Oxford Lane Capital Corp Stock

Good morning, and welcome, everyone, to the Oxford Lane Capital Corp. Second Quarter Earnings Call. Today's conference is being recorded. [Operator Instructions]

At this time, I would like to turn the conference over to Jonathan Cohen, Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to the Oxford Lane Capital Corp. Second Fiscal Quarter 2027 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?

Sure, 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 includes 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 could 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 return the call back to Jonathan.

Thank you, Bruce. On September 30, our net asset value per share stood at $9.95, compared to a net asset value per share of $10.74 as of the prior quarter. For the quarter ended September, we recorded GAAP total investment income of approximately $82.2 million, representing a decrease of approximately $4.8 million from the prior quarter. The quarter's GAAP total investment income consisted of approximately $78.8 million from our CLO equity and CLO warehouse investments and approximately $3.4 million from our CLO debt investments and from other income.

Oxford Lane recorded GAAP net investment income of approximately 74 -- I'm sorry, $47.8 million, or $0.49 per share for the quarter ended September compared to approximately $50.2 million, or $0.51 per share for the quarter ended June 30.

Our core net investment income was approximately $66.4 million, or $0.68 per share for the quarter ended September compared with approximately $93.4 million, or $0.95 per share for the quarter ended June 30. As of September 30, we held approximately $7.5 million in newly issued or newly acquired CLO equity investments that had not yet made initial distributions to Oxford Lane.

For the quarter ended September 30, we recorded unrealized depreciation on investments of approximately $43.8 million and net realized losses of approximately $22.6 million. We had a net decrease in net assets resulting from operations of approximately $18.5 million, or $0.19 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 effective yield of our CLO equity investments at current cost was 10.5%, down from 11.1% as of June 30. The weighted average cash distribution yield of our CLO equity investments at current cost was 12.4%, down from 16.3% as of June 30. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end. During the quarter ended September 30, we made additional CLO investments of approximately $18.7 million, and we received approximately $31.2 million from sales and from repayments.

On October 22, our Board of Directors declared monthly stock distributions of $0.10 per share for each of the months ending January, February and March of 2027. On October 2, we redeemed $30 million of our 5% notes due 2027 and subsequently announced that we will redeem the remaining $40 million currently outstanding on December 4, at which point these notes will be fully retired. We issued an additional 1.6 million shares of our 8.25% Series 2031 term preferred stock on October 23 with an aggregate liquidation preference of $40 million. These shares are part of the same series initially issued on March 20, 2026.

With that, I'll turn the call over to Joe Kupka.

Thank you, Jonathan. During the quarter ended September 30, 2026, U.S. loan market performance improved versus the prior quarter. U.S. loan price index increased from 94.96% as of June 30 to 95.32% as of September 30. The increase in U.S. loan prices led to an approximate 5-point increase in median U.S. CLO equity net asset values.

Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased modestly to 300 basis points compared to 302 basis points last quarter. Accumulated spread compression has weighed on cash flows. According to Barclays, BSL CLO equity payments in 2026 have been the lowest since the global financial crisis.

The 12-month trailing default rate for the loan index decreased to 0.55% by principal amount at the end of the quarter from 0.97% at the end of June. 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 $46 billion, reflecting an approximate $12 billion increase from the previous quarter. Additionally, the U.S. CLO market saw approximately $86 billion in reset and refinancing activity in calendar Q3 2026 compared to approximately $94 billion in the previous quarter.

Oxford Lane remained active this quarter, trading nearly $50 million in CLO equity. During the quarter, we also led or participated in numerous resets and refinancings, taking advantage of tighter liability spreads to lower the cost of funding and lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio from November 2029 to January 2030. We continue to evaluate existing investments for opportunities to improve the economics of our CLO equity positions.

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.

Thanks, Joe. Additional information about Oxford Lane's second fiscal quarter has been uploaded to our website at www.oxfordlanecapital.com.

And with that, operator, we're happy to poll for any questions.

[Operator Instructions] Our first question comes from Erik Zwick at Lucid Capital Markets.

