497 1 s122832_497.htm 497

Filed pursuant to Rule 497
File No. 333
-225462

The information in this preliminary prospectus supplement is not complete and may be changed. A registration statement relating to these securities has been filed with and declared effective by the Securities and Exchange Commission. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS SUPPLEMENT, SUBJECT TO COMPLETION, DATED FEBRUARY 4, 2020

PROSPECTUS SUPPLEMENT
(to Prospectus dated July
19, 2019)

$        

Oxford Lane Capital Corp.

Preferred Stock
Shares,       % Series 2027
Liquidation Preference $25 per Share

_______________________

We are a non-diversified, closed-end management investment company that has registered as an investment company under the Investment Company Act of 1940, or the “1940 Act.” Our investment objective is to maximize our portfolio’s total return. We have implemented our investment objective by purchasing portions of equity and junior debt tranches of collateralized loan obligation (“CLO”) vehicles. Structurally, CLO vehicles are entities formed to originate and manage a portfolio of loans.

An investment in our securities is subject to significant risks and involves a heightened risk of total loss of investment. The price of shares of our preferred stock may be highly volatile. In addition, the residual interests of the CLO securities in which we invest are subject to a high degree of special risks, including: CLO structures are highly complicated and may be subject to disadvantageous tax treatment; CLO vehicles are highly levered and are made up of below investment grade loans in which we typically have a residual interest that is much riskier than the loans that make up the CLO vehicle; and the market price for CLO vehicles may fluctuate dramatically (such as the dramatic declines during certain periods in 2015, 2016 and 2018), which may make portfolio valuations unreliable and negatively impact our net asset value and our ability to make distributions to our stockholders. See “Risk Factors” beginning on page S-18 of this prospectus supplement and page 20 of the accompanying prospectus to read about factors you should consider, including the risk of leverage, before investing in our securities.

We are offering          shares of our       % Series 2027 preferred stock, or the “Series 2027 Term Preferred Shares.” We will pay monthly dividends on the Series 2027 Term Preferred Shares at an annual rate of       % of the $25 liquidation preference per share, or $          per Series 2027 Term Preferred Share per year, on the last business day of each month, commencing March 31, 2020.

We are required to redeem all of the outstanding Series 2027 Term Preferred Shares on February 28, 2027 at a redemption price equal to $25 per share plus an amount equal to accumulated but unpaid dividends, if any, to, but excluding, the date of redemption. We cannot effect any amendment, alteration or repeal of our obligation to redeem all of the Series 2027 Term Preferred Shares on February 28, 2027 without the prior unanimous consent of the holders of Series 2027 Term Preferred Shares. If we fail to maintain an asset coverage ratio of at least 200% (as described in this prospectus supplement), we will redeem a portion of the outstanding Series 2027 Term Preferred Shares in an amount at least equal to the lesser of (1) the minimum number of shares of Series 2027 Term Preferred Shares necessary to cause us to meet our required asset coverage ratio and (2) the maximum number of Series 2027 Term Preferred Shares that we can redeem out of cash legally available for such redemption. At any time on or after February 28, 2023, at our sole option, we may redeem the Series 2027 Term Preferred Shares at a redemption price per share equal to the sum of the $25 liquidation preference per share plus an amount equal to accumulated but unpaid dividends, if any, on the Series 2027 Term Preferred Shares.

The Series 2027 Term Preferred Shares will rank pari passu, or equally, in right of payment with our 7.50% Series 2023 Term Preferred Shares or the “2023 Term Preferred Shares,” and the 6.75% Series 2024 Term Preferred Shares or the “2024 Term Preferred Shares,” and all other shares of preferred stock that we may issue in the future, and rank senior in right of payment to all of our common stock.

