CLO notes mature in 2021 and 2023.
• CLO Equity Valuation: Review the valuation methodology for the $195.9 million in CLO equity investments, which represent 21.6% of the portfolio and contributed significantly to unrealized depreciation.
• Asset Coverage: Confirm the asset coverage ratio remains above the 200% threshold required by the Investment Company Act of 1940 (currently 211%).
• Related Party Fees: Scrutinize the $9.0 million in base management fees and the calculation of the capital gains incentive fee, which resulted in a $2.7 million accrual reversal for the period.
• PIK Income: Assess the impact of Payment-in-Kind (PIK) income ($1.2 million for the six months), which increases reported income but not cash flow, potentially requiring asset liquidation to fund distributions.