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Section 1: 497 (497)

 

Filed pursuant to Rule 497

File No. 333-205405

 

PROSPECTUS SUPPLEMENT  
(To Prospectus dated August 24, 2017 May 21, 2018
and Prospectus Supplements dated August 30, 2017,  
November 9, 2017 and February 12, 2018)  

 

 

 

 

Oxford Lane Capital Corp.

$200,000,000

Common Stock

 

 

 

This prospectus supplement supplements the prospectus supplement dated February 12, 2018 (the “Third Prospectus Supplement”), the prospectus supplement dated November 9, 2017 (the “Second Prospectus Supplement”), the prospectus supplement dated August 30, 2017 (the “First Prospectus Supplement”) and the accompanying prospectus thereto, dated August 24, 2017 (the “Base Prospectus,” together with the First Prospectus Supplement, Second Prospectus Supplement, the Third Prospectus Supplement and this prospectus supplement, the “Prospectus”), which relate to the sale of shares of common stock of Oxford Lane Capital Corp. in an “at-the-market” offering pursuant to an equity distribution agreement, dated March 7, 2016, with Ladenburg Thalmann & Co. Inc., which was amended on each of November 21, 2016, May 23, 2017 and February 12, 2018 to increase the maximum aggregate offering size of the “at the market” offering from $25,000,000 to $200,000,000.

 

You should carefully read the entire Prospectus before investing in our common stock. You should also review the information set forth under the “Supplementary Risk Factor” section of the Third Prospectus Supplement and the “Risk Factors” section beginning on page 21 of the Base Prospectus before investing.

 

The terms “Oxford Lane,” the “Company,” “we,” “us” and “our” generally refer to Oxford Lane Capital Corp. 

 

PRIOR SALES PURSUANT TO THE “AT THE MARKET” OFFERING

 

From March 7, 2016 to May 17, 2018, we sold a total of 10,366,578 shares of common stock pursuant to the “at-the-market” offering. The total amount of capital raised as a result of these sales of common stock was approximately $111.0 million and net proceeds were $108.7 million after deducting the sales agent’s commissions and offering expenses.

 

 

 

 

FEES AND EXPENSES

 

The following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever the Prospectus contains a reference to fees or expenses paid by “us” or “Oxford Lane Capital,” or that “we” will pay fees or expenses, you will indirectly bear such fees or expenses as an investor in Oxford Lane Capital Corp.

 

Stockholder transaction expenses:    
Sales load (as a percentage of offering price)   2.00%(1)
Offering expenses borne by us (as a percentage of offering price)   0.37%(2)
Distribution reinvestment plan expenses   None(3)
Total stockholder transaction expenses (as a percentage of offering price)   2.37%
Annual expenses (as a percentage of net assets attributable to common stock):     
Base management fee   3.47%(4)
Incentive fees payable under our investment advisory agreement (20% of net investment income)   3.60%(5)
Interest payments on borrowed funds   0.68%(6)
Preferred stock dividend payment   3.85%(7)
Other expenses (estimated)   1.21%(8)
Total annual expenses (estimated)   12.81%(9)

 

Example

 

The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our annual operating expenses would remain at the levels set forth in the table above, and that we pay the transaction expenses set forth in the table above, including a sales load of 2.00% paid by you (the commission to be paid by us with respect to common stock sold by us in this offering). See Note 6 below for additional information regarding certain assumptions regarding our level of leverage.

 

   1 Year   3 Years   5 Years   10 Years 
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return  $164   $404   $598   $933 

 

The example and the expenses in the tables above should not be considered as a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. The incentive fee under the Investment Advisory Agreement, which, assuming a 5.0% annual return, would either not be payable or would have an insignificant impact on the expense amounts shown above, is included in the example. Also, while the example assumes reinvestment of all distributions at net asset value, participants in our distribution reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the distribution payment date, which may be at, above or below net asset value. See “Distribution Reinvestment Plan” in the Prospectus for additional information regarding our distribution reinvestment plan.

 

(1)Represents the commission with respect to the shares of our common stock being sold in this offering, which we will pay to Ladenburg Thalmann & Co. Inc. in connection with sales of shares of our common stock effected by Ladenburg Thalmann & Co. Inc. under the equity distribution agreement. There is no guaranty that there will be any sales of our common stock pursuant to this prospectus supplement and the Prospectus.

 

(2)The offering expenses of this offering are estimated to be approximately $185,000.

 

(3)The expenses of the distribution reinvestment plan are included in “other expenses.” The plan administrator’s fees will be paid by us. We will not charge any brokerage charges or other charges to stockholders who participate in the plan. However, your own broker may impose brokerage charges in connection with your participation in the plan.

