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Section 1: N-Q (N-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act file number 811-22432

 

Oxford Lane Capital Corp.

(Exact name of registrant as specified in charter)

 

8 Sound Shore Drive, Suite 255  
Greenwich, CT 06830
(Address of principal executive offices) (Zip code)

 

Jonathan H. Cohen
Chief Executive Officer
Oxford Lane Capital Corp.
8 Sound Shore Drive, Suite 255
Greenwich, CT 06830
(Name and address of agent for
service)

 

Registrant’s telephone number, including area code: (203) 983-5275

 

Date of fiscal year end: March 31

  

Date of reporting period: June 30, 2018

 

 

 

 

OXFORD LANE CAPITAL CORP.

SCHEDULE OF INVESTMENTS

JUNE 30, 2018

(Unaudited)

 

Item 1. Schedule of Investments

 

COMPANY/INVESTMENT(1)(14)   PRINCIPAL
AMOUNT
    COST     FAIR VALUE(2)     % of Net
Assets
 
Collateralized Loan Obligation - Debt Investments                        
Dryden 42 Senior Loan Fund                                
CLO secured notes - Class FR(3)(4)(6), 9.54% (LIBOR + 7.20%, due July 15, 2030)   $ 1,371,000     $ 1,233,900     $ 1,233,900          
                                 
KVK 2014-3 Ltd.                                
CLO secured notes - Class F(3)(4)(6), 8.45% (LIBOR + 6.10%, due October 15, 2026)     1,956,522       1,626,694       1,727,413          
                                 
Mountain Hawk II CLO, Ltd.                                
CLO secured notes - Class E(3)(4)(6), 7.16% (LIBOR + 4.80%, due July 20, 2024)     6,000,000       5,111,836       5,160,000          
                                 
OZLM XXII, Ltd.                                
CLO secured notes - Class E(3)(4)(6), 9.10% (LIBOR + 7.39%, due January 17, 2031)     2,670,000       2,579,108       2,489,241          
Total Structured Finance            $ 10,551,538     $ 10,610,554       3.39 %
Total Collateralized Loan Obligation - Debt Investments           $ 10,551,538     $ 10,610,554       3.39 %
                                 
Collateralized Loan Obligation - Equity Investments                                
Structured Finance                                
AMMC CLO XI, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 18.81%, maturity April 30, 2031)   $ 2,100,000     $ 1,212,017     $ 1,155,000          
                                 
AMMC CLO XII, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 17.52%, maturity April 30, 2031)     11,428,571       5,567,252       4,914,286          
                                 
Anchorage Capital CLO 5-R, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 13.84%, maturity January 15, 2030)     4,000,000       4,091,478       3,746,936          
                                 
Apidos CLO XXI                                
CLO subordinated notes(5)(7), (Estimated yield 20.95%, maturity July 18, 2027)     8,700,000       6,018,666       5,916,000          
                                 
Apex Credit CLO 2018 Ltd.                                
CLO subordinated notes(5)(7)(9)(11), (Estimated yield 22.22%, maturity April 25, 2031)     9,750,000       8,568,011       9,024,600          
                                 
Apex Credit CLO 2015-II, Ltd. (fka: JFIN CLO 2015-II Ltd.)                                
CLO subordinated notes(5)(7), (Estimated yield 28.82%, maturity October 17, 2026)     5,750,000       4,704,179       4,871,712          
                                 
Ares XL CLO Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 13.07%, maturity October 15, 2027)     5,100,000       4,265,535       3,796,349          
                                 
Atrium IX CLO                                
CLO subordinated notes(5)(7)(12), (Estimated yield 13.13%, maturity February 28, 2024)     2,224,200       1,787,961       1,801,602          
                                 
Atrium XII CLO                                
CLO subordinated notes(5)(7)(12), (Estimated yield 28.61%, maturity April 22, 2027)     34,762,500       24,535,666       33,024,375          
                                 
Babson CLO Ltd. 2016-III                                
CLO subordinated notes(5)(7), (Estimated yield 15.10%, maturity January 15, 2028)     3,750,000       2,596,383       2,587,500          
                                 
Battalion CLO VI Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 19.43%, maturity October 17, 2026)     5,000,000       1,875,176       1,650,000          
                                 
Battalion CLO VII Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 8.56%, maturity October 17, 2026)     24,000,000       15,912,984       10,320,000          
                                 
Benefit Street Partners CLO V Ltd.                                
CLO  preference shares (5)(7)(11), (Estimated yield 9.93%, maturity October 20, 2026)     11,500,000       1,188,537       1,380,000          
                                 
Blue Hill CLO, Ltd.                                
CLO subordinated notes(5)(7)(11), (Estimated yield 15.33%, maturity January 15, 2026)     15,125,000       1,162,536       207,443          
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 3.82%, maturity April 16, 2026)     2,000,000       870,577       580,000          

  

(Continued on next page)

 

See Accompanying Notes

 

 

 

 

OXFORD LANE CAPITAL CORP.