We have applied to list the Series 2027 Term Preferred Shares on the NASDAQ Global Select Market and we expect trading to commence thereon within 30 days after the date of initial delivery of the Series 2027 Term Preferred Shares under the symbol “OXLCP.” Our common stock is traded on the NASDAQ Global Select Market under the symbol “OXLC.” On February 3, 2020, the last reported sales price on the NASDAQ Global Select Market for our common stock was $9.01 per share. Our Series 2023 Term Preferred Shares are traded on the NASDAQ Global Select Market under the symbol “OXLCO.” On February 3, 2020, the last sale price of our Series 2023 Term Preferred Shares as reported on NASDAQ Global Select Market was $25.61 per share. Our Series 2024 Term Preferred Shares are traded on the NASDAQ Global Select Market under the symbol “OXLCM.” On February 3, 2020, the last sale price of our Series 2024 Term Preferred Shares as reported on NASDAQ Global Select Market was $25.79 per share. The Series 2027 Term Preferred Shares are not convertible into our common stock or any other security of our company.

We are required to determine the net asset value per share of our common stock on a quarterly basis. Our net asset value per share of our common stock as of December 31, 2019 was $6.81.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Please read this prospectus supplement and the accompanying prospectus before investing in our securities and keep each for future reference. This prospectus supplement and the accompanying prospectus contain important information about us that a prospective investor should know before investing in our securities. We are required to file annual and semi-annual reports, proxy statements and other information about us with the Securities and Exchange Commission, or the “SEC.” This information is available free of charge by contacting us by mail at 8 Sound Shore Drive, Suite 255, Greenwich, CT 06830, by telephone at (203) 983-5275 or on our website at http://www.oxfordlanecapital.com. Information contained on our website is not incorporated by referenced into this prospectus supplement or the accompanying prospectus, and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus. The SEC also maintains a website at http://www.sec.gov that contains such information.

 

Per Share

 

Total

Public Offering Price

 

$

    

 

$

    

Sales Load (Underwriting Discounts and Commissions)

 

$

   

$

 

Proceeds, before expenses, to Oxford Lane Capital Corp.(1)

 

$

   

$

 

____________

(1)     Total expenses of the offering payable by us, excluding underwriting discounts and commissions, are estimated to be $250,000. There will be additional items of value paid in connection with this offering that are viewed by the Financial Regulatory Authority, Inc. as underwriting compensation. Payment of this additional underwriting compensation will reduce the proceeds to us, before expenses. See “Underwriting.”

We have granted the underwriters a 30-day option to purchase up to an additional                Series 2027 Term Preferred Shares from us to cover over-allotments, if any. If such option is exercised in full, the public offering price, underwriting discounts and commissions and proceeds, before expenses, to us would be $        , $         and $        , respectively. See “Underwriting”.

The underwriters expect to deliver the shares on or about         , 2020.

_______________________

Joint Book-Running Managers

Ladenburg Thalmann

 

BB&T Capital Markets

Lead Managers

Incapital

 

National Securities Corporation

 

Wedbush Securities

 

William Blair

Prospectus Supplement dated                 , 2020

 

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

 

Page

About this Prospectus Supplement

 

S-ii

Summary

 

S-1

The Offering

 

S-13

Risk Factors

 

S-18

Cautionary Statement Regarding Forward-Looking Statements

 

S-22

Use of Proceeds

 

S-24

Captalization

 

S-25

Senior Securities

 

S-26

Description of the Series 2027 Term Preferred Stock

 

S-28

Additional Material U.S. Federal Income Tax Considerations

 

S-37

Underwriting (Potential Conflicts of Interest)

 

S-41

Custodian, Transfer Agent, Dividend Disbursing Agent and Redemption and Paying Agent

 

S-44

Miscellaneous

 

S-44

Legal Matters

 

S-45

Experts

 

S-45

Available Information

 

S-45

Index to Financial Statements

 

SF-1

Exhibit A: Articles Supplementary Establishing and Fixing the Preferences of Term Preferred Shares

 

SA-1

PROSPECTUS

 

Page

Summary

 

1

Offerings

 

13

Fees and Expenses

 

16

Financial Highlights

 

18

Risk Factors

 

20

Cautionary Statement Regarding Forward-Looking Statements

 

44

Use of Proceeds

 