 

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(4)Assumes gross assets of approximately $589.2 million and $226.1 million of leverage (which reflects $90.4 million of Series 2023 Term Preferred Shares and $68.2 million of New Series 2024 Term Preferred Shares issued and outstanding as of March 31, 2018, and as adjusted to reflect the issuance of an additional $25.0 million of new preferred stock , as well as $42.5 million due under the Master Repurchase Agreement (“MRA”) with Nomura Securities International, Inc.) as of March 31, 2018, and assumes net assets of $339.9 million (which has been adjusted to reflect the issuance of an additional $50.0 million of common stock). The above calculation presents our base management fee as a percentage of our net assets. Our base management fee under the Investment Advisory Agreement, however, is based on our gross assets, which is defined as all the assets of Oxford Lane Capital, including those acquired using borrowings for investment purposes. As a result, to the extent we use additional leverage, it would have the effect of increasing our base management fee as a percentage of our net assets. See “Investment Advisory Agreement” in the Prospectus for additional information.

 

(5)Amount reflects the estimated annual incentive fees payable to our investment adviser, Oxford Lane Management, during the fiscal year following this offering. The estimate assumes that the incentive fee earned will be proportional to the fee earned during the fiscal quarter ended March 31, 2018, annualized, and adjusted to include the estimated incentive fee based on the issuance of an additional $50.0 million of common stock and $25.0 million of preferred stock. Based on our current business plan, we anticipate that substantially all of the net proceeds of this offering will be invested within three months depending on the availability of investment opportunities that are consistent with our investment objective and other market conditions. We expect that it will take approximately one to three months to invest all of the proceeds of this offering, in part because equity and junior debt investments in CLO vehicles require substantial due diligence prior to investment.

 

The incentive fee, which is payable quarterly in arrears, equals 20.0% of the excess, if any, of our “Pre-Incentive Fee Net Investment Income” that exceeds a 1.75% quarterly (7.0% annualized) hurdle rate, which we refer to as the Hurdle, subject to a “catch-up” provision measured at the end of each calendar quarter. The incentive fee is computed and paid on income that may include interest that is accrued but not yet received in cash. The operation of the incentive fee for each quarter is as follows:

 

no incentive fee is payable to our investment adviser in any calendar quarter in which our Pre-Incentive Fee Net Investment Income does not exceed the Hurdle of 1.75%;

 

100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the Hurdle but is less than 2.1875% in any calendar quarter (8.75% annualized) is payable to our investment adviser. We refer to this portion of our Pre-Incentive Fee Net Investment Income (which exceeds the Hurdle but is less than 2.1875%) as the “catch-up.” The “catch-up” is meant to provide our investment adviser with 20.0% of our Pre-Incentive Fee Net Investment Income, as if a Hurdle did not apply when our Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter; and

 

20.0% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) is payable to our investment adviser (once the Hurdle is reached and the catch-up is achieved, 20.0% of all Pre-Incentive Fee Investment Income thereafter is allocated to our investment adviser).

 

No incentive fee is payable to our investment adviser on realized capital gains. For a more detailed discussion of the calculation of this fee, see “Investment Advisory Agreement” in the Prospectus.

 

(6)Assumes that we maintain our current level of outstanding borrowings as of March 31, 2018 under the MRA of $42.5 million with a rate of 5.46% per annum.

 

(7)Assumes that we continue to have an aggregate of (a) $90.4 million of preferred stock with a preferred rate of 7.50% per annum (b) $68.2 million of preferred stock with a preferred rate of 6.75% per annum, which were the amounts outstanding as of March 31, 2018, and (c) adjusted to reflect the issuance of an additional $25.0 million of preferred stock with a preferred rate of 6.75% per annum. Annual expense does not reflect our 8.125% Series 2024 Term Preferred Shares, which were redeemed on July 14, 2017. We may issue additional shares of preferred stock pursuant to the registration statement of which this prospectus supplement forms a part. In the event we were to issue additional preferred stock, our borrowing costs, and correspondingly our total annual expenses, including our base management fee as a percentage of our net assets, would increase.

 

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(8)“Other expenses” ($4.1 million) are estimated for the current fiscal year, which considers the actual expenses for the quarter ended March 31, 2018, annualized, and adjusted for any new and non-recurring expenses, such as the offering costs on an assumed issuance of an additional $50.0 million of common stock and the amortization of debt offering costs and discount on an assumed issuance of an additional $25.0 million of our preferred stock.

 

(9)“Total annual expenses” is presented as a percentage of net assets attributable to common stockholders, because the holders of shares of our common stock (and not the holders of our preferred stock or debt securities, if any) bear all of our fees and expenses, all of which are included in this fee table presentation. The indirect expenses associated with the Company’s CLO equity investments are not included in the fee table presentation, but if such expenses were included in the fee table presentation then the Company’s total annual expenses would have been 18.44%.

 

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SENIOR SECURITIES

 

Information about our senior securities is shown in the following table as of the end of each fiscal year since our formation. The information as of March 31, 2018, 2017, 2016, 2015, 2014 and 2013 has been derived from our financial statements that have been audited by an independent registered public accounting firm. The reports of our independent registered public accounting firm covering the total amount of senior securities outstanding as of March 31, 2018, 2017, 2016, 2015, 2014 and 2013 are attached as exhibits to the registration statement of which this prospectus supplement is a part.