SCHEDULE OF INVESTMENTS – (continued)

JUNE 30, 2018

(Unaudited)

 

COMPANY/INVESTMENT(1)(14)  PRINCIPAL
AMOUNT
   COST   FAIR VALUE(2)   % of Net
Assets
 
Collateralized Loan Obligation - Equity Investments - (continued)                 

Structured Finance - (continued)

                
Bristol Park CLO, Ltd.                    
CLO income notes(5)(7), (Estimated yield 11.75%, maturity April 15, 2029)  $7,000,000   $5,733,742   $5,040,000     
                     
Carlyle Global Market Strategies CLO 2013-2, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 17.40%, maturity April 18, 2025)   16,500,000    10,857,864    11,481,533      
                     
Cathedral Lake CLO 2013, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 21.02%, maturity October 15, 2029)   5,250,000    2,458,120    2,520,000      
                     
Cathedral Lake II, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 19.47%, maturity July 16, 2029)   2,875,000    1,965,406    1,955,000      
                     
CIFC Funding 2013-II, Ltd.                    
CLO income notes(5)(7), (Estimated yield 20.42%, maturity October 18, 2030)   15,995,000    7,025,331    7,757,575      
                     
CIFC Funding 2014-III, Ltd.                    
CLO income notes(5)(7), (Estimated yield 13.03%, maturity July 22, 2026)   11,000,000    6,843,723    6,050,000      
                     
CIFC Funding 2014, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 16.18%, maturity January 18, 2031)   8,500,000    4,913,964    4,420,000      
                     
Dryden 42 Senior Loan Fund                    
CLO subordinated notes(5)(7), (Estimated yield 20.78%, maturity July 15, 2030)   7,000,000    4,909,612    4,777,858      
                     
Dryden 49 Senior Loan Fund                    
CLO subordinated notes(5)(7), (Estimated yield 16.53%, maturity July 18, 2030)   4,925,000    4,117,368    3,798,406      
                     
Golub Capital Partners CLO 35(B), Ltd.,                    
CLO subordinated notes(5)(7), (Estimated yield 11.19%, maturity July 20, 2029)   5,000,000    4,374,145    3,600,000      
                     
Halcyon Loan Advisors Funding 2015-1 Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 33.25%, maturity April 20, 2027)   7,000,000    3,774,773    3,640,000      
                     
Halcyon Loan Advisors Funding 2018-1 Ltd.                    
CLO subordinated notes(5)(7)(9), (Estimated yield 16.52%, maturity July 20, 2031)   11,250,000    10,045,551    9,151,926      
                     
Hull Street CLO Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield -19.65%, maturity October 18, 2026)   15,000,000    6,934,884    3,300,000      
                     
ICG US CLO 2016-1, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 13.23%, maturity July 29, 2028)   4,750,000    4,661,176    4,376,128      
                     
Ivy Hill Middle Market Credit VII, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 18.14%, maturity October 20, 2029)   5,400,000    4,487,827    3,838,363      
                     
Jamestown CLO III, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 8.35%, maturity January 15, 2026)   15,575,000    8,149,384    7,008,750      
                     
Jamestown CLO IV, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 27.73%, maturity July 15, 2026)   9,500,000    3,519,795    2,331,194      
                     
Jamestown CLO V, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 24.64%, maturity January 17, 2027)   8,500,000    3,248,573    2,635,000      
                     
Jamestown CLO VII, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 17.16%, maturity July 25, 2027)   7,000,000    4,894,195    4,900,000      
                     
Longfellow Place CLO, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 23.01%, maturity April 15, 2029)   14,640,000    6,898,683    7,343,378      
                     
Madison Park Funding X, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 11.14%, maturity January 20, 2025)   3,000,000    2,580,869    2,730,000      
                     
Madison Park Funding XI, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 11.70%, maturity March 10, 2020)   1,236,843    872,556    865,790      

 

(Continued on next page)

 

See Accompanying Notes

 

 

 

 

OXFORD LANE CAPITAL CORP.