45

Price Range of Common Stock and Distributions

 

46

Senior Securities

 

50

Business

 

52

Management

 

62

Portfolio Management

 

70

Investment Advisory Agreement

 

74

Administration Agreement

 

79

Certain Relationships and Transactions

 

80

Control Persons and Principal Stockholders

 

82

Regulation as a Registered Closed-End Management Investment Company

 

84

Determination of Net Asset Value

 

90

Distribution Reinvestment Plan

 

93

Certain U.S. Federal Income Tax Considerations

 

94

Description of Securities

 

101

Description of Our Capital Stock

 

102

Description of Our Preferred Stock

 

108

Description of Our Subscription Rights

 

109

Description of Our Debt Securities

 

110

Plan of Distribution

 

125

Custodian, Transfer Agent, Distribution Disbursing Agent and Redemption and Paying Agent

 

127

Brokerage Allocation and Other Practices

 

127

Legal Matters

 

128

Experts

 

128

Available Information

 

128

Index to Financial Statements

 

F-1

S-i

IMPORTANT NOTICE REGARDING ELECTRONIC DELIVERY

Beginning in May 2021, as permitted by regulations adopted by the SEC, paper copies of shareholder reports for the Company will no longer be sent by mail, unless you specifically request paper copies of the reports from the Company or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on the Company’s website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you do not need to take any action. For shareholder reports and other communications from the Company issued prior to May 2021, you may elect to receive such reports and other communications electronically. If you own shares of the Company through a financial intermediary, you may contact your financial intermediary to elect to receive materials electronically. This information is available free of charge by contacting us by mail at 8 Sound Shore Drive, Suite 255, Greenwich, CT 06830, by telephone at (203) 983-5275 or on our website at http://www.oxfordlanecapital.com.

You may elect to receive all future reports in paper, free of charge. If you own shares of the Company through a financial intermediary, you may contact your financial intermediary to elect to continue to receive paper copies of your shareholder reports after May 2021. This information is available free of charge by contacting us by mail at 8 Sound Shore Drive, Suite 255, Greenwich, CT 06830, by telephone at (203) 983-5275 or on our website at http://www.oxfordlanecapital.com. If you make such an election through your financial intermediary, your election to receive reports in paper may apply to all funds held through your financial intermediary.

ABOUT THIS PROSPECTUS SUPPLEMENT

We have filed with the SEC a registration statement on Form N-2 (File Nos. 333-225462 and 811-22432) utilizing a shelf registration process relating to the securities described in this prospectus supplement, which registration statement was most recently declared effective on July 19, 2019. This document is in two parts. The first part is the prospectus supplement, which describes the terms of this offering of Series 2027 Term Preferred Shares and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which gives more general information and disclosure. To the extent the information contained in this prospectus supplement differs from or is additional to the information contained in the accompanying prospectus, you should rely only on the information contained in this prospectus supplement. Please carefully read this prospectus supplement and the accompanying prospectus together with the additional information described under the headings “Available Information” and “Risk Factors” included in this prospectus supplement and the accompanying prospectus before investing in the Series 2027 Term Preferred Shares.

Neither we nor the underwriters have authorized any dealer, salesman or other person to give any information or to make any representation other than those contained in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction or to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. The information contained in this prospectus supplement and the accompanying prospectus is accurate as of the dates on their respective covers. Our financial condition, results of operations and prospects may have changed since those dates. To the extent required by law, we will amend or supplement the information contained in this prospectus supplement and the accompanying prospectus to reflect any material changes subsequent to the date of this prospectus supplement and the accompanying prospectus and prior to the completion of any offering pursuant to this prospectus supplement and the accompanying prospectus.

The Series 2027 Term Preferred Shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.