I wanted to start maybe with just a bigger term, kind of bigger picture question. And looking back over the past 6 quarters, NAV is down 49% and the quarterly distribution rate has been reduced, I think, by 78%. And Oxford Lane is not alone in this experience. The other equity CLO funds in the space have experienced very similar conditions.

So from an investor who's looking at this as a total return vehicle, over the past 6 years -- sorry, the past 6 quarters this -- I'm trying to think of the best way to characterize this, kind of, been a very adverse experience. So it seems relatively kind of unprecedented over the recent history, 5 or 10 years. So just curious, as you, kind of, take a look at that, is there anything, kind of, different you could have done to potentially navigate this environment differently? And just kind of curious to your thoughts there.

Within the context, Erik, of investing in CLO tranches and specifically CLO equity and, to a much lesser extent, CLO junior debt tranches, I feel that we've constructed an effective portfolio, but it has been a portfolio that has been impacted substantially by market conditions. The CLO market has been in a decline and at -- selling at depressed levels for the last 18 months or slightly more than 18 months. So I appreciate the question, and we're sensitive to it. But at the same time, we have to acknowledge the overall state of this asset class.

Yes, that makes sense. And I guess thinking about the future and from here, and it's been a challenging environment in the market, as you mentioned, you have a very long experience in this market. To what extent is this potentially reversible from the NAV decline and then the cash flow yield? What does it take to, kind of, rebuild and repair from here? And I guess the second part of the question is, how is the current -- your view of the current market and maybe the next few quarters, do they potentially present an opportunity? Like where do you, kind of, go forward from here?

Sure. I think the answer to the question, Erik, is best reflected in the state of the CLO secondary market. And in our opinion, we are seeing interesting and even compelling opportunities now within that market for this asset class. So there is, I think, only a quite weak bid for CLO equity broadly, and that has translated into lower transaction prices. And those lower transaction prices, and we are actively -- as you can see, we're actively participating in that market and buying things at prices that we think are compelling, hopefully will provide us with long-term compelling total returns from these depressed levels. That is the hope. And certainly...

Yes.

And certainly, measured on a scale of cash-on-cash returns, the opportunities that we're seeing now, we think, are truly interesting.

Yes. No, that's good to hear. And you guys have, as you pointed out, been very active there. I guess it's interesting to me, having covered a number of different, kind of, credit-based products in the past that this occurred in, kind of, the current market environment, while there's been a little bit of elevated credit issues and maybe some LME transactions, there hasn't been a major credit downturn in the U.S. What do you think maybe has, kind of, turned the sentiment for the market and, kind of, drove the market, kind of, reaction that we've seen in terms of leveraged loan prices and things of that nature since it was not credit in this instance?

Well, leveraged loan prices have not been depressed. Leveraged loan prices, if anything, have been strong. And that gets manifested in U.S. syndicated corporate loan spreads, which have been tight. And those tight spreads, all things being equal, diminish the embedded arbitrage within every U.S. CLO equity tranche. So that's been a weight.

But I think a more important weight, a more important factor in this equation has been an overall turn in sentiment, which you noted, starting a little less than 2 years ago. And the reason for that may be embedded inside of a similar turn in sentiment for private credit broadly, which we certainly saw start to play out pretty powerfully about 18 months ago. So I think -- or we believe that flows of funds and technical factors and supply and demand characteristics are pushing this market or have pushed this market in a certain way that, again, we're hoping starts to reverse fairly soon.

I appreciate all the thoughts. And I guess the key takeaway here is that you guys continue to manage the strong portfolio that you've built. Certainly, it's impossible to be completely immune to market moves. And hopefully, that the market moves back in your favor in the near term. But in the meantime, you'll continue to manage and make smart investment opportunities with that long term in mind. So it's a good way to approach it.

And that concludes our Q&A session. I would like to turn the conference back over to Jonathan for closing remarks.

Thanks very much. I'd like to thank everybody who has listened to this call live or on the replay, and we look forward to speaking to you again soon. Thanks very much.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oxford Lane Capital Corp. Announces Net Asset Value and Selected Financial Results for the First Fiscal Quarter 2027 Conference Call. [Operator Instructions]

It is now my pleasure to turn the call over to Mr. Jonathan Cohen, CEO. Please go ahead.

