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Introduction & Market Context
Oxford Square Capital Corp. (NASDAQ:OXSQ) released its third quarter 2025 investor presentation on November 4, 2025, revealing a significant increase in investment activity amid declining net asset value (NAV) and net investment income (NII). The business development company, which focuses on senior secured loans and collateralized loan obligation (CLO) equity investments, saw its stock price increase by 1.03% to $1.89 during regular trading hours, despite a 1.06% decline in pre-market trading.
The company operates within a relatively stable U.S. loan market, characterized by loan prices at 97.06% of par and a 12-month trailing default rate of 1.47%, according to the earnings call.
Quarterly Performance Highlights
Oxford Square reported net investment income of $0.07 per share for Q3 2025, continuing a downward trend from $0.08 in Q2 2025 and $0.10 in Q3 2024. Total investment income increased to $10.2 million from $9.5 million in the previous quarter, while the company maintained its quarterly distribution of $0.105 per share.
As shown in the following financial highlights table, the company's net asset value per share declined to $1.95, down from $2.06 in the previous quarter and $2.35 a year ago:
The decline in NAV was primarily driven by net unrealized losses on investments of $0.09 per share. Despite these challenges, the company continued its consistent distribution policy, though the current distribution now exceeds the quarterly net investment income.
Portfolio Composition and Investment Activity
Oxford Square significantly increased its investment activity in Q3 2025, deploying $58.1 million in new investments compared to no new investments in Q2 2025. This represents the highest quarterly investment activity in the periods presented. The company also reported $31.3 million in sales and repayments, resulting in net investment activity of $26.9 million.
The portfolio's weighted average yield remained relatively stable:
As of September 30, 2025, Oxford Square's $260.5 million investment portfolio consisted of 59 portfolio investments, with the top 10 investments representing 50.2% of the total portfolio. The portfolio maintains a balanced approach between senior secured loans and CLO equity investments.
The following chart illustrates the company's investment allocation by asset type and industry diversification:
The company's debt portfolio maintained a weighted average credit rating of 2.3 on a principal value basis and 2.2 on a fair value basis, with no investments rated in the lowest categories (4 or 5), indicating relative stability in credit quality:
The company reported $4.9 million in non-accrual investments at fair value, all of which were preferred equity investments, representing a small portion of the overall portfolio:
Balance Sheet and Leverage
Oxford Square's balance sheet showed increased leverage in Q3 2025, with its debt-to-equity ratio rising to 0.98x from 0.73x in the previous quarter. This increase was primarily due to the issuance of $74.75 million of 7.75% unsecured notes due July 2030 (OXSQH), which supplemented the existing $80.5 million of 5.50% notes due July 2028 (OXSQG).
The company's debt structure as of September 30, 2025 is detailed below:
Total assets increased to $314.7 million from $274.8 million in the previous quarter, driven by the growth in investments and cash. Cash and cash equivalents stood at $50.8 million, up from $29.8 million in Q2 2025, providing liquidity for future investments.
Distribution Coverage and Outlook
Oxford Square maintained its quarterly distribution of $0.105 per share, despite net investment income of $0.07 per share, resulting in a distribution coverage ratio of approximately 67%. This continues a trend of declining NII coverage of the distribution, which was 76% in Q2 2025 and 95% in Q3 2024.
During the earnings call, management indicated plans to focus on secondary market leveraged loans and explore strategies to improve NII coverage of dividends. CEO Jonathan Cohen emphasized the importance of long-duration investments for economic protection, stating: "The longer the reinvestment period, the greater we think everything else held constant, should be the level of protection against economic dislocation."
The company also noted it is at maximum capacity for CLO equity additions and will likely pursue portfolio rotation for future purchases. Management suggested there is potential to increase portfolio leverage further as part of its strategic initiatives, given that the current 0.98x debt-to-equity ratio remains below statutory limitations.
With a 52-week trading range of $1.56 to $2.96 and current price of $1.89, Oxford Square's shares continue to trade at a discount to NAV, reflecting investor concerns about the sustainability of the distribution and the declining net asset value per share.
Full presentation:
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