Oxford Square Capital: Debt Over Equity

Oxford Square Capital Corp. is a CEF regulated as a BDC, uniquely blending CLO equity and leveraged loans. OXSQ's portfolio is heavily exposed to software company loans, a sector facing margin pressures from AI-driven insourcing trends. The fund is highly leveraged (1.2x debt/equity), with recent performance mediocre except after major credit spread blow-ups. Ignoring the high distribution rate, we see more risk than reward in OXSQ common equity and prefer its debt until spreads widen significantly.

Oxford Square Capital Corp. (OXSQ) is a fairly odd duckling. Legally set up as a closed-end fund, the company chose to be regulated as a business development company ('BDC'). The legal set-up of a fund can