Thank you very much. Good morning, everyone. Welcome to the Oxford Lane Capital Corp. First Fiscal Quarter 2027 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Joe Kupka, our Managing Director and Portfolio Manager.

Bruce, could you open the call with the disclosure regarding forward-looking statements?

Sure, 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 includes 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 could 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 June 30, 2026, our net asset value per share stood at $10.74 compared to a net asset value per share of $10.56 as of the prior quarter. For the quarter ended June, we recorded GAAP total investment income of approximately $87 million, representing a decrease of approximately $6.9 million from the prior quarter. The quarter's GAAP total investment income consisted of approximately $83.7 million from our CLO equity and CLO warehouse investments and approximately $3.4 million from our CLO debt investments and from other income.

Oxford Lane recorded GAAP net investment income of approximately $50.2 million or $0.51 per share for the quarter ended June, compared to approximately $54.5 million or $0.56 per share for the quarter ended March 31. Our core net investment income was approximately $93.4 million or $0.95 per share for the quarter ended June, compared with approximately $100.7 million or $1.03 per share for the quarter ended March 31. As of June 30, we held approximately $66.2 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 June, we recorded net unrealized appreciation of investments -- on investments of approximately $54.5 million and net realized losses of approximately $28.4 million. We had a net increase in net assets resulting from operations of approximately $76.3 million or $0.78 per share for the first fiscal quarter. As of June 30, the following metrics applied. We note that none of these metrics necessarily represented a total return to shareholders.

The weighted average effective yield of our CLO equity investments at current cost was 11.1%, down from 11.7% as of March 31. The weighted average cash distribution yield of our CLO equity investments at current cost was 16.3%, down from 16.7% as of March 31. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end.

During the quarter ended June 30, we made additional CLO investments of approximately $37.8 million and we received approximately $50.7 million from sales and from repayments. On July 23, our Board of Directors declared monthly common stock distributions of $0.20 per share for each of the months ending October, November, and December of 2026.

With that, I'll turn the call over to our Managing Director, Joe Kupka. Joe?

Thanks, Jonathan. During the quarter ended June 30, 2026, U.S. loan market performance improved versus the prior quarter. U.S. loan price index increased from 94.63% as of March 31 to 94.96% as of June 30. The increase in U.S. loan prices led to an approximate 4-point increase in median U.S. CLO equity net asset values. Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased modestly to 302 basis points compared to 304 basis points last quarter.

The 12-month trailing default rate for the loan index decreased to 0.97% by principal amount at the end of the quarter from 1.44% at the end of March. 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 $33 billion, reflecting an approximate $14 billion decrease from the previous quarter.

Additionally, the U.S. CLO market saw approximately $94 billion in reset and refinancing activity in Q2 2026, compared to approximately $56 billion in the previous quarter. Oxford Lane remained active this quarter, trading over $85 million in CLO equity.

During the quarter, we also led or participated in numerous resets and refinancings, taking advantage of tighter liability spreads to lower the cost of funding and lengthen the weighted average reinvestment period of Oxford Lane's equity portfolio from October 2029 to November 2029. We continue to evaluate existing investments for opportunities to improve the economics of our CLO equity positions.

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've historically been able to take a longer-term view towards our investment strategy.

With that, I'll turn the call back over to Jonathan.

Thanks, Joe. Additional information about Oxford Lane's first fiscal quarter performance has been uploaded to our website at oxfordlanecapital.com.

And with that, operator, we're happy to open the call up for questions.

[Operator Instructions] Our first question comes from the line of Erik Zwick with Lucid Capital Markets.

A few questions here. I wanted to maybe start with one of the topics Joe, kind of, mentioned there towards the end. Just in terms of the opportunities to continue executing resets and refis, it sounds like liability spreads have tightened and hopefully, they kind of remain so here for the next little bit. But can you maybe just frame, kind of, the opportunity you have here in the near term to continue improving the cost of funding in the portfolio?

Sure. I think year-to-date, we've completed about 25 resets or refinancings, kind of, taken on a case-by-case basis, whether they're going to be a refi or reset for the remainder of our book looking from the end of this quarter on. I think about 30% of our book in terms of market value could be in the money for a refi or a reset transaction through the end of the year. And then looking forward to 2027, an additional 30% of the market value. So overall, over half of our book has potential short-term optionality embedded in it.