S-ii

SUMMARY

The following summary contains basic information about the offering of the Series 2027 Term Preferred Shares pursuant to this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all the information that is important to you. For a more complete understanding of the offering of shares of the Series 2027 Term Preferred Shares pursuant to this prospectus supplement, we encourage you to read this entire prospectus supplement and the accompanying prospectus, and the documents to which we have referred in this prospectus supplement and the accompanying prospectus. Together, these documents describe the specific terms of the shares we are offering. You should carefully read the section entitled “Risk Factors” and our financial statements included in this prospectus supplement and the sections entitled “Risk Factors” and “Business” and our financial statements included in the accompanying prospectus.

Except where the context requires otherwise, the terms “Oxford Lane Capital,” the “Company,” the “Fund,” “we,” “us” and “our” refer to Oxford Lane Capital Corp.; “Oxford Lane Management” and “investment adviser” refer to Oxford Lane Management, LLC; “Oxford Funds” and “administrator” refer to Oxford Funds, LLC (formerly known as BDC Partners, LLC); and “Alaric” and “Alaric Compliance Services” refer to Alaric Compliance Services, LLC.

Overview

We are a non-diversified closed-end management investment company that has registered as an investment company under the 1940 Act. Our investment objective is to maximize our portfolio’s risk-adjusted total return.

We have implemented our investment objective by purchasing portions of equity and junior debt tranches of CLO vehicles. Our investment strategy also includes warehouse facilities, which are financing structures intended to aggregate loans that may be used to form the basis of a CLO vehicle. Substantially all of the CLO vehicles in which we may invest would be deemed to be investment companies under the 1940 Act but for the exceptions set forth in section 3(c)(1) or section 3(c)(7). Structurally, CLO vehicles are entities formed to originate and manage a portfolio of loans. The loans within the CLO vehicle are limited to loans which meet established credit criteria and are subject to concentration limitations in order to limit a CLO vehicle’s exposure to a single credit. A CLO vehicle is formed by raising 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 CLO vehicles which we focus on are collateralized primarily by senior secured loans made to companies whose debt is unrated or is rated below investment grade, or “Senior Loans”, and generally have very little or no exposure to real estate, mortgage loans or to pools of consumer-based debt, such as credit card receivables or auto loans. Below investment grade securities are often referred to as “junk.” We may also invest, on an opportunistic basis, in other corporate credits of a variety of types. We expect that each of our investments will range in size from $5 million to $50 million, although the investment size may vary consistent with the size of our overall portfolio. Oxford Lane Management manages our investments and its affiliate arranges for the performance of the administrative services necessary for us to operate.

CLO vehicles, due to their high leverage, are more complicated to evaluate than direct investments in Senior Loans. Since we invest in the residual interests of CLO securities, our investments are riskier than the profile of the Senior Loans by which such CLO vehicles are collateralized. Our investments in CLO vehicles are riskier and less transparent to us and our stockholders than direct investments in the underlying Senior Loans. Our portfolio of investments may lack diversification among CLO vehicles which would subject us to a risk of significant loss if one or more of these CLO vehicles experience a high level of defaults on its underlying Senior Loans. The CLO vehicles in which we invest have debt that ranks senior to our investment. The market price for CLO vehicles may fluctuate dramatically, which would make portfolio valuations unreliable and negatively impact our net asset value and our ability to make distributions to our stockholders. Our financial results may be affected adversely if one or more of our significant equity or junior debt investments in such CLO vehicles defaults on its payment obligations or fails to perform as we expect.

Our investments in CLO vehicles may be subject to special anti-deferral provisions that could result in us incurring tax or recognizing income prior to receiving cash distributions related to such income. Specifically, the CLO vehicles in which we invest generally constitute “passive foreign investment companies”, or “PFICs.” Because we acquire investments in PFICs (including equity tranche investments in CLO vehicles that are PFICs), we may be subject to U.S. federal income tax on a portion of any “excess distribution” or gain from the disposition of such investments even if such income is distributed as a taxable dividend by us to our stockholders. See “Risk Factors — Risks Related to Our Investments” beginning on page 20 in the accompanying prospectus to read about factors you should consider before investing in our securities.

