Were the unrealized gains recorded in the quarter primarily a rebound from the prior quarter's losses, or were there other contributing factors?

The unrealized gains were principally a rebound from the prior quarter's lower valuation levels. “No, it was principally that just coming off of those levels.”

How was the previously nonaccrual debt position resolved, given that no sales were mentioned in the press release?

The position underwent a restructuring transaction, resulting in a new first lien term loan and common equity, with the new term loan now on accrual. The mark was consistent with the prior quarter. “So that one position went through a restructuring transaction, which closed during the quarter. There's now a new manageable capital structure, which we hold the new first lien term loan as well as some common equity. And that new first lien term loan is on accrual.”

OXSQ

Oxford Square Capital (OXSQ) Q2 FY26 earnings call: guidance and Q&A

Q: How does management plan to increase net investment income to fully cover the dividend, and what is the expected timeframe for this improvement?

Management stated they do not provide forward projections but expressed optimism that current capital deployment, including recent CLO equity purchases, will improve earnings power. “Sure. We don't, as you know, Erik, make forward projections or forward-looking performance estimates. But we are, I think, broadly optimistic about the capital that we're deploying presently, including the capital that we've just deployed in this last quarter, and we'll certainly keep you updated.”

Earnings call· Jun 2026 (Q2 FY26)· Financials· Jul 31, 2026

Source: earnings call transcript

Executive summary

Oxford Square Capital Corp. Q2 FY26 — Increased Net Investment Income and CLO Equity Purchases

Oxford Square Capital Corp. reported an increase in net investment income and total investment income for Q2 FY26, driven by strategic investments in CLO equity. While the U.S. loan market showed signs of improvement with decreasing default rates and increased primary issuance, the company's net asset value per share declined. Management continues to focus on portfolio management strategies, particularly in secondary CLO equity, to maximize long-term total return, acknowledging that NII per share remains below the current dividend level.

Highlights

Net investment income increased to $5.1 million ($0.05 per share) from $4.1 million in the prior quarter.
Total investment income increased to $9.4 million from $8.9 million in the prior quarter.
U.S. loan market performance improved, with the Morningstar LSTA U.S. Leveraged Loan Index increasing from 94.63% to 94.96% of par.
The 12-month trailing default rate for the loan index decreased to 0.97% from 1.44%.
U.S. leveraged loan primary market issuance increased 33% year-over-year to $101.8 billion, driven by refinancing and M&A activity.

Concerns

Net asset value per share decreased to $1.29 from $1.32 in the prior quarter.
Combined net unrealized and realized losses on investments totaled $1.1 million ($0.01 per share).
The default rate, including liability management exercises, remained elevated at 2.77%, despite declining from 3.48%.
Net investment income per share of $0.05 is still below the quarterly dividend level of $0.105.

Guidance & targets

Category	Target	Timeline	Confidence
Monthly distributions per share	$0.035 per share medium materiality	Q4 FY26	High

Deals & partnerships

Not named (restructured entity) Restructuring of a nonaccrual debt position into a new first lien term loan and common equity.

A previously nonaccrual debt position went through a restructuring transaction, which closed during the quarter. The company now holds a new first lien term loan as well as some common equity, and the new first lien term loan is on accrual.

Risks & headwinds

Elevated default rates including liability management exercises Trailing 12-month

2.77% (declined from 3.48% as of March 31)

Mitigation:Focus on portfolio management strategies designed to maximize long-term total return.

Net investment income per share below dividend level Current quarter

NII per share of $0.05 vs. quarterly dividend of $0.105

Mitigation:Optimistic about capital deployment, including recent CLO equity purchases, to improve earnings power.

What to watch in Q3 FY26

Net Investment Income per share

Next quarter

Current $0.05

Target Improvement towards dividend coverage ($0.105)

Why it matters

NII per share is currently below the quarterly dividend, and management expressed optimism about improving it through capital deployment.

Sure. We don't, as you know, Erik, make forward projections or forward-looking performance estimates. But we are, I think, broadly optimistic about the capital that we're deploying presently, including the capital that we've just deployed in this last quarter, and we'll certainly keep you updated.

Find out whether OXSQ delivers this. Inve re-checks your case every morning.

Q&A highlights

What were the security types, yields, and industries for the $19.9 million in purchases during the quarter?

The purchases were entirely CLO equity in the secondary market, with a cash-on-cash and forward effective yield in the low 20s, consistent with the company's investment thesis.

“Sure. Erik, that was actually all CLO equity for this quarter. So the cash on cash was probably low 20s. The forward effective yield is also in that range.”

asked by Erik Zwick · answered by Kevin P. Yonon

2 min read 6 chapters

Detailed narrative

Q2 Financial Performance Overview

Oxford Square Capital Corp. reported net investment income of $5.1 million, or $0.05 per share, an increase from $4.1 million in the prior quarter. Total investment income also rose to $9.4 million from $8.9 million. However, net asset value per share saw a slight decline to $1.29 from $1.32, and the company recorded combined net unrealized and realized losses of $1.1 million, or $0.01 per share.

Investment Activity and Strategy

During the quarter, the company made $19.9 million in purchases, entirely consisting of CLO equity in the secondary market, with repayments of $500,000. Management emphasized that CLO equity tranche investments represent a compelling cash-on-cash opportunity, aligning with their long-term investment strategy as a permanent capital vehicle, with new purchases yielding in the low 20s.

Capital Raising

Oxford Square issued approximately 11.3 million shares of common stock through an at-the-market offering, generating net proceeds of approximately $17.8 million. This capital was subsequently deployed into the CLO equity investments, supporting the company's investment strategy.

U.S. Loan Market Trends

The U.S. loan market showed improved performance, with the Morningstar LSTA U.S. Leveraged Loan Index increasing to 94.96% of par. The 12-month trailing default rate decreased to 0.97%, though the rate including liability management exercises remained elevated at 2.77%. Primary market issuance increased significantly by 33% year-over-year to $101.8 billion, driven by refinancing and M&A activity.

Nonaccrual Resolution

A previously nonaccrual debt position was resolved through a restructuring transaction during the quarter. The company now holds a new first lien term loan and some common equity, with the new term loan placed on accrual. The mark for this position was consistent with the prior quarter, indicating no additional losses or gains from the restructuring itself.

Dividend Declaration

The Board of Directors declared monthly distributions of $0.035 per share for October, November, and December 2026, maintaining the current dividend level. Management acknowledged that current NII per share is below the dividend, expressing optimism that ongoing capital deployment will improve earnings power.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.