Excellent. That's very helpful. Maybe flipping in towards the investment outlook. I know early in the year, when you kind of restructured the dividend, you mentioned you want to be able to take advantage of more investment opportunities. Curious if you could just talk maybe specifically to the secondary market, what you're seeing today in terms of liquidity.

I know it was pretty slow in the first calendar quarter of the year. It sounds like it may have been a little bit better here in 2Q, but just maybe what you're seeing here and what you expect going forward? And are you seeing attractive opportunities to add to the portfolio and potentially help the future yield going forward?

Yes. Yes, we're definitely seeing an improved bid-ask spread, especially if we compare to what we saw towards the end of March. We're seeing a very interesting basis in terms of the basis between Tier 1 and Tier 2 managers. So especially if you look at some of these lower-tier managers that trade at wider yields, they can be very attractive on both a cash-on-cash and ultimate yield basis. So we're seeing a lot of opportunities just on an absolute basis and also to do some relative value trading in our portfolio.

And Erik, when Joe references lower-tier managers, we're referring principally to their perception in the primary and secondary CLO markets, not their virtuosity.

Got it. No, that's helpful. And then I assume some of the -- you're active -- definitely more active in the second quarter trading. I'm sure some of that contributed to the net realized losses that were recorded there in the quarter. So just kind of curious of positions that you may have traded out of. Were there any, kind of, common characteristics or why were those particular investments chosen? Was there anything on the credit front or just you saw better opportunities to rotate into new investments to replace them that had better -- more attractive yields, long-term yield, kind of, components.

Sure. Yes, I think it mainly went along with our thesis of trading out of some of these more sought-after managers, as Jonathan said, buying some of the less regarded managers just given the widening basis. We also had some legacy positions finally roll off just their indentures were finally discharged. So that flowed in as well. But yes, that made up the bulk of it.

It was nice to see the weighted average investment period move out a little bit longer as well. So -- see, I think last one for me, maybe just in terms of -- you've made these -- some of the new investments, rotating the portfolio a little bit, made some new investments as well that have yet to make first distribution. So just in terms of thinking about the cash distribution yield on the portfolio, when can we get to the point where that kind of bottoms out and starts expanding again? Curious if you have any thoughts there.

So yes, I would say April payments stabilized a bit. We did see another leg down in the July payments just as we see continued spread compression. That said, it has slowed down year-to-date. So it all depends on really the loan market and where refinancing and repricings happen. Yes, I don't want to make any particular predictions, but July has definitely been a low point if you look compared to January and April. So hopefully, we see some pickup from here, but that's hard to say.

Right. Hopefully driven at least in part, Erik, by the driver that you referenced earlier, which is the refi and reset market for CLO liability stacks, which is, of course, to the extent that that's an active market and a very natural offset to spread compression in the U.S. syndicated corporate loan market.

Yes. Yes, that would be great if you guys can continue resetting and refi. And actually, I did have, I think, one other -- no, I'm actually good.

And with no further questions in queue, I will now hand the call back over to Jonathan Cohen, CEO, for closing remarks.

Thanks very much. Thanks to everybody who took the time to listen to our call, either live or on the replay today, and we look forward to speaking to you again soon. Thanks very much.

An audio recording of the event will be available via Echo replay through Thursday, August 27, at 11:59 p.m. This does conclude today's conference call. You may now disconnect.

Hi, and thank you for standing by. This is Roy, and I will be your conference operator today. And at this time, I would like to welcome everyone to the Oxford Lane Capital Corp. announces net asset value and selected financial results for the fourth fiscal quarter.

[Operator Instructions] I would now like to turn the call over back to Jonathan Cohen. You may now begin.

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

Sure, 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 includes 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 you to refer to our most recent filings with the SEC for important factors that could 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 to Jonathan.

Thanks, Bruce. On March 31, 2026, our net asset value per share stood at $10.56 compared to a net asset value per share of $15.51 as of the prior quarter. As of April 30, 2026, the midpoint of the range of our estimated net asset values per share was $11.27.