SCHEDULE OF INVESTMENTS – (continued)

JUNE 30, 2018

(Unaudited)

 

COMPANY/INVESTMENT(1)(14)   PRINCIPAL
AMOUNT
    COST     FAIR VALUE(2)     % of Net
Assets
 

Collateralized Loan Obligation - Equity Investments - (continued)

                       

Structured Finance - (continued)

                       
Madison Park Funding XXIV, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 11.79%, maturity March 10, 2020)   $ 892,188     $ 821,954     $ 829,735        
                                 
Madison Park Funding XXV, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 14.96%, maturity March 10, 2020)     1,300,000       1,206,472       1,287,000          
                                 
Madison Park Funding XXVII, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 13.99%, maturity March 10, 2020)     1,837,500       1,883,210       2,113,125          
                                 
Madison Park Funding XXIX, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 13.96%, maturity March 10, 2020)     10,125,000       10,125,000       10,125,000          
                                 
Madison Park Funding XXX, Ltd.                                
CLO subordinated notes(5)(7)(9)(12), (Estimated yield 15.79%, maturity April 15, 2029)     21,516,750       22,068,642       25,389,765          
                                 
Midocean Credit CLO VI                                
CLO income notes(5)(7)(12), (Estimated yield 11.13%, maturity January 20, 2029)     24,700,000       20,586,666       19,266,000          
                                 
Midocean Credit CLO VIII                                
CLO income notes(5)(7), (Estimated yield 23.11%, maturity February 20, 2031)     4,500,000       4,299,076       4,050,000          
                                 
Mountain Hawk II CLO, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 18.30%, maturity July 20, 2024)     25,670,000       7,835,308       3,593,800          
                                 
North End CLO, Ltd.                                
CLO subordinated notes(5)(7)(11), (Estimated yield 0.00%, maturity July 17, 2025)     8,500,000       29,826       -          
                                 
Northwoods Capital XI-B, Limited                                
CLO subordinated notes(5)(7)(9), (Estimated yield 19.55%, maturity April 19, 2031)     5,000,000       4,688,604       4,500,000          
                                 
Octagon Investment Partners XXII, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 19.82%, maturity January 22, 2030)     3,168,750       2,031,822       2,028,000          
                                 
Octagon Investment Partners 27, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 20.36%, maturity July 15, 2027)     5,000,000       3,242,397       3,163,901          
                                 
Octagon Investment Partners 33, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 16.32%, maturity January 20, 2031)     10,000,000       9,436,615       9,500,000          
                                 
OFSI Fund VII, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 12.19%, maturity October 18, 2026)     28,840,000       20,903,032       17,304,000          
                                 
OFSI BSL IX, LTD.                                
CLO preferred shares(5)(7)(9), (Estimated yield 21.67%, maturity July 15, 2031)     11,480,000       9,583,700       9,067,120          
                                 
OFSI BSL IX, Ltd.                                
CLO preferred warehouse shares(5)(7)(10), (Estimated yield 14.45%, maturity October 17, 2018)     15,000,000       15,000,000       15,000,000          
                                 
OZLM XII, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 13.33%, maturity April 30, 2027)     6,750,000       4,277,253       4,050,000          
                                 
OZLM XIV, Ltd.                                
CLO subordinated notes(5)(7)(12), (Estimated yield 13.47%, maturity January 15, 2029)     10,000,000       8,269,490       7,445,586          
                                 
OZLM XIII, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 9.22%, maturity July 30, 2027)     4,000,000       3,017,508       2,560,000          

 

(Continued on next page)

 

See Accompanying Notes

 

 

 

 

OXFORD LANE CAPITAL CORP.

SCHEDULE OF INVESTMENTS – (continued)

JUNE 30, 2018

(Unaudited)

 

COMPANY/INVESTMENT(1)(14)  PRINCIPAL
AMOUNT
   COST   FAIR VALUE(2)   % of Net
Assets
 
Collateralized Loan Obligation - Equity Investments - (continued)                

Structured Finance - (continued)

                
Regatta III Funding Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 14.03%, maturity April 15, 2026)  $3,750,000   $273,757   $103,833     
                     
Shackleton 2015-VII CLO, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 19.18%, maturity April 15, 2027)   10,500,000    8,414,508    6,990,271      
                     
Shackelton 2017-X CLO, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 13.26%, maturity April 20, 2029)   10,000,000    9,114,445    7,900,000      
                     