 

   Total Amount
Outstanding
Exclusive of
Treasury
Securities(1)
   Asset Coverage
Ratio Per Unit(2)
   Involuntary
Liquidation
Preference
Per Unit(3)
   Average
Market Value
Per Unit(4)
 
Year                    
8.50% Series 2017 Term Preferred Shares(5)                    
2016  $-    -   $-   $- 
2015  $15,811,250    2.47   $25   $1.03 
2014  $15,811,250    3.99   $25   $1.05 
2013  $15,811,250    8.79   $25   $1.03 
7.50% Series 2023 Term Preferred Shares                    
2018  $90,400,025    2.41   $25   $1.02 
2017  $90,400,025    2.59   $25   $1.01 
2016  $90,638,450    1.91   $25   $0.97 
2015  $73,869,250    2.47   $25   $0.98 
2014  $65,744,250    3.99   $25   $0.94 
8.125% Series 2024 Term Preferred Shares(6)                    
2018  $-    -   $-   $- 
2017  $50,504,475    2.59   $25   $1.02 
2016  $50,539,775    1.91   $25   $1.00 
2015  $60,687,500    2.47   $25   $1.01 
6.75% Series 2024 Term Preferred Shares(7)                    
2018  $68,235,375    2.41   $25   $1.01 
Repurchase Agreement (8)                    
2018  $42,493,500    2.41     N/A      N/A  

 

 

(1)Total amount of each class of senior securities outstanding at the end of the period presented.

 

(2)Asset coverage per unit is the ratio of the carrying value of our total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of outstanding senior securities, as calculated separately for each of the Term Preferred Shares and the Repurchase Agreement in accordance with section 18(h) of the 1940 Act. With respect to the Term Preferred Shares, the asset coverage per unit is expressed in terms of a ratio per share of outstanding Term Preferred Shares (when expressing in terms of dollar amounts per share, the asset coverage ratio per unit is multiplied by the involuntary liquidation preference per unit of $25). With respect to the Repurchase Agreement, the asset coverage ratio per unit is expressed in terms of a ratio per unit of outstanding Repurchase Agreement (when expressing in terms of dollar amounts per share, the asset coverage per unit is multiplied by $1,000 per principal amount).

 

(3)The amount to which such class of senior security would be entitled upon the voluntary liquidation of the issuer in preference to any security junior to it.

 

(4)With respect to the Term Preferred Shares, the Average Market Value Per Unit is calculated by taking the daily average closing price of the security for the respective period and dividing it by $25 per share to determine a unit price per share consistent with Asset Coverage Per Unit. With respect to the Repurchase Agreement, the Average Market Value is not applicable as there are no senior securities  thereunder which are registered for public trading.

 

(5)On July 24, 2015, OXLC redeemed all issued and outstanding Series 2017 Term Shares at the term redemption price.

 

(6)On July 14, 2017, we redeemed all issued and outstanding 8.125% Series 2024 Term Preferred Shares at the term redemption price.

 

(7)On June 14, 2017, we issued 2,729,415 shares of our newly designated 6.75% Series 2024 Term Preferred Shares.

 

(8)On January 2, 2018, the Fund entered into a Repurchase Agreement with Nomura Securities International, Inc.

 

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FOURTH QUARTER 2018 FINANCIAL HIGHLIGHTS

 

·Net asset value per share as of March 31, 2018 stood at $10.08 compared with a net asset value per share at December 31, 2017 of $10.02.

 

·Net investment income (“NII”), calculated in accordance with generally accepted accounting principles (“GAAP”), was approximately $11.0 million, or approximately $0.40 per share, for the quarter ended March 31, 2018.

 

·Our core net investment income (“Core NII”) was approximately $8.6 million, or approximately $0.31 per share, for the quarter ended March 31, 2018.

 

·Core NII represents net investment income adjusted for additional cash income distributions received, or entitled to be received (if any, in either case), on our collateralized loan obligation (“CLO”) equity investments (excluding those cash distributions believed to represent a return of capital). (See additional information under “Supplemental Information Regarding Core Net Investment Income” below).

 

·While our experience has been that cash flow distributions have historically represented useful indicators of our CLO equity investments’ annual taxable income during certain periods, we believe that current and future cash flow distributions may represent less accurate indicators of taxable income with respect to our CLO equity investments than they have in the past. Accordingly, our taxable income may be materially different than either NII or Core NII.

 

·Total investment income, calculated in accordance with GAAP, amounted to approximately $20.4 million for the quarter ended March 31, 2018.

 

·For the quarter ended March 31, 2018, we recorded total investment income from our portfolio as follows:

 

·approximately $19.7 million from our CLO equity investments, and

 

·approximately $0.7 million from our CLO debt investments, and other income.

 

·As of March 31, 2018, the following weighted average yields were calculated:

 

·the weighted average yield of our CLO debt investments at current cost was approximately 10.9%, compared with 10.1% as of December 31, 2017;

 

·the weighted average (GAAP) effective yield of our CLO equity investments at current cost was approximately 17.2%, compared with 17.1% as of December 31, 2017;

 

·the weighted average cash yield of our CLO equity investments at current cost was approximately 17.3%, compared with 20.2% as of December 31, 2017.