For the quarter ended March, we recorded GAAP total investment income of approximately $94 million, representing a decrease of approximately $23.8 million from the prior quarter. The quarter's GAAP total investment income consisted of approximately $90.8 million from our CLO equity and CLO warehouse investments and approximately $3.1 million from our CLO debt investments and from other income.

Oxford Lane recorded GAAP net investment income of approximately $54.5 million or $0.56 per share for the quarter ended March compared to approximately $71.8 million or $0.74 per share for the quarter ended December 31. Our core net investment income was approximately $100.7 million or $1.03 per share for the quarter ended March 31 compared with approximately $108.9 million or $1.12 per share for the quarter ended December 31.

As of the end of March, we held approximately $64 million in newly issued or newly acquired CLO equity investments that had not yet made initial distributions to Oxford Lane. For the quarter ended March, we recorded net unrealized depreciation on investments of approximately $381.4 million and net realized losses of approximately $38.4 million.

We had a net decrease in net assets resulting from operations of approximately $365.3 million or $3.74 per share for the fourth fiscal quarter. As of March 31, the following metrics applied. We note that none of these metrics necessarily represented a total return to shareholders.

The weighted average effective yield of our CLO equity investments at current cost was 11.7%, down from 13.8% as of December. The weighted average cash distribution yield of our CLO equity investments at current cost was 16.7%, down from 19% as of December 31. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions which we received or which we were entitled to receive at each respective period end.

During the quarter ended March, we made additional CLO investments of approximately $500,000, and we received approximately $82.9 million from sales and from repayments. On May 14, our Board of Directors declared monthly common stock distributions of $0.20 per share for each of the months ending July, August and September of 2026.

With that, I will now turn the call over to Joe Kupka. Joe?

Thanks, Jonathan. During the quarter ended March 31, 2026, U.S. loan market performance declined versus the prior quarter. U.S. loan price index decreased from 96.64% as of December 31, 2025, to 94.63% as of March 31. The decrease in U.S. loan prices led to an approximate 17-point decrease in median U.S. CLO equity net asset values.

Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased to 304 basis points compared to 311 basis points last quarter. The 12-month trailing default rate for the loan index increased to 1.4% by principal amount at the end of the quarter from 1.2% at the end of December.

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 $47 billion, reflecting an approximate $8 billion decrease from the previous quarter.

Additionally, the U.S. CLO market saw approximately $56 billion in reset and refinancing activity in Q1 2026 compared to approximately $74 billion in the previous quarter. Oxford Lane remained active this quarter, trading over $75 million in CLO equity and CLO warehouses. During the quarter, we also led or participated in numerous resets or 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 August 2029 to October 2029.

We continue to evaluate existing investments for opportunities to improve the economics of our CLO equity positions. 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.

Thanks, Joe. Additional information about Oxford Lane's fourth fiscal quarter financial performance has been uploaded to our website at oxfordlanecapital.com.

With that, operator, we're happy to poll for any questions.

[Operator Instructions] Your first question comes from Erik Zwick with Lucid Capital Markets.

Hoping, Jonathan, to start just on a question in terms of kind of understanding the primary drivers of the unrealized depreciation in 1Q. I mean, it seems like for most of '25, it was the tightening spread, but it seems like it may have been a little bit different just more due to kind of reduced activity in the secondary market in 1Q. Is the perception right there? And then kind of curious if that's persisting here into 2Q at this point.

Erik, yes. So I think there were a few different factors. As you said, the loan compression on the assets continued. So not quite to the extent we saw in 2025, but we did see that continuing and CLOs did lose additional spread in Q1. Additionally, we saw the loan market sell off driven by the decrease in tech and software names. And finally, we did see a pullback in buyers for CLO equity. So bid-ask spreads really blew out, and there were just a lack of buyers. So that definitely hurt the mark-to-market on our positions as well.

Joe, would you say -- and just as a follow-up to Erik's question, would you say that for this most recent quarter, technical factors, bid-ask spreads and flows of funds or more fundamental factors such as continued U.S. syndicated corporate loan spread compression, which of those 2 were, in your estimation, the more relevant?