Shackelton 2017-XI CLO, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 13.33%, maturity August 15, 2030)   5,000,000    4,867,029    4,100,000      
                     
Sheridan Square CLO, Ltd.                    
CLO subordinated notes(5)(7)(11), (Estimated yield 0.00%, maturity April 15, 2025)   3,300,000    167,753    49,500      
                     
Sound Point CLO VI, Ltd.                    
CLO subordinated notes(5)(7)(11), (Estimated yield 13.61%, maturity October 20, 2026)   8,093,378    4,635,673    4,532,292      
                     
Sound Point CLO VIII, Ltd.                    
CLO subordinated fee notes(8), (Maturity April 15, 2027)   224,719    202,247    38,833      
                     
Telos CLO 2013-3, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 13.90%, maturity July 17, 2026)   14,332,210    9,318,787    7,882,716      
                     
Telos CLO 2013-4, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 22.45%, maturity January 17, 2030)   11,350,000    7,399,120    7,660,687      
                     
Telos CLO 2014-6, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 26.67%, maturity January 17, 2027)   6,250,000    4,053,629    3,701,245      
                     
THL Credit Wind River 2014-3 CLO Ltd.                    
CLO subordinated notes(5)(7)(12), (Estimated yield 18.57%, maturity January 22, 2027)   18,530,000    14,142,266    15,426,225      
                     
THL Credit Wind River 2017-1 CLO Ltd.                    
CLO subordinated notes(5)(7)(12), (Estimated yield 13.71%, maturity April 18, 2029)   12,000,000    10,283,894    9,000,000      
                     
Tralee CLO II, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 31.63%, maturity January 20, 2030)   6,300,000    2,373,787    2,772,000      
                     
Tralee CLO IV, Ltd.                    
CLO subordinated notes(5)(7), (Estimated yield 20.12%, maturity January 20, 2030)   13,270,000    12,502,562    12,341,100      
                     
Venture XIV CLO, Limited                    
CLO subordinated notes(5)(7), (Estimated yield 20.46%, maturity August 28, 2029)   11,000,000    6,426,852    5,940,000      
                     
Venture XV CLO, Limited                    
CLO subordinated notes(5)(7), (Estimated yield 12.80%, maturity July 15, 2028)   6,500,000    4,546,727    4,355,000      
                     
Venture XVII CLO, Limited                    
CLO subordinated notes(5)(7), (Estimated yield 16.81%, maturity July 15, 2027)   17,000,000    11,860,680    11,091,927      
                     
Venture XXI CLO, Limited                    
CLO subordinated notes(5)(7), (Estimated yield 22.40%, maturity July 15, 2027)   20,950,000    15,091,080    15,712,500      

 

(Continued on next page)

 

See Accompanying Notes

 

 

 

 

OXFORD LANE CAPITAL CORP.

SCHEDULE OF INVESTMENTS – (continued)

JUNE 30, 2018

(Unaudited)

 

COMPANY/INVESTMENT(1)(14)   PRINCIPAL
AMOUNT
    COST     FAIR VALUE(2)     % of Net
Assets
 
Collateralized Loan Obligation - Equity Investments - (continued)                         

Structured Finance - (continued)

                       
Venture XXXIII CLO, Limited                                
CLO subordinated warehouse notes(5)(7)(10), (Estimated yield 12.30%, maturity March 21, 2019)   $ 20,250,000     $ 20,250,000     $ 20,250,000        
                                 
Wellfleet 2016-2 CLO, Ltd.                                
CLO subordinated notes(5)(7), (Estimated yield 15.35%, maturity October 15, 2028)     10,000,000       8,356,142       8,300,000          
                                 
Zais CLO 7, Limited                                
CLO subordinated notes(5)(7), (Estimated yield 20.66%, maturity April 15, 2030)     10,050,000       7,926,209       8,542,500          
                                 
Zais CLO 8, Limited                                
CLO subordinated notes(5)(7), (Estimated yield 24.74%, maturity April 15, 2029)     3,000,000       2,721,981       3,060,000          
                                 
Zais CLO 9, Limited                                
CLO subordinated notes(5)(7)(9), (Estimated yield 18.97%, maturity July 20, 2031)     4,000,000       3,582,207       3,560,000          
                                 
Other CLO equity related investments                                
CLO other(8)             -       3,087,557          
Total Structured Finance            $ 515,460,340     $ 496,167,922       158.54 %
Total Collateralized Loan Obligation - Equity Investments           $ 515,460,340     $ 496,167,922       158.54 %
                                 