S-1

For the fiscal year ended March 31, 2019 and the six months ended September 30, 2019, our total return based on market value was 13.47% and 2.43% respectively. Total return based on market value is calculated assuming that shares of the Fund’s common stock were purchased at the market price as of the beginning of the period, and that distribution, capital gains and other distributions were reinvested as provided for in the Fund’s distribution reinvestment plan, excluding any discounts, and that the total number of shares were sold at the closing market price per share on the last day of the period. The computation does not reflect any sales commission investors may incur in purchasing or selling shares of the Fund. For the six months ended September 30, 2019, our total return based on net asset value was (10.58%). Total return based on net asset value is the change in ending net asset value per share plus distributions per share paid during the period assuming participation in the Company’s dividend reinvestment plan divided by the beginning net asset value per share. The total return based on net asset value does not reflect any sales commission investors may incur in purchasing or selling shares of the Company. Our total return figures are subject to change and, in the future, may be greater or less than the rates set forth above.

Repurchase Agreement with Nomura

On January 2, 2018, we entered into a Master Repurchase Agreement (the “Nomura Agreement”) with Nomura Securities International, Inc. (“Nomura”). Pursuant to the Nomura Agreement and a transaction confirmation, we entered into a repurchase transaction (the “Repo”) with Nomura pursuant to which we sold CLO securities to Nomura with a market value of approximately $106.2 million, at January 2, 2018, for a purchase price of approximately $42.5 million. At the end of the Repo term, we are obligated to repurchase those securities from Nomura, and Nomura is obligated to sell the securities to us, for the original purchase price of $42.5 million plus accrued but unpaid funding costs. The Repo originally had a nine-month term but was extended until July 2, 2019 by an amendment dated October11, 2018. The Repo originally had a funding cost of 3-month LIBOR plus 3.15 percent per annum. On May 1, 2019, the Nomura Agreement was amended to (i) extend the maturity date of the Repo from July 2, 2019 to January 2, 2020, and (ii) reduce the funding cost of the Nomura Agreement from 3-month LIBOR plus 3.15% per annum to 3-month LIBOR plus 2.90% per annum effective as of July 2, 2019. In addition, the Nomura Agreement was partially paid down on May 15, 2019 from approximately $42.5 million to $35.0 million. On August 15, 2019, the Nomura Agreement was amended to extend the maturity date of the Repo from January 2, 2020 to April 2, 2020. On November 4, 2019, in light of market conditions, we elected to post additional collateral with a market value of approximately $8.2 million. On December 26, 2019, we amended the Nomura Agreement to extend the maturity date of the Repo from April 2, 2020 to October 2, 2020 and sold CLO securities to Nomura with a market value of approximately $50.0 million, resulting in an increase in the maximum facility size of the Repo from $35.0 million to $50.0 million.

Distributions

In order to be subject to pass-through tax treatment as a regulated investment company, or “RIC,” and to eliminate our liability for corporate-level U.S. federal income tax on the income we distribute to our stockholders, we are required, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the “Code,” to distribute to our stockholders on an annual basis at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any.

The following table reflects the distributions, including dividends, distributions reinvested and tax returns of capital, if any, per share that we have declared on our common stock in the last five fiscal years and the current fiscal year, as well as our quarterly per share net investment income and distributions in excess of net investment income:

Months Ended

 

Record Date

 

Payment Date

 

Distributions(1)

 

GAAP Net
Investment
Income

 

Distributions
(in excess of)/
Less than Net
Investment
Income

Fiscal 2020

         

 

         

March 31, 2020

 

March 17, 2020

 

March 31, 2020

 

$

0.135

 

N/A

 

N/A

February 29, 2020

 

February 14, 2020

 

February 28, 2020

 

$

0.135

 

N/A

 

N/A

January 31, 2020

 

January 17, 2020

 

January 31, 2020

 

$

0.135

 

N/A

 

N/A

Sub-total for the quarter ended March 31, 2020

 

$

0.405

 

 

           

 

         

December 31, 2019

 

December 18, 2019

 

December 31, 2019

 

$

0.135

 

N/A

 

N/A

November 30, 2019

 

November 15, 2019

 

November 29, 2019

 