I would say it was a combination of those. Definitely, the NAV selloff hurt substantially, but especially towards the end of the quarter when there were just a definite lack of buyers that hurt as well. Since quarter end, we've definitely seen a pause for the time being on continued loan compression, but we are now seeing loans above par approach 40% to 50%. So there could be additional loan repricings. But we've definitely seen a healthier market. April was a very strong month for CLO equity. We've seen a lot of buyers step back in. So things at least quarter-to-date have stabilized for sure.

That's definitely helpful. And the estimated April NAV that you provided this morning would suggest just that, and it sounds like it's continued through May. So that's good to hear. And in terms of the deployment into new investments in the quarter, $500,000 is relatively light compared to historicals. And I guess some of that reflects, one, just kind of the market dynamics that you talked about, there just wasn't a whole lot out there, particularly for sale. But I guess as things have potentially improved here in the second calendar quarter? Are you seeing more opportunities to put capital to work at this point?

We are, Erik. Certainly, in the secondary market, liquidity has improved, bid-ask spreads seem to have tightened fairly meaningfully and trading activity just overall has stepped up pretty dramatically compared to a month or 2 ago. So the answer from our perspective is certainly yes.

That's good to hear. And then just in terms of kind of given the unrealized depreciation, hopefully, that continues to unwind and you see some recovery there. But just given that we don't know exactly how sustained this improvement could be, how are you thinking about leverage in the portfolio today?

I think -- I'm thinking from a -- I think we're all thinking, Erik, from a fairly conservative perspective. We went into this most recent downturn at a level of overall leverage that I think has proven to be reasonably manageable. And in terms of a percentage of leverage or percentage of debt to equity on our balance sheet, we certainly would be not looking to increase that through the issuance of any additional debt that wasn't used to repay existing debt.

Got you. That's helpful. And last one for me, Jonathan, I missed I couldn't type fast enough. You mentioned the dollar amount of CLO investments that have yet to make their initial distributions. Could you just provide that for me once again?

Sure. It was $64 million as of March 31.

I show no further questions. And with that, I will turn the call back over to Jonathan Cohen, CEO.

We would like to thank very much everybody who participated in this call and everyone who's listening on the replay. We look forward to speaking to you again soon. Thanks very much.

Ladies and gentlemen, this concludes today's call. .

Ladies and gentlemen, thank you for standing by. My name is Tajiri, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oxford Lane Capital Corp. Third Fiscal Quarter Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Jonathan Cohen, CEO. You may begin.

Thank you. Good morning, everyone, and welcome to the Oxford Lane Capital Corp. Third Fiscal Quarter 2026 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Joe Kupka, Managing Director.

Bruce, could you open the call with a disclosure regarding forward-looking statements?

Sure, 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 includes 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 to Jonathan.

Thank you, Bruce. On December 31, 2025, our net asset value per share stood at $15.51 compared to a net asset value per share of $19.19 as of the prior quarter. For the quarter ended December, we recorded GAAP total investment income of approximately $117.8 million, representing a decrease of approximately $10.5 million from the prior quarter. The quarter's GAAP total investment income consists of approximately $114.3 million from our CLO equity and CLO warehouse investments and approximately $3.5 million from our CLO debt investments and from other income.

Oxford Lane reported GAAP net investment income of approximately $71.8 million or $0.74 per share for the quarter ended December compared to approximately $81.4 million or $0.84 per share for the quarter ended September 30.

Our core net investment income was approximately $108.9 million or $1.12 per share for the quarter ended December compared with approximately $120 million or $1.24 per share for the quarter ended September 30. As of December 31, we held approximately $263.1 million in newly issued or newly acquired CLO equity investments that had not yet made initial distributions to Oxford Lane.

For the quarter ended December, we recorded net unrealized depreciation on investments of approximately $305.4 million and net realized losses of approximately $7 million. We had a net decrease in net assets resulting from operations of approximately $240.7 million or $2.47 per share for the third fiscal quarter. As of December 31, 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 $17.3 million -- 17.3%, down from 17.4% as of September 30. The weighted average effective yield of our CLO equity investments at current cost was 13.8%, down from 14.6% as of September 30. The weighted average cash distribution yield of our CLO equity investments at current cost was 19%, down from 19.4% as of September 30. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end.