 

·Net increase in net assets from operations was approximately $12.9 million, or approximately $0.47 per share, for the quarter ended March 31, 2018, including:

 

·Net investment income of approximately $11.0 million;

 

·Net realized gains of approximately $1.0 million; and

 

·Net unrealized appreciation of approximately $0.9 million.

 

·During the quarter ended March 31, 2018, we made additional CLO investments of approximately $136.0 million and we received approximately $86.9 million from sales and repayments of our CLO investments.

 

·During the quarter ended March 31, 2018, we issued a total of 1,859,343 shares of common stock pursuant to an “at-the-market” offering, resulting in net proceeds of approximately $18.6 million after deducting the sales agent’s commissions and offering expenses.

 

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·On January 2, 2018, we announced that we entered into a repurchase transaction with Nomura Securities International, Inc. (“Nomura”) pursuant to which we sold CLO securities to Nomura with a market value of approximately $106.2 million for a sale price of approximately $42.5 million. On April 25, 2018, we entered into an amended and restated repurchase transaction facility with Nomura. Under the restated agreement, the term of the facility was extended by 3 months until January 2, 2019. In addition, effective April 2, 2018, the facility pricing rate was reduced from 3-month LIBOR plus 3.35 percent per annum to 3-month LIBOR plus 3.15 percent per annum.

 

·Our Board of Directors has declared the following distributions on our common stock:

 

Month Ending  Record Date  Payment Date  Amount Per Share 
July 31, 2018  July 23, 2018  July 31, 2018  $0.135 
August 31, 2018  August 23, 2018  August 31, 2018  $0.135 
September 30, 2018  September 20, 2018  September 28, 2018  $0.135 

 

Our Board of Directors has also declared the required monthly dividends on our Series 2023 Term Preferred Shares and Series 2024 Term Preferred Shares (each, a “Share”), as follows:

 

Preferred
Shares Type
  Per Share
Dividend
Amount
Declared
  Record Dates  Payment Dates
Series 2023  $0.156250  June 21, July 23, August 23  June 29, July 31, August 31
Series 2024  $0.140625  June 21, July 23, August 23  June 29, July 31, August 31

 

In accordance with their terms, each of the Series 2023 Term Preferred Shares and Series 2024 Term Preferred Shares will pay a monthly dividend at a fixed rate of 7.50% and 6.75%, respectively, of the $25.00 per share liquidation preference, or $1.875 and $1.6875 per share per year, respectively. This fixed annual dividend rate is subject to adjustment under certain circumstances, but will not in any case be lower than 7.50% and 6.75% per year, respectively, for each of the Series 2023 Term Preferred Shares and Series 2024 Term Preferred Shares.

 

Supplemental Information Regarding Core Net Investment Income

 

On a supplemental basis, we provide information relating to core net investment income, which is a non-GAAP measure. This measure is provided in addition to, but not as a substitute for, net investment income determined in accordance with GAAP. Our non-GAAP measures may differ from similar measures by other companies, even if similar terms are used to identify such measures. Core net investment income represents net investment income adjusted for additional cash income distributions received, or entitled to be received (if any, in either case), on our CLO equity investments.

 

Income from investments in the “equity” class securities of CLO vehicles, for GAAP purposes, is recorded using the effective interest method based upon an effective yield to the expected redemption utilizing estimated cash flows compared to the cost, resulting in an effective yield for the investment; the difference between the actual cash received or distributions entitled to be received and the effective yield calculation is an adjustment to cost. Accordingly, investment income recognized on CLO equity securities in the GAAP statement of operations differs from the cash distributions actually received by us during the period (referred to below as “CLO equity adjustments”).

 

Further, in order to continue to qualify to be taxed as a regulated investment company, we are required, among other things, to distribute at least 90% of our investment company taxable income annually. Therefore, core net investment income may provide a better indication of estimated taxable income for a reporting period than does GAAP net investment income, although we can offer no assurance that will be the case as the ultimate tax character of our earnings cannot be determined until tax returns are prepared after the end of a fiscal year. We note that these non-GAAP measures may not be useful indicators of taxable earnings, particularly during periods of market disruption and volatility and our taxable income may differ materially from our core net investment income.

 

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The following table provides a reconciliation of NII to Core NII for the three months and year ended March 31, 2018:

 

   Three Months Ended   Year Ended 
   March 31, 2018   March 31, 2018 
   Amount   Per Share
Amounts
   Amount   Per Share
Amounts
 
Net investment income  $10,964,185   $0.399   $40,353,995   $1.606 
CLO equity adjustments   (2,348,103)   (0.085)   (106,802)   (0.004)
Core net investment income  $8,616,082   $0.314   $40,247,193   $1.602 

 

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Annual report to stockholders

 

On May 17, 2018, the Company filed its Annual Report to stockholders for the period from April 1, 2017 to March 31, 2018. The text of the Annual Report is attached hereto and is incorporated herein by reference.

 

Information contained on our website is not incorporated by reference into this prospectus supplement or the Prospectus, and you should not consider that information to be part of this prospectus supplement or the Prospectus.