$

0.135

 

N/A

 

N/A

October 31, 2019

 

October 21, 2019

 

October 31, 2019

 

$

0.135

 

N/A

 

N/A

Sub-total for the quarter ended December 31, 2019

 

$

0.405

 

 

S-2

Months Ended

 

Record Date

 

Payment Date

 

Distributions(1)

 

GAAP Net
Investment
Income

 

Distributions
(in excess of)/
Less than Net
Investment
Income

September 30, 2019

 

September 23, 2019

 

September 30, 2019

 

$

0.135

 

 

N/A

 

 

N/A

 

August 31, 2019

 

August 23, 2019

 

August 30, 2019

 

$

0.135

 

 

N/A

 

 

N/A

 

July 31, 2019

 

July 24, 2019

 

July 31, 2019

 

$

0.135

 

 

N/A

 

 

N/A

 

Sub-total for the quarter ended September 30, 2019

 

$

0.405

 

$

0.31

 

$

(0.095

)

           

 

   

 

   

 

 

 

June 30, 2019

 

June 21, 2019

 

June 28, 2019

 

$

0.135

 

 

N/A

 

 

N/A

 

May 31, 2019

 

May 24, 2019

 

May 31, 2019

 

 

0.135

 

 

N/A

 

 

N/A

 

April 30, 2019

 

April 23, 2019

 

April 30, 2019

 

 

0.135

 

 

N/A

 

 

N/A

 

Sub-total for the quarter ended June 30, 2019

 

$

0.405

 

$

0.35

 

$

(0.055

)

Total Fiscal 2020

 

$

1.62

 

$

0.66

 

$

(0.15

)

           

 

   

 

   

 

 

 

Fiscal 2019(2)

         

 

   

 

   

 

 

 

March 31, 2019

 

March 22, 2019

 

March 29, 2019

 

$

0.135

 

 

N/A

 

 

N/A

 

February 28, 2019

 

February 21, 2019

 

February 28, 2019

 

 

0.135

 

 

N/A

 

 

N/A

 

January 31, 2019

 

January 24, 2019

 

January 31, 2019

 

 

0.135

 

 

N/A

 

 

N/A

 

Sub-total for the quarter ended March 31, 2019

 

$

0.405

 

$

0.34

 

$

(0.065

)

           

 

   

 

   

 

 

 

December 31, 2018

 

December 24, 2018

 

December 31, 2018

 

$

0.135

 

 

N/A

 

 

N/A

 

November 30, 2018

 

November 23, 2018

 

November 30, 2018

 

 

0.135

 

 

N/A

 

 

N/A

 

October 31, 2018

 

October 24, 2018

 

October 31, 2018

 

 

0.135

 

 

N/A

 

 

N/A

 

Sub-total for the quarter ended December 31, 2018

 

$

0.405

 

$

0.33

 

$

(0.075

)

           

 

   

 

   

 

 

 

September 30, 2018

 

September 20, 2018

 

September 28, 2018

 

$

0.135

 

 

N/A

 

 

N/A

 

August 31, 2018

 

August 23, 2018

 

August 31, 2018

 

 

0.135

 

 

N/A

 

 

N/A

 

July 31, 2018

 

July 23, 2018

 

July 31, 2018

 

 

0.135

 

 

N/A

 

 

N/A

 

Sub-total for the quarter ended September 30, 2018

 

$

0.405

 

$

0.35

 

$

(0.055

)

           

 

   

 

   

 

 

 

June 30, 2018

 

June 21, 2018

 

June 29, 2018

 

$

0.135

 

 

N/A

 

 

N/A

 

May 31, 2018

 

May 23, 2018

 

May 31, 2018

 

 

0.135

 

 

N/A

 

 

N/A

 

April 30, 2018

 

April 20, 2018

 

April 30, 2018

 

 

0.135

 

 

N/A

 

 

N/A

 

Sub-total for the quarter ended June 30, 2018

 

$

0.405

 

$

0.39

 

$

(0.015

)

Total Fiscal 2019

 