Total Investments           $ 526,011,878     $ 506,778,476       161.93 %
                                 
Cash and Cash Equivalents                                
First American Government Obligations Fund(13)           $ 13,535,193     $ 13,535,193          
                                 
Total Cash Equivalents           $ 13,535,193     $ 13,535,193       4.3 %
                                 
Total Investments, Cash Equivalents           $ 539,547,071     $ 520,313,669       166.2 %
                                 
                                 
LIABILITIES IN EXCESS OF OTHER ASSETS (excluding cash equivalents)                     (207,354,102 )        
NET ASSETS (equivalent to $9.98 per share based on 31,357,082 shares of common stock outstanding)                     312,959,567          

 

 

(1)We do not "control" and are not an "affiliate" of any of our portfolio companies, each as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). In general, under the 1940 Act, we would be presumed to "control" a portfolio company if we owned 25% or more of its voting securities and would be an "affiliate" of a portfolio company if we owned 5% or more of its voting securities.
(2)Fair value is determined in good faith by the Board of Directors of the Fund.
(3)Notes bear interest at variable rates.
(4)Cost value reflects accretion of original issue discount or market discount.
(5)Cost value reflects accretion of effective yield less any cash distributions received or entitled to be received from CLO equity investments.
(6)The CLO secured notes generally bear interest at a rate determined by reference to three-month LIBOR which resets quarterly. For each CLO debt investment, the rate provided is as of June 30, 2018.
(7)The CLO subordinated notes, preferred shares and income notes are considered equity positions in the CLO funds. Equity investments are entitled to recurring distributions which are generally equal to the remaining cash flow of the payments made by the underlying fund's securities less contractual payments to debt holders and fund expenses. The estimated yield indicated is based upon a current projection of the amount and timing of these recurring distributions and the estimated amount of repayment of principal upon termination. Such projections are periodically reviewed and adjusted, and the estimated yield may not ultimately be realized.
(8)Fair value represents discounted cash flows associated with fees earned from CLO equity investments
(9)Investment has not made inaugural distribution for relevant period end. See "Note 4. Investment Income."
(10)The subordinated shares and preferred shares represent an investment in a warehouse facility, which is a financing structure intended to aggregate loans that may be used to form the basis of a CLO vehicle.
(11)The CLO equity investment was optionally redeemed. See "Note 5. Securities Transactions."
(12)Securities held as collateral pursuant to repurchase agreement with Nomura Securities International, Inc. See "Note 2. Investment Valuation."
(13)Represents cash equivalents held in a money market account as of June 30, 2018.
(14)The fair value of the investment was determined using significant unobservable inputs. See "Note 3. Fair Value."

 

See Accompanying Notes

 

 

 

 

OXFORD LANE CAPITAL CORP.

NOTES TO SCHEDULE OF INVESTMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 1. UNAUDITED INTERIM FINANCIAL STATEMENTS

 

Interim financial statements of Oxford Lane Capital Corp. (“OXLC,” “we,” “us,” “our,” or the “Fund”) are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form N-Q. Accordingly, certain disclosures accompanying annual and semi-annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for the fair statement of financial results for the interim periods have been omitted. The current period’s results of operations are not necessarily indicative of results that may be achieved for the year. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Fund’s Form N-CSR for the year ended March 31, 2018, as filed with the Securities and Exchange Commission (“SEC”).

 

NOTE 2. INVESTMENT VALUATION

 

The Fund fair values its investment portfolio in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement and Disclosure. Estimates made in the preparation of OXLC’s financial statements include the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded. OXLC believes that there is no single definitive method for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments OXLC makes. OXLC is required to specifically fair value each individual investment on a quarterly basis.

 

ASC 820-10 clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities in markets that are not active; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. OXLC considers the attributes of current market conditions on an on-going basis and has determined that due to the general illiquidity of the market for its investment portfolio, whereby little or no market data exists.