 

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Oxford Lane Capital Corp.

Annual Report

March 31, 2018

oxfordlanecapital.com

 

OXFORD LANE CAPITAL CORP.

TABLE OF CONTENTS

 

 

Page

Letter to Stockholders

 

1

Top Ten Holdings

 

3

Statement of Assets and Liabilities

 

4

Schedule of Investments

 

5

Statement of Operations

 

11

Statement of Changes in Net Assets

 

12

Statement of Cash Flows

 

13

Notes to Financial Statements

 

14

Report of Independent Registered Public Accounting Firm

 

35

Distribution Reinvestment Plan

 

36

Management

 

37

Board Approval of the Investment Advisory Agreement

 

41

Submission of Matters to a Vote of Stockholders

 

42

Additional Information

 

43

i

Oxford Lane Capital Corp.

May 17, 2018

To Our Stockholders:

We are pleased to submit to you the report of Oxford Lane Capital Corp. (“we”, “us”, “our”, the “Fund” or “Oxford Lane”) for the year ended March 31, 2018. The net asset value of our shares at that date was $10.08 per common share. The Fund’s common stock is traded on the NASDAQ Global Select Market and its share price can differ from its net asset value. The Fund’s closing price at March 31, 2018 was $10.13, down from $11.13 at March 31, 2017. The total return for Oxford Lane, for the year ended March 31, 2018, as reflected in the Fund’s financial highlights, was 6.41%. This return reflects the change in market price for the one-year period ended March 31, 2018, as well as the impact of $1.605 per share in distributions declared and paid. On May 16, 2018, the last reported sale price of the Fund’s common stock was $11.22.

We note that there may be significant differences between Oxford Lane’s earnings prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and our taxable earnings, particularly related to collateralized loan obligation (“CLO”) equity investments where our taxable earnings are based upon the distributable share of earnings as determined under tax regulations for each CLO equity investment, while GAAP earnings are based upon an effective yield calculation. Additionally, as our taxable earnings are not generally known until after our distributions are made, those distributions may or may not represent a return of capital on a tax basis. While reportable GAAP revenue from our CLO equity investments for the year ended March 31, 2018 was approximately $71.1 million, we received or were entitled to receive approximately $108.6 million in distributions from our CLO equity investments.

Investment Review

The Fund’s investment objective is to maximize its portfolio’s risk adjusted total return over its investment horizon. Our current focus is to seek that return by investing in CLO vehicles(1), which are collateralized primarily by a diverse portfolio of senior loans, and which generally have very little or no exposure to real estate loans, or mortgage loans or to pools of consumer-based debt, such as credit card receivables or auto loans. Our investment strategy also includes investing in warehouse facilities, which are financing structures intended to aggregate senior secured corporate loans that may be used to form the basis of a CLO vehicle. As of March 31, 2018, we held debt investments in four different CLO structures and equity investments in approximately 70 different CLO structures and four investments in warehouse facilities.

Structurally, CLO vehicles are entities formed to purchase and manage portfolios of primarily senior secured corporate loans. The loans within a CLO vehicle are limited to those which, on an aggregated basis, meet established credit criteria. They are subject to concentration limitations in order to limit a CLO vehicle’s exposure to individual credits and industries.

Investment Outlook

We believe that the market for CLO-related assets continues to provide us with opportunities to generate attractive risk-adjusted returns over the long term. We believe that a number of factors support this conclusion, including:

    The long-term and relatively low-cost capital that many CLO vehicles have secured, compared with current asset spreads, and have created opportunities to purchase certain CLO equity and junior debt instruments that may produce attractive risk-adjusted returns. Additionally, given that the CLO vehicles we invest in are cash flow-based vehicles, this term financing may be beneficial in periods of market volatility.

    The market to invest in warehouse facilities, which are short and medium-term facilities that are generally expected to form the basis of CLO vehicles (which the Fund may participate in or be repaid by), has created additional attractive risk-adjusted investment opportunities for us.

1

    Investing in CLO securities, and CLO equity instruments and warehouse facilities in particular, requires a high level of research and analysis. We believe that transactions in this market can only be adequately conducted by knowledgeable market participants as this market and these structures tend to be highly specialized.

    The U.S. CLO market is relatively large with total assets under management of approximately $495 billion.(2) We estimate that the notional amount outstanding of the junior-most debt tranches (specifically the tranches originally rated “BB” and “B”) is approximately $24 billion and the notional amount outstanding of the equity tranches is approximately $48 billion.(3)

An investment in our Fund carries with it a significant number of meaningful risks, certain of which are discussed in the notes to our financial statements. Investors should read “Note 13. Risks and Uncertainties” carefully.

We continue to review a large number of CLO investment opportunities in the current market environment, and we expect that the majority of our portfolio holdings, over the near to intermediate-term, will continue to be comprised of CLO debt and equity securities, with the more significant focus over the near-term likely to be on CLO equity securities and warehouse facilities.

