Book Value Melting Away

NEWS

Oxford Square Capital (OXSQ) reported its IQ 2025 results and held an earnings conference call, both on April 25, 2025.

In addition, the BDC announced monthly distributions for the quarter ended September 2025:

ANALYSIS

Unchanged

As a glance at the press release shows, OXSQ’s revenues, Net Investment Income (NII); Net Investment Income Per Share (NIIPS); non-accrual numbers and assets under management remained essentially unchanged from the IVQ 2025.

This probably contributed to OXSQ announcing an unchanged monthly payout – see above – for the calendar IIIQ 2025.

Exception To The Rule

Standing out like a sore thumb amongst the standard metrics was the BDC’s NAVPS, which dropped a massive (9.1%) in 3 months.

In all of 2024 – as the NAV Change Table shows – NAVPS dropped (9.8%).

Big

Moreover, the BDC booked a huge – for its size – realized loss of ($22mn).

To put that into context, the BDC’s NII in all of 2024 came to only $26mn.

OXSQ did not discuss the loss and the 10-Q is not yet available.

Our educated guess is that the bulk of the realized loss was of CLO positions, but OXSQ’s position in Preemiere Global Services – previously on non-accrual – might have been written off as well.

Notwithstanding the large realized loss – which typically involved a credit to unrealized losses, “net unrealized depreciation” was ($2.1mn).

Despite an equity offering in the period, which raised $3.5mn, the BDC’s losses caused its net assets to fall in absolute terms and on a per share basis.

Market Commentary

Here’s what OXSQ shared about the broader debt markets, drawn from publicly available data:

During the quarter ended March 31, US loan market performance weakened versus the prior quarter. US loan prices, as defined by the Morningstar LSTA US Leveraged Loan Index, decreased from 97.33% of par as of December 31 to 96.31% of par as of March 31. According to LCD, during the quarter, there were some pricing dispersion, with BB rated loan prices decreasing 82 basis points, B rated loan prices decreasing 134 basis points, and CCC rated loan prices decreasing 211 basis points on average.

While the 12-month trailing default rate for the loan index decreased to 0.82% by principal amount at the end of the quarter from 0.91% at the December, we note that the default rate, including various forms of liability management exercises, which are not captured in this cited default rate, remain at an elevated level of 4.31%. Additionally, the distress ratio, defined as a percentage of loans with prices below 80% of par, ended the quarter at 3.21% compared to 3.02% at the end of 2024.

During the quarter ended March 31, 2025, US leveraged loan primary market issuance, excluding amendments and repricing transactions, was $141.1 billion, representing a 2% decrease versus the quarter ended March 31, 2024. This was driven by lower opportunistic activity, including refinancings and the funding of dividends, partly offset by higher non-refinancing issuance, including M&A and LBO activity versus the prior year comparable quarter. At the same time, US loan fund inflows, as measured by Lipper, were approximately $1.94 billion for the quarter ended March 31.

OXSQ IQ 2025 CC. [Highlights are ours]

VIEWS

Tight Lipped

As is often the case, OXSQ’s management communicated only the most basic financial data, failing to give shareholders any “color”.

Not helping – and in a sort of self-fulfilling loop – no investor or analyst had any questions.

The 10-Q will tell us a little more.

Nobody Cares

In any case, the market does not seem concerned about OXSQ’s ever smaller book value, apparently more focused on its very steady dividend payout.

As this 2025 YTD stock price chart shows, in recent months OXSQ has out-performed the sector, as represented by BIZD:

However, over the last 3 years, OXSQ’s stock price is down (39%) while its NAVPS has dropped (37%), which may be instructive for longer term holders.

On a price total return basis – according to Seeking Alpha – OXSQ is down only (4.4%) as those dividends almost offset the inexorable reduction in the stock price.

Market Insight

We should say that BDC credit performance overall does not match up exactly with the LSTA data.

However, both at the BDC Credit Reporter and at KBRA DLD – both of which track these matters closely – we’ve undoubtedly noticed that the number of bankruptcies affecting BDC-financed companies remains relatively low

For example, KBRA DLD recently reported the following:

The default rate for lower middle market borrowers within the KBRA DLD Index stands at 1.3% by count and dollar volume on a trailing twelve-month basis. This new research is based on 600 borrowers across the portfolios of 13 BDCs that target this space.

However, but there are plenty of restructurings (including many debt for equity swaps) not captured by the metrics. Most recently, the BDC Credit Reporter carried stories about debt for equity restructurings at Securus Technologies (Aventiv); FinThrive Software and Belk,Inc. – to name but 3.

Not Yet

Still, through the IQ 2025, anyone looking for clear signs of a credit meltdown in either the LSTA or BDC market will be disappointed.

What credit troubles the Trump Administration may have wrought with its America First policies – not only tariffs but a host of other measures – are not yet showing up.

We expect to hear more anecdotal evidence from other BDCs reporting IQ 2025 but don’t expect the metrics to be that different from before – as was the case in what OXSQ reported.