 

Collateralized Loan Obligations — Debt and Equity

 

OXLC has acquired debt and equity positions in Collateralized Loan Obligations (“CLO”) investment vehicles and has purchased CLO warehouse facilities. These investments are special purpose financing vehicles. In valuing such investments, OXLC considers the indicative prices provided by a recognized industry pricing service as a primary source, and the implied yield of such prices, supplemented by actual trades executed in the market at or around period-end, as well as the indicative prices provided by the broker who arranges transactions in such investment vehicles. OXLC also considers those instances in which the record date for an equity distribution payment falls on the last day of the period, and the likelihood that a prospective purchaser would require a downward adjustment to the indicative price representing substantially all of the pending distribution. Additional factors include any available information on other relevant transactions, including firm bids and offers in the market and information resulting from bids-wanted-in-competition. In addition, OXLC considers the operating metrics of the specific investment vehicle, including compliance with collateralization tests, defaulted and restructured securities, and payment defaults, if any. OXLC Management, LLC (“OXLC Management”) or the Fund’s board of directors (the “Board of Directors”) may elect to engage third-party valuation firms to provide assistance to our Valuation Committee and Board of Directors in valuing certain of our investments, including, but not limited to, when requested by the Board of Directors or the Adviser. If a third-party valuation firm is engaged by the Company, it will provide the Board of Directors with a written report with respect to each investment it has reviewed. The Valuation Committee will evaluate the impact of such additional information, and factor it into its consideration of fair value.

 

Securities Sold Under Agreement to Repurchase

 

The Fund has entered into an agreement, whereby, it sold securities under agreements to be repurchased at an agreed-upon price and date. In such an agreement, the Fund accounts for this transaction as a collateralized financing transaction and is recorded at its contracted repurchase amount plus interest. The Fund’s securities sold under agreement to repurchase are carried at cost; which approximates fair value. Please Refer to “Note 8. Borrowings Related to Securities Sold Under Agreement to Repurchase” in our most recent Annual Report as of March 31, 2018 for additional information.

 

 

 

 

OXFORD LANE CAPITAL CORP.

NOTES TO SCHEDULE OF INVESTMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 3. FAIR VALUE

 

The Fund’s assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820-10 at June 30, 2018 were as follows:

 

   Fair Value Measurements at Reporting Date Using     
Assets ($ in millions)  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   Significant
Other Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
   Total 
                 
CLO debt  $  -   $         -   $10.6   $10.6 
CLO equity   -    -    496.2    496.2 
                     
Total investments at fair value   -    -    506.8    506.8 
Cash equivalents   13.5    -    -    13.5 
Total assets at fair value  $13.5   $-   $506.8   $520.3 

 

Financial Instruments Disclosed, But Not Carried, At Fair Value

 

The following table presents the carrying value and fair value of the Fund’s financial liabilities disclosed, but not carried, at fair value as of June 30, 2018 and the level of each financial liability within the fair value hierarchy:

 

   Carrying   Fair             
($ in millions)  Value   Value   Level 1   Level 2   Level 3 
7.50% Series 2023 Term Preferred Shares  $91.6   $91.6   $      -   $91.6   $     - 
6.75% Series 2024 Term Preferred Shares   70.0    70.0    -    70.0    - 
Total  $161.6   $161.6   $-   $161.6   $- 

 

Significant Unobservable Inputs for Level 3 Investments

 

In accordance with ASC 820-10, the following table provides quantitative information about the Fund’s Level 3 fair value measurements as of June 30, 2018. The Fund’s valuation policy, as described above, establishes parameters for the sources and types of valuation analysis, as well as the methodologies and inputs that the Fund uses in determining fair value. If the Board of Directors or OXLC Management determines that additional techniques, sources or inputs are appropriate or necessary in a given situation, such additional work may be undertaken. The weighted average calculations in the table below are based on the fair value within each respective valuation techniques and methodologies and asset category.

 

   Quantitative Information about Level 3 Fair Value Measurements  
Assets  Fair Value as of
June 30, 2018
   Valuation Techniques /
Methodologies
  Unobservable
Input
  Range / Weighted
Average(5)
  Impact to
Valuation from an
Increase in Input(6)
   ($ in millions)             
CLO debt  $5.5   Market quotes  NBIP(1)  88.3%-93.2% / 90.9%  NA
    5.2   Yield Analysis  NBIP(1)  86%(2)  NA
                  
CLO equity   405.0   Market quotes  NBIP(1)  1.4%-118.0% / 65.0%  NA
    45.2   Recent Transaction  Actual trade(3)  48.5%-83.3% / 72.7%  NA
    4.4   Discounted cash flow(4)  Discount rate(4)  12.8%(2)  Decrease
    38.4   Yield Analysis  NBIP(1)  22.0%-75.0% / 58.5%  NA
CLO equity - side letters   3.1   Discounted cash flow(4)  Discount rate(4)  12.1%-18.9% / 16.1%  Decrease
                  
Total Fair Value for Level 3 Investments  $506.8             

 

 

 

 

OXFORD LANE CAPITAL CORP.