Jonathan H. Cohen

Chief Executive Officer

____________

1.    A CLO vehicle is formed by issuing various classes or “tranches” of debt (with the most senior tranches being rated “AAA” to the most junior tranches typically being rated “BB” or “B”) and equity. The tranches of CLO vehicles rated “BB” or “B” may be referred to as “junk.” The equity of a CLO vehicle is generally structured to absorb the CLO’s losses before any of the CLO’s debt tranches, and it also has the lowest level of payment priority among the CLO’s tranches; therefore, the equity is typically the riskiest tranche of a CLO vehicle.

2.    As of December 31, 2017 — Source: Wells Fargo Securities, The CLO Monthly Market Overview, dated May 1, 2018.

3.    Oxford Lane has estimated this amount based in part on the Wells Fargo Securities report (noted in footnote 2 above).

2

OXFORD LANE CAPITAL CORP.

TOP TEN HOLDINGS
AS OF MARCH 31, 2018

Investment

 

Maturity

 

Fair Value

 

% of
Net Assets

Atrium XII CLO – CLO subordinated notes

 

April 22, 2027

 

$

 33,024,375

 

11.39

%

Madison Park Funding XXX, Ltd. – CLO subordinated notes

 

April 15, 2029

 

 

 23,000,000

 

7.93

%

Midocean Credit CLO VI – CLO income notes

 

January 20, 2029

 

 

 19,760,000

 

6.82

%

OFSI Fund VII, Ltd. – CLO subordinated notes

 

October 18, 2026

 

 

18,457,600

 

6.37

%

Venture XXI CLO, Limited – CLO subordinated notes

 

July 15, 2027

 

 

15,293,500

 

5.27

%

THL Credit Wind River 2014-3 CLO Ltd. – CLO subordinated notes

 

January 22, 2027

 

 

15,009,300

 

5.18

%

Madison Park Funding, Ltd. (fka: Edition Funding, Ltd.) – CLO subordinated warehouse notes

 

October 22, 2018

 

 

15,000,000

 

5.17

%

Venture XXX CLO, Limited – CLO subordinated notes

 

January 15, 2031

 

 

14,440,000

 

4.98

%

Octagon Investment Partners 33, Ltd. – CLO subordinated notes

 

January 20, 2031

 

 

12,593,000

 

4.34

%

Tralee CLO IV, Ltd. – CLO subordinated notes

 

January 20, 2030

 

 

12,075,700

 

4.17

%

Portfolio Investment Breakdown as of March 31, 2018
(Excludes cash and cash equivalents and other assets)

3

OXFORD LANE CAPITAL CORP.

STATEMENT OF ASSETS AND LIABILITIES

 

 

March 31,
2018

ASSETS

 

 

 

 

Investments, at fair value (cost: $497,678,436)

 

$

 482,573,271

 

Cash and cash equivalents

 

 

20,334,222

 

Distributions receivable

 

 

5,058,855

 

Securities sold not settled

 

 

5,602,679

 

Deferred offering costs on common stock

 

 

229,162

 

Interest receivable, including accrued interest purchased

 

 

193,579

 

Prepaid expenses and other assets

 

 

115,824

 

Fee receivable

 

 

81,157

 

Total assets

 

 

514,188,749

 

 

 

 

 

 

LIABILITIES

 

 

 

 

Mandatorily redeemable preferred stock, net of discount and deferred issuance costs
(10,000,000 shares authorized, 6,345,416 shares issued and outstanding)

 

 

151,682,429

 

Securities sold under agreement to repurchase

 

 

42,493,500

 

Securities purchased not settled

 

 

23,972,500

 

Incentive fees payable to affiliate

 

 

2,741,047

 

Investment advisory fee payable to affiliate

 

 

2,428,221

 

Interest payable

 

 

529,958

 

Accrued expenses

 

 

303,893

 

Accrued offering costs

 

 

17,274

 

Directors’ fees payable

 

 

58,750

 

Administrator expense payable

 

 

31,064

 

Total liabilities

 

 

224,258,636

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 10)

 

 

 

 

 

 

 

 

 

NET ASSETS applicable to common stock, $0.01 par value, 90,000,000 shares authorized, and 28,768,899 shares issued and outstanding

 

$

 289,930,113

 

 

 

 

 

 

NET ASSETS consist of:

 

 

 

 

Paid in capital

 

$

372,850,102

 

Accumulated net realized losses on investments

 

 

(58,227,119

)

Accumulated realized gains on redemption of debt

 

 

574,950

Net unrealized depreciation on investments

 

 

(15,105,165

)

Distribution in excess of net investment income

 

 

(10,162,655

)

Total net assets

 

$

 289,930,113

 

 

 

 

 

 

Net asset value per common share

 

$

 10.08

 

Market price per share

 

$

 10.13

 

Percentage of market price premium to net asset value per share

 

 

0.50

%

See Accompanying Notes.

4

OXFORD LANE CAPITAL CORP.

SCHEDULE OF INVESTMENTS
MARCH 31, 2018

COMPANY/INVESTMENT(1)

 

PRINCIPAL AMOUNT

 

COST

 

FAIR
VALUE(2)(15)

 

% of
Net Assets

Collateralized Loan Obligation – Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

Structured Finance

 

 

 

 

 

 

 

 

 

 

 

 

KVK 2014-3 Ltd.