During the quarter ended December, we made additional CLO investments of approximately $97.2 million, and we received approximately $85.5 million from sales and from repayments. On January 29, our Board of Directors declared monthly common stock distributions of $0.20 per share for each of the months ending April, May and June of 2026. We note that the Board has historically considered a range of factors in setting our monthly distributions, including the company's GAAP and core NII and the distributions necessary to maintain our qualifications as a RIC under the Internal Revenue Code.

At the current time, and given the opportunities that the company sees in the market for CLO equity and junior debt tranche investments, the Board has concluded that it would be beneficial for the company and its shareholders to have additional capital to deploy in those markets. We support the idea of a stable or growing net asset value as a meaningful component of the return we seek to generate for shareholders.

The Board believes that this reduction in distributions will support that objective, while complying with the company's requirement to distribute to shareholders each year and at least 90% of its investment company taxable income as defined in the code to maintain its RIC status.

With that, I'll turn the call over to our Managing Director, Joe Kupka.

Thanks, Jonathan. During the quarter ended December 31, 2025, U.S. loan market performance declined versus the prior quarter. U.S. loan price index decreased from 97.06% as of September 30 to 96.64% as of December 31. The decrease in U.S. loan prices led to an approximate 2-point decrease in median U.S. CLO equity net asset values. Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased to 311 basis points compared to 318 basis points last quarter.

The 12-month trailing default rate for the loan index decreased to 1.2% by principal amount at the end of the quarter from 1.5% at the end of December 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 $55 billion reflecting an approximate $2 billion increase from the previous quarter. Additionally, the U.S. CLO market saw approximately $74 billion in reset and refinancing activity in Q4 2025, compared to approximately $105 billion in the previous quarter.

Oxford Lane remained active this quarter, investing over $97 million in CLO equity and warehouses. During the quarter, we also led or participated in more than 10 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 May 2029 to August 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.

Thanks, Joe. Additional information about Oxford Lane's third quarter fiscal quarterly performance has been uploaded to our website at www.oxfordlanecapital.com.

With that, the operator can now open the call for any questions.

[Operator Instructions] And our first question comes from the line of Mickey Schleien with Clear Street.

Jonathan, CLO equity funds have been very weak over the last year, even on a total return basis. And over that time, we've seen tighter loan spreads and while CLO liability spreads have been relatively stable, and that's pressured the returns on CLO equity. Some of that trend is being attributed to captive CLO funds, which are accepting lower stand-alone equity returns because they internalize the management and incentive fees. Could you give us a sense of what share of the primary market is represented by these captive funds?

Joe, do you want to take an estimate of that?

Yes. It's hard to say, given we don't have specific insight into that. I would say 2025 was probably a more balanced year since the arbitrage was still relatively attractive. Some third party continue to issue primary. I expect in 2026, the majority of that issuance if it continues, will be from these captive funds just given the compressed arbitrage.

And how do you assess the impact of those funds on the outlook for CLO equity returns for third-party investors like Oxford Lane? And do you think this is a secular trend, which permanently reduces expected returns for the equity tranche?

I mean it's really impossible to know, Mickey. The behavior of the world's largest credit investors, and whether they're manifesting a portion of their strategies in these captive CLO funds, these captive equity funds is just extraordinarily difficult to try to predict. That is certainly a potential factor in terms of future likely performance for CLO equity tranche investments, but I think there are a great deal of other factors that are equally or perhaps even more important.

Okay. If I could follow up, looking ahead, it seems like the constructive case for CLO equity would require more new money loan issuance from improved M&A activity which could help balance the loan market and perhaps widen loan spreads without a recession. So with that in mind, what's your outlook on the balance of supply and demand in the loan market this year and maybe next year?

We would like to think, Mickey, based on historical norms that, that balance will be restored, at least to some extent, over that time frame.

Our next question comes from the line of Erik Zwick with Lucid Capital Markets.

I wanted to start with a question just on the kind of reduction in the dividend level. And the way I hear you, Jonathan, is one of the big opportunities you see for Oxford Lane going forward is to continue taking advantage of the secondary market and attractive pricing and returns there. And that's one of the driving factors for the magnitude of the dividend cut and not so much your view into where the earnings power of the fund is going. Is that correct?

