Oxford Lane Capital Corp. Q4 FY2026 earnings call

Quarter-End Financial Results

• Net asset value (NAV) per share as of March 31, 2026 was $10.56, down from $15.51 in the prior quarter; the midpoint of estimated NAV per share as of April 30, 2026 was $11.27
• GAAP net investment income was $54.5 million ($0.56 per share), down from $71.8 million ($0.74 per share) in the prior quarter
• Core net investment income was $100.7 million ($1.03 per share), down from $108.9 million ($1.12 per share) in the prior quarter
• The quarter recorded net unrealized depreciation on investments of $381.4 million, net realized losses of $38.4 million, and a net decrease in net assets from operations of $365.3 million ($3.74 per share)
• The Board of Directors declared monthly common stock distributions of $0.20 per share for July, August, and September 2026

Market Environment Updates

• U.S. loan market performance declined quarter-over-quarter: the U.S. loan price index fell from 96.64% to 94.63%, driving a 17-point median decrease in U.S. CLO equity net asset values
• Median weighted average spreads across CLO loan pools decreased to 304 basis points from 311 basis points in the prior quarter
• The 12-month trailing default rate for the U.S. loan index (by principal amount) rose to 1.4% from 1.2% at the end of the prior quarter; out-of-court restructurings, exchanges, and subpar buybacks (not counted in the official default rate) remain elevated
• Total U.S. CLO new issuance was $47 billion, an $8 billion decrease from the prior quarter; reset and refinancing activity totaled $56 billion, down from $74 billion in the prior quarter

Operational Activity and Strategy

• Oxford Lane remained active during the quarter, trading over $75 million in CLO equity and CLO warehouse positions
• The firm led or participated in multiple CLO resets/refinancings, which lowered funding costs and extended the weighted average reinvestment period of the CLO equity portfolio from August 2029 to October 2029
• The firm continues to evaluate existing investments to improve the economics of its CLO equity positions
• Oxford Lane maintains an opportunistic, unconstrained CLO investment strategy across U.S. CLO equity, debt, and warehouses to maximize long-term total return, and as a permanent capital vehicle, it takes a long-term approach to investments

Oxford Lane Capital operates primarily across three investment segments related to collateralized loan obligations (CLOs): CLO equity and CLO warehouse investments, and CLO debt investments with other miscellaneous income. For the fourth fiscal quarter ended March 31, 2026, total GAAP investment income was $94 million. Of this total, CLO equity and CLO warehouse investments contributed $90.8 million, accounting for 96.6% of total GAAP investment income. CLO debt investments and other income contributed $3.1 million, accounting for 3.3% of total GAAP investment income. Additional segment-level financials: as of March 31, 2026, the weighted average effective yield of CLO equity investments at current cost was 11.7% (down from 13.8% at the end of the prior quarter), and the weighted average cash distribution yield of CLO equity investments at current cost was 16.7% (down from 19% in the prior quarter). The firm held $64 million in newly issued/acquired CLO equity investments that had not yet made initial distributions to the firm as of quarter-end. During the quarter, the firm made $500,000 in new additional CLO investments and received $82.9 million from sales and repayments of investments.

Management did not provide formal numerical full-year or next-quarter financial guidance in this call. The only forward-looking update noted that market conditions had stabilized and improved following the end of the fourth fiscal quarter, with increased buyer interest and liquidity in the CLO equity market entering the second calendar quarter of 2026.

• U.S. loan price declines and spread compression negatively impact CLO equity net asset values
• Official default rates do not capture elevated levels of out-of-court restructurings, exchanges, and subpar buybacks that create additional underlying credit risk
• Periods of low secondary market liquidity for CLO equity, with widened bid-ask spreads and limited buyer participation, negatively impact mark-to-market valuations of the firm's investment portfolio
• Sustained unfavorable market conditions could lead to continued unrealized depreciation and pressure on distributions and returns
• Further loan repricing activity may occur if a large share of loans trade above par, which could lead to additional spread compression

Q: What were the primary drivers of the large unrealized depreciation in the quarter, and how have conditions changed so far in Q2? / A: Unrealized depreciation stemmed from a combination of three factors: continued asset spread compression in the loan market, broad sell-off of U.S. loans driven by weakness in tech and software names, and a pullback in CLO equity buyers that widened bid-ask spreads and hurt mark-to-market pricing. Since quarter-end, the market has stabilized: loan spread compression has paused, buyer demand has returned, and April was a strong month for CLO equity.

Q: New investment deployment was very light this quarter. Are more deployment opportunities emerging as market conditions improved in Q2? / A: Yes, more opportunities are now available. Secondary market liquidity has improved meaningfully, bid-ask spreads have tightened substantially, and overall trading activity has increased dramatically compared to one to two months ago.

Q: Given the recent unrealized depreciation and uncertain market improvement, how is management approaching portfolio leverage today? / A: Management is taking a conservative stance on leverage. The firm entered the recent downturn with a manageable overall leverage level. The firm does not plan to increase balance sheet leverage via new debt issuance, unless new debt is only used to repay existing debt.