 

 

 

 

 

 

 

 

 

 

 

 

CLO secured notes – Class F(3)(4)(6), 7.82% (LIBOR + 6.10%, due October 15, 2026)

 

$

 1,956,522

 

$

 1,616,782

 

$

 1,732,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mountain Hawk II CLO, Ltd.

 

 

 

 

 

 

 

 

 

 

 

 

CLO secured notes – Class E(3)(4)(6), 6.54% (LIBOR + 4.80%, due July 20, 2024)

 

 

6,000,000

 

 

5,075,314

 

 

4,956,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OZLM XXII, Ltd.

 

 

 

 

 

 

 

 

 

 

 

 

CLO secured notes – Class F(3)(4)(6), 9.10% (LIBOR + 7.39%, due January 17, 2031)

 

 

2,670,000

 

 

2,577,304

 

 

2,477,493

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tralee CLO IV, Ltd.

 

 

 

 

 

 

 

 

 

 

 

 

CLO secured notes – Class F(3)(4)(6), 9.44% (LIBOR + 7.50%, due January 20, 2030)

 

 

3,800,000

 

 

3,462,771

 

 

3,538,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Structured Finance

 

 

 

 

$

 12,732,171

 

$

 12,704,958

 

4.38

%

Total Collateralized Loan Obligation – Debt Investments

 

 

 

 

$

 12,732,171

 

$

 12,704,958

 

4.38

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized Loan Obligation – Equity Investments

 

 

 

 

 

 

 

 

 

 

 

 

Structured Finance

 

 

 

 

 

 

 

 

 

 

 

 

AMMC CLO XII, Ltd.

 

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 16.29%, maturity November 10, 2030)

 

$

 8,428,571

 

$

 4,214,773

 

$

 4,045,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apidos CLO XXI

 

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 14.09%, maturity July 18, 2027)

 

 

8,700,000

 

 

5,965,523

 

 

6,090,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allegro CLO IV, Ltd.

 

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 17.63%, maturity January 15, 2029)

 

 

3,000,000

 

 

2,322,594

 

 

2,306,324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anchorage Capital CLO 5-R, Ltd.

 

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 15.28%, maturity January 15, 2030)

 

 

4,000,000

 

 

4,122,309

 

 

3,899,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apex Credit CLO 2018 Ltd.

 

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7)(9)(11), (Estimated yield 21.10%, maturity April 25, 2031)

 

 

8,750,000

 

 

7,224,069

 

 

7,743,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apex Credit CLO 2015-II, Ltd. (fka: JFIN CLO 2015-II Ltd.)

 

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 23.72%, maturity October 17, 2026)

 

 

5,750,000

 

 

4,860,109

 

 

4,867,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ares XXVI CLO Ltd.

 

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7)(11), (Estimated yield 0.00%, maturity April 15, 2025)

 

 

15,115,000

 

 

1,102,520

 

 

302,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ares XL CLO Ltd.

 

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 14.09%, maturity October 15, 2027)

 

 

5,100,000

 

 

4,208,065

 

 

4,026,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Atrium XII CLO

 

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7)(13)(16), (Estimated yield 33.89%, maturity April 22, 2027)

 

 

34,762,500

 

 

24,780,821

 

 

33,024,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (Continued on next page)

See Accompanying Notes.

5

OXFORD LANE CAPITAL CORP.

SCHEDULE OF INVESTMENTS – (continued)
MARCH 31, 2018

COMPANY/INVESTMENT(1)

 

PRINCIPAL AMOUNT

 

COST

 

FAIR
VALUE(2)(15)

 

% of
Net Assets

Collateralized Loan Obligation – Equity Investments (continued)

 

 

 

 

 

 

 

 

 

 

 

Structured Finance (continued)

 

 

 

 

 

 

 

 

 

 

 

Battalion CLO VI Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 27.83%, maturity October 17, 2026)

 

$

5,000,000

 

$

1,905,101

 

$

1,775,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Battalion CLO VII Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 4.71%, maturity October 17, 2026)

 

 

24,000,000

 

 

16,145,513

 

 

10,080,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit Street Partners CLO V Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO preference shares (5)(7), (Estimated yield 12.34%, maturity October 20, 2026)

 

 

11,500,000

 

 

7,182,077

 

 

6,325,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Blue Hill CLO, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield -0.34%, maturity January 15, 2026)

 

 

15,125,000

 

 

4,483,658

 

 

3,073,285

 

 

CLO subordinated fee notes(8), (Maturity January 15, 2026)

 

 

96,635

 

 

17,931

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

B&M CLO 2014-1 LTD

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 13.82%, maturity April 16, 2026)

 

 

2,000,000

 

 

892,920

 

 

640,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bristol Park CLO, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO income notes(5)(7), (Estimated yield 12.89%, maturity April 15, 2029)

 

 

7,000,000

 

 

5,747,368

 

 

