Oxford Lane Capital Corp. (OXLC) Earnings

Management highlights

- Financial Results and Balance Sheet Metrics: * Net asset value per share as of June 30, 2026 was $10.74, up from $10.56 in the prior quarter * GAAP net investment income was ~$50.2 million, or $0.51 per share, down from ~$54.5 million ($0.56 per share) last quarter * Core net investment income was ~$93.4 million, or $0.95 per share, down from ~$100.7 million ($1.03 per share) last quarter * Net unrealized appreciation on investments totaled ~$54.5 million, with net realized losses of ~$28.4 million; net increase in net assets from operations was ~$76.3 million ($0.78 per share) * Weighted average effective yield on CLO equity investments (at current cost) was 11.1%, down from 11.7% last quarter; weighted average cash distribution yield was 16.3%, down from 16.7% last quarter * The firm held ~$66.2 million in newly issued/acquired CLO equity investments that had not yet made initial distributions as of quarter end - Market and Portfolio Activity: * U.S. loan market performance improved quarter-over-quarter: the U.S. loan price index rose from 94.63% to 94.96%, leading to a ~4 percentage point increase in median U.S. CLO equity net asset values * 12-month trailing default rate on the loan index (by principal) fell to 0.97% from 1.44% last quarter, though off-balance sheet restructurings and subpar activity remain elevated * U.S. CLO new issuance totaled ~$33 billion, down ~$14 billion from the prior quarter, while reset and refinancing activity rose to ~$94 billion from ~$56 billion last quarter * Oxford Lane traded over $85 million in CLO equity during the quarter, and participated in resets/refinancings that extended the weighted average reinvestment period of its equity portfolio from October 2029 to November 2029 * The firm made $37.8 million in new additional CLO investments, and received $50.7 million from sales and repayments * The Board of Directors declared monthly common stock distributions of $0.20 per share for October, November, and December 2026 - Strategic Approach: * The firm maintains an opportunistic, unconstrained CLO investment strategy across U.S. CLO equity, debt, and warehouse segments to maximize long-term total return * As a permanent capital vehicle, Oxford Lane takes a longer-term view of its investment strategy

Guidance

Management did not issue formal full-period financial guidance, and did not revise prior outlooks. The only forward-looking observations provided were: * Approximately 30% of the firm's portfolio (by market value) is eligible for profitable reset or refinancing transactions through the end of 2026, with an additional 30% eligible in 2027, giving over half of the portfolio embedded short-term optionality to reduce funding costs * Management noted that cash distribution yield declines slowed year-to-date, with July 2026 payments appearing to hit a low point relative to earlier in the year, and expressed hope for future increases driven by active CLO liability reset/refinancing activity, but declined to give concrete predictions for when distribution yields will bottom and begin expanding

Segment performance

Oxford Lane Capital Corp. operates primarily across three investment segments for this quarter: 1. CLO equity and CLO warehouse investments: Generated GAAP total investment income of approximately $83.7 million, accounting for 96.2% of the quarter's total GAAP investment income. 2. CLO debt investments and other income: Generated GAAP total investment income of approximately $3.4 million, accounting for 3.8% of the quarter's total GAAP investment income. Total GAAP investment income for the first fiscal quarter 2027 was approximately $87 million, a decrease of $6.9 million from the prior quarter.

Risks & headwinds

- The 12-month trailing default rate published for the U.S. loan index does not capture elevated levels of out-of-court restructurings, exchange offers, and subpar buybacks, meaning underlying credit stress may be higher than the published default rate indicates * Cash distribution yields for CLO equity have declined steadily over recent quarters, driven by loan spread compression, and there is uncertainty around when this trend will reverse * Changes in U.S. loan market conditions and liability spread levels can impact the availability and profitability of reset/refinancing opportunities, as well as portfolio yields

Analyst Q&A

• Q: How much near-term opportunity remains to improve portfolio funding costs via CLO resets and refinancings after the tightening of liability spreads? /

  A: Management reports that 25 resets/refinancings have been completed year-to-date. Roughly 30% of the portfolio by market value could be eligible for profitable transactions through the end of 2026, with another 30% becoming eligible in 2027, giving over half of the portfolio embedded short-term optionality to improve funding economics.

• Q: What is the current state of the secondary CLO market, and are there attractive opportunities to add to the portfolio to boost future yields? /

  A: Liquidity and bid-ask spreads have improved notably since the end of March. There is attractive relative value, particularly for CLO equity from lower-tier (market-perceived, not performance-based) managers that trade at wider yields, delivering attractive cash-on-cash and long-term absolute yields. The firm is seeing ample opportunities for both absolute buys and portfolio rotation.

• Q: What drove the realized losses recorded this quarter, and what common traits did the sold positions have? /

  A: Most realized losses came from portfolio rotation: the firm sold positions from highly sought-after managers to rotate into attractively priced positions from less highly regarded managers to capture yield premiums. Some losses also came from legacy positions that fully rolled off and had their indentures discharged during the quarter.

• Q: When will the portfolio's cash distribution yield likely bottom out and start expanding after recent declines? /

  A: Distribution declines slowed year-to-date, and April payments stabilized, though July 2026 saw another small decline driven by ongoing spread compression. Management noted July appears to be a low point relative to earlier in 2026, and active reset/refinancing activity can offset spread compression, but declined to give a firm prediction on the timing of a turnaround, as it depends on overall loan market conditions.