It's an interesting question, Erik, because we have never adhered to the dictum that we need to focus solely on the primary market or solely on the secondary market. For the last 15 years or so, we've had the flexibility, the investment flexibility to vacillate between those 2 opportunity sets.

And at the moment, we are seeing what we consider to be generally strong opportunities in the secondary market for a host of reasons, many of which are related to what may be a fundamental supply-demand imbalance in the secondary market on a flow of funds basis.

But to answer your question, the answer is we see probably more opportunities in the secondary than in the primary market. And given that we believe we are one of the world's largest market participants in the secondary market, we are trying to position ourselves to take advantage of those.

And just a bit of a follow-up on that one. The opportunities that you're seeing in the secondary market, I would assume, but opportunities buying things at discounts that if they perform well, would have a pull-to-par effect, which would kind of help in terms of your goal of supporting the NIM -- I'm sorry, the NAV and potentially [indiscernible] as well. Is that right?

Yes. Erik, I think that's definitely one of the profiles we're focusing on previously in times of more benign environments, you see a healthy premium to NAV based on trading levels in this environment with the arbitrage add or near historic types, you see that NAV compress or sometimes even flip. So the optionality -- you really see that optionality in terms of capturing the NAV, whether that's through a reset plays or just liquidation of the CLO [indiscernible]. So yes, there's definitely potential to support the NAV with those profiles.

And then for my next question, I haven't fully gone through and fine-tune my forward estimates, but just kind of quick back to the calculations would suggest that the earnings power of the fund is still in excess of the distribution -- the new distribution level that you've disclosed. So is there a potential then for a special dividend at some point over the next year or so? And if so, does -- would that be on a calendar year? Or based on your fiscal year, which ends March of each year, how would you think about that?

We think about that, Erik, principally in terms of maintaining compliance with the RIC test under the code, under the tax code. So to the extent necessary or to the extent that we want or need to reflect the earnings level of the fund in the distributions yes, we -- it is certainly possible that we declare a special dividend or modify the existing rate of distribution to comport with those fundamentals.

Got it. And timing on that when you do your RIC test, is it the calendar year? Or is it based on your fiscal year reporting? I can't recall how that's done.

Fiscal, so March.

Fiscal. Got it. And last one for me. Either Jonathan or Joe, if you could just kind of frame the current opportunity for resets and refis in your portfolio and how that could potentially support cash flow going forward?

Yes, this year should be a very active year in terms of resets and refis for us this past year. 2025 was also very active. We participated or led about 70 resets of refinancings. We have a few in Q1 and Q2 that are rolling off non-call. And starting in July, we have a lot of our portfolio rolling off that we see AAA spreads generally in the 130s or 140s just based on where AAAs were 2 years ago when we initially issued those deals. So just based on the timing, we see a lot of take some kind of action.

Right. Market fundamentals permitting.

There are no further questions at this time. I would like to turn the call back over to our CEO, Jonathan Cohen for closing remarks.

Thank you very much. I'd like to thank everybody on the line and everybody who's listening to the replay for their interest in Oxford Lane Capital Corp. and their participation on this call. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.

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 16.9% as of June 30. The weighted average effective yield of our CLO equity investments at current cost was 14.6%, down from 14.7% as of June 30. The weighted average cash distribution yield of our CLO equity investments at current cost was 19.4% down from 21.6% as of June 30.

We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end. During the quarter ended September, we issued a total of approximately 700,000 shares of our common stock pursuant to an at-the-market offering, resulting in net proceeds of approximately $14.5 million. During the quarter ended September, we repurchased a total of approximately 1.2 million shares of our common stock pursuant to our share repurchase program for approximately $20.5 million.

During the quarter ended September, we made additional CLO and equity -- CLO investments of approximately $145.2 million, and we received approximately $173.5 million from sales and from repayments. On October 24, our Board of Directors declared monthly common stock distributions of $0.40 per share for each of the months ending January, February and March of 2026. With that, I'll turn the call over to our Managing Director, Joe Kupka. Joe?

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.