5,180,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carlyle Global Market Strategies CLO 2013-2, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 23.53%, maturity April 18, 2025)

 

 

16,500,000

 

 

10,726,772

 

 

11,421,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CENT CLO 16, L.P.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 34.37%, maturity August 01, 2024)

 

 

10,500,000

 

 

7,247,086

 

 

6,720,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CIFC Funding 2014-III, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO income notes(5)(7), (Estimated yield 13.48%, maturity July 22, 2026)

 

 

11,000,000

 

 

6,954,206

 

 

6,380,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CIFC Funding 2014, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 18.14%, maturity January 18, 2031)

 

 

8,500,000

 

 

4,842,680

 

 

4,675,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dryden 42 Senior Loan Fund

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 15.52%, maturity July 15, 2027)

 

 

7,000,000

 

 

5,956,996

 

 

6,321,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dryden 49 Senior Loan Fund

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 17.14%, maturity July 18, 2030)

 

 

4,925,000

 

 

4,131,936

 

 

4,186,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elevation CLO 2017-7, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7)(12)(13), (Estimated yield 19.04%, maturity July 15, 2030)

 

 

10,000,000

 

 

8,932,603

 

 

9,400,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Golub Capital Partners CLO 35(B), Ltd.,

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 12.07%, maturity July 20, 2029)

 

 

5,000,000

 

 

4,466,086

 

 

3,650,000

 

 

 (Continued on next page)

See Accompanying Notes.

6

OXFORD LANE CAPITAL CORP.

SCHEDULE OF INVESTMENTS – (continued)
MARCH 31, 2018

COMPANY/INVESTMENT(1)

 

PRINCIPAL AMOUNT

 

COST

 

FAIR
VALUE(2)(15)

 

% of
Net Assets

Collateralized Loan Obligation – Equity Investments (continued)

 

 

 

 

 

 

 

 

 

 

 

Structured Finance (continued)

 

 

 

 

 

 

 

 

 

 

 

Halcyon Loan Advisors Funding 2015-1 Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 33.83%, maturity April 20, 2027)

 

$

6,000,000

 

$

3,276,305

 

$

3,240,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hull Street CLO Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 1.90%, maturity October 18, 2026)

 

 

15,000,000

 

 

7,856,475

 

 

4,050,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ICG US CLO 2016-1, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 8.77%, maturity July 29, 2028)

 

 

4,750,000

 

 

4,617,401

 

 

4,477,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ivy Hill Middle Market Credit VII, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 18.41%, maturity October 20, 2029)

 

 

5,400,000

 

 

4,444,425

 

 

3,907,190

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jamestown CLO III, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 19.03%, maturity January 15, 2026)

 

 

15,575,000

 

 

8,264,570

 

 

7,008,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jamestown CLO IV, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 24.38%, maturity July 15, 2026)

 

 

9,500,000

 

 

3,451,982

 

 

2,816,135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jamestown CLO V, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 30.72%, maturity January 17, 2027)

 

 

8,500,000

 

 

3,222,943

 

 

2,975,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Longfellow Place CLO, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 22.31%, maturity April 15, 2029)

 

 

14,640,000

 

 

6,917,669

 

 

7,457,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Madison Park Funding X, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7), (Estimated yield 10.83%, maturity January 20, 2025)

 

 

3,000,000

 

 

2,609,856

 

 

2,760,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Madison Park Funding XXIX, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated warehouse notes(5)(7)(10)(12), (Estimated yield 13.96%, maturity March 10, 2020)

 

 

1,125,000

 

 

1,125,000

 

 

1,125,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Madison Park Funding XXX, Ltd. (fka: Edition Funding, Ltd.)

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated warehouse notes(5)(7)(10)(12), (Estimated yield 12.40%, maturity October 22, 2018)

 

 

15,000,000

 

 

15,000,000

 

 

15,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Madison Park Funding XXX, Ltd.

 

 

 

 

 

 

 

 

 

 

 

CLO subordinated notes(5)(7)(9)(12), (Estimated yield 17.97%, maturity April 15, 2029)

 

 

20,000,000

 

 

19,519,732

 

 

23,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Midocean Credit CLO VI

 

 

 

 

 

 

 

 

 

 

 

CLO income notes(5)(7)(13), (Estimated yield 12.62%, maturity January 20, 2029)

 

 

24,700,000

 

 

20,527,363

 

 

19,760,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Midocean Credit CLO VIII

 

 

 

 

 

 

 

 

 

 

 

CLO income notes(5)(7)(9)(12), (Estimated yield 23.02%, maturity February 20, 2031)

 

 

4,500,000

 

 

4,064,847

 

 

3,881,250

 

 

 (Continued on next page)

See Accompanying Notes.

7

OXFORD LANE CAPITAL CORP.

SCHEDULE OF INVESTMENTS – (continued)
MARCH 31, 2018

COMPANY/INVESTMENT(1)

 

PRINCIPAL AMOUNT

 

COST

 

FAIR
VALUE(2)(15)

 

% of
Net Assets

Collateralized Loan Obligation – Equity Investments (continued)