NOTES TO SCHEDULE OF INVESTMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 3. FAIR VALUE – (continued)

 

(1)The Fund generally uses non-binding indicative prices (“NBIP”) provided by an independent pricing service or broker on or near the valuation date as the primary basis for the fair value determinations for CLO debt and equity investments, which may be adjusted for pending equity distributions as of the valuation date. These prices are non-binding, and may not be determinative of fair value. Each price is evaluated by the Board of Directors in conjunction with additional information compiled by OXLC Management, including performance and covenant compliance information as provided by the independent trustee.
(2)Represents a single investment fair value position, and therefore the range/weighted average is not applicable.

(3)Prices provided by independent pricing services are evaluated in conjunction with actual trades, and in certain cases, the value represented by actual trades may be more representative of fair value as determined by the Board of Directors.

(4)The Fund will calculate the fair value of certain CLO equity investments based upon the net present value of expected contractual payment streams discounted using estimated market yields for the equity tranche of the respective CLO vehicle. OXLC will also consider those investments in which the record date for an equity distribution payment falls on the last day of the period, and the likelihood that a prospective purchaser would require an adjustment to the transaction price representing substantially all of the pending distribution.

(5)Weighted averages are calculated based on fair value of investments.
(6)The impact on fair value measurement of an increase in each unobservable input is in isolation. The discount rate is the rate used to discount future cash flows in a discounted cash flow calculation. An increase in discount rate, in isolation, would result in a decrease in a fair value measurement. Significant increases or decreases in any of the unobservable inputs in isolation may result in a significantly lower or higher fair value measurement.

  

NOTE 4. INVESTMENT INCOME

 

Income from securitization vehicles and equity investments

 

Income from investments in the equity class securities of CLO vehicles (typically income notes or subordinated notes) is recorded using the effective interest method in accordance with the provisions of ASC 325-40 Beneficial Interests in Securitized Financial Assets, based upon an effective yield to the expected redemption utilizing estimated cash flows, including those CLO equity investments that have not made their inaugural distribution for the relevant period end. The Fund monitors the expected residual payments, and effective yield is determined and updated periodically, as needed. Accordingly, investment income recognized on CLO equity securities in the statement of operations presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) differs from both the tax-basis investment income and from the cash distributions actually received by the Fund during the period.

 

The Fund also records income on its investments in certain securitization vehicles (or “CLO warehouse facilities”) based on a stated rate as per the underlying note purchase agreement or, if there is no stated rate, then an estimated rate is calculated using a base case model projecting the timing of the ramp-up of the CLO warehouse facility.

 

Interest Income – Debt Investments

 

Interest income is recorded on an accrual basis using the contractual rate applicable to each debt investment and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

Generally, if the Fund does not expect the borrower to be able to service its debt and other obligations, the Fund will, on a discretionary basis, place the debt instrument on non-accrual status and will generally cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to restructuring such that the interest income is deemed to be collectible. The Fund generally restores non-accrual loans to accrual status when past due principal and interest is paid and, in the Fund’s judgment, the payments are likely to remain current. As of June 30, 2018, the Fund had no non-accrual assets in its portfolio.

 

 

 

 

OXFORD LANE CAPITAL CORP.

NOTES TO SCHEDULE OF INVESTMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 4. INVESTMENT INCOME – (continued)

 

Other Income

 

Other income includes distributions from fee letters and success fees associated with portfolio investments. Distributions from fee letters are based upon a percentage of the collateral manager’s fees, and are recorded as other income when earned. The Fund may also earn success fees associated with its investments in CLO warehouse facilities, which are contingent upon a repayment of the warehouse by a permanent CLO securitization structure; such fees are earned and recognized when the repayment is completed.

 

NOTE 5. SECURITIES TRANSACTIONS

 

Securities transactions are recorded on trade date. Realized gains and losses on investments sold are recorded on the basis of specific identification.

 

An optional redemption (“optionally redeemed”) feature of a CLO allows a majority of the holders of the equity securities issued by the CLO issuer, after the end of a specified non-call period, to cause the redemption of the secured notes issued by the CLO with proceeds of either the liquidation of the CLO’s assets or through a refinancing with new debt. The optional redemption is effectively a voluntary prepayment of the secured debt issued by the CLO prior to the stated maturity of such debt.

 

Distributions received on CLO equity investments which were optionally redeemed for which the cost basis has been reduced to zero are recorded as realized gains.

 

NOTE 6. U.S. FEDERAL INCOME TAXES

 

The Fund intends to operate so as to continue to qualify to be taxed as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code (the “Code”) and, as such, to not be subject to U.S. federal income tax on the portion of its taxable income and gains distributed to stockholders. To qualify for RIC tax treatment, OXLC is required to distribute at least 90% of its investment company taxable income, as defined by the Code.

 

Because U.S. federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.

 

Differences between distributions and net investment income may also result from the treatment of short-term gains as ordinary income for tax purposes. Our distribution policy is based upon our estimate of our distributable net investment income, which includes actual distributions from our CLO equity class investments, with further consideration given to our realized gains or losses on a taxable basis.

 

As of June 30, 2018, the cost and net unrealized depreciation of securities on a tax basis were as follows:

 

Cost for federal income tax purposes  $552,187,766 
Gross unrealized appreciation  $19,911,709 
      
Gross unrealized depreciation   (65,320,999)
Net unrealized depreciation  $(45,409,290)

  

 

 

 

Item 2. Controls and Procedures.

 

(a)       Based on an evaluation of the Disclosure Controls and Procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended, the “Disclosure Controls”) as of a date within 90 days prior to the filing date (the “Filing Date”) of this Form N-Q (the “Report”), the Chief Executive Officer (the principal executive officer) and Chief Financial Officer (the principal financial officer) have concluded that the Disclosure Controls are reasonably designed to ensure that information required to be disclosed by the Registrant in the Report is recorded, processed, summarized and reported by the Filing Date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the Registrant's management, including the Registrant's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

(b)       There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the Registrant’s last fiscal quarter that have materially affected or are reasonably likely to materially affect the Registrant’s internal control over financial reporting.

 

Item 3. Exhibits.

 

Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

OXFORD LANE CAPITAL CORP.

 

By: /s/ Jonathan H. Cohen  
  Name: Jonathan H. Cohen  
  Title: Chief Executive Officer  
     
  Date: August 7, 2018  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

By: /s/ Jonathan H. Cohen   By: /s/ Bruce L. Rubin
  Name: Jonathan H. Cohen     Name: Bruce L. Rubin
  Title: Chief Executive Officer     Title: Chief Financial Officer
  (Principal Executive Officer)     (Principal Financial Officer)
         
  Date: August 7, 2018     Date: August 7, 2018

 

 

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Section 2: EX-99.CERT (EXHIBIT 99.CERT)

 

Exhibit 99.Cert

 

Exhibit 12(a)(2)

 Rule 30a-2(a) Certification

 

I, Jonathan H. Cohen, Chief Executive Officer of Oxford Lane Capital Corp., certify that:

 

1.I have reviewed this report on Form N-Q of Oxford Lane Capital Corp.;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the schedules of investments included in this report, fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated this 7th day of August, 2018  
   
/s/ JONATHAN H. COHEN  
Jonathan H. Cohen  
Chief Executive Officer  

 

 

 

 

Exhibit 12(a)(2)

Rule 30a-2(a) Certification

 

I, Bruce L. Rubin, Chief Financial Officer of Oxford Lane Capital Corp., certify that:

 

1.I have reviewed this report on Form N-Q of Oxford Lane Capital Corp.;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the schedules of investments included in this report, fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated this 7th day of August, 2018  
   
/s/ BRUCE L. RUBIN  
Bruce L. Rubin  
Chief Financial Officer  

 

 

 

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Section 3: EX-99.906 CERT (EXHIBIT 99.906 CERT)

 

Exhibit 99.906CERT

 

Exhibit 12(b)

Rule 30a-2(b) Certification

 

In connection with the Report on Form N-Q for the quarter ended June 30, 2018 (the “Report”) of Oxford Lane Capital Corp. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Jonathan H. Cohen, the Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that:

 

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

/s/ JONATHAN H. COHEN  
Name: Jonathan H. Cohen  
Date: August 7, 2018  

 

 

 

 

Exhibit 12(b)

Rule 30a-2(b) Certification

 

In connection with the Report on Form N-Q for the quarter ended June 30, 2018 (the “Report”) of Oxford Lane Capital Corp. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Bruce L. Rubin, the Chief Financial Officer of the Registrant, hereby certify, to the best of my knowledge, that:

 

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

/s/ BRUCE L. RUBIN  
Name: Bruce L. Rubin  
Date: August 7, 2018  

 

 

 

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