$

1.62

 

$

1.41

 

$

(0.21

)

           

 

   

 

   

 

 

 

Fiscal 2018(2)(4)

         

 

   

 

   

 

 

 

March 31, 2018

 

March 22, 2018

 

March 30, 2018

 

$

0.135

 

 

N/A

 

 

N/A

 

February 28, 2018

 

February 20, 2018

 

February 28, 2018

 

 

0.135

 

 

N/A

 

 

N/A

 

January 31, 2018

 

January 23, 2018

 

January 31, 2018

 

 

0.135

 

 

N/A

 

 

N/A

 

Sub-total for the quarter ended March 31, 2018

 

$

0.405

 

$

0.40

 

$

(0.005

)

           

 

   

 

   

 

 

 

December 31, 2017

 

December 15, 2017

 

December 29, 2017

 

$

0.40

 

$

0.41

 

$

0.01

 

September 30, 2017

 

September 15, 2017

 

September 29, 2017

 

 

0.40

 

 

0.37

 

 

(0.03

)

June 30, 2017

 

June 16, 2017

 

June 30, 2017

 

 

0.40

 

 

0.42

 

 

0.02

 

Total Fiscal 2018

 

$

1.605

 

$

1.60

 

$

(0.005

)

           

 

   

 

   

 

 

 

Fiscal 2017

         

 

   

 

   

 

 

 

March 31, 2017

 

March 16, 2017

 

March 31, 2017

 

$

0.60

 

$

0.46

 

$

(0.14

)

December 31, 2016

 

December 16, 2016

 

December 30, 2016

 

 

0.60

 

 

0.38

 

 

(0.22

)

September 30, 2016

 

September 16, 2016

 

September 30, 2016

 

 

0.60

 

 

0.37

 

 

(0.23

)

June 30, 2016

 

June 16, 2016

 

June 30, 2016

 

 

0.60

 

 

0.30

 

 

(0.30

)

Total Fiscal 2017

 

$

2.40

 

$

1.51

 

$

(0.89

)

S-3

Months Ended

 

Record Date

 

Payment Date

 

Distributions(1)

 

GAAP Net
Investment
Income

 

Distributions
(in excess of)/
Less than Net
Investment
Income

Fiscal 2016

         

 

   

 

   

 

 

 

March 31, 2016

 

March 16, 2016

 

March 31, 2016

 

$

0.60

 

$

0.36

 

$

(0.24

)

December 31, 2015

 

December 16, 2015

 

December 31, 2015

 

 

0.60

 

 

0.46

 

 

(0.14

)

September 30, 2015

 

September 30, 2015

 

October 30, 2015

 

 

0.60

 

 

0.33

 

 

(0.27

)

June 30, 2015

 

June 16, 2015

 

June 30, 2015

 

 

0.60

 

 

0.44

 

 

(0.16

)

Total Fiscal 2016

 

$

2.40

 

$

1.59

 

$

(0.81

)

           

 

   

 

   

 

 

 

Fiscal 2015

         

 

   

 

   

 

 

 

March 31, 2015

 

March 17, 2015

 

March 31, 2015

 

$

0.60

 

$

0.41

 

$

(0.19

)

December 31, 2014

 

December 17, 2014

 

December 31, 2014

 

 

0.60

 

 

0.29

 

 

(0.31

)

September 30, 2014

 

September 16, 2014

 

September 30, 2014

 

 

0.60

 

 

0.28

 

 

(0.32

)

June 30, 2014

 

June 16, 2014

 

June 30, 2014

 

 

0.60

 

 

0.38

 

 

(0.22

)

Total Fiscal 2015

 

$

2.40

 

$

1.36

 

$

(1.04

)

____________

(1)      All of our distributions in the table above (for which the payment date has passed) were funded from taxable income except for the fiscal years ended March 31, 2017, 2018 and 2019. Distributions for the fiscal years ended March 31, 2017, 2018 and 2019 include a tax return of capital of approximately $0.48 per share, $1.46 per share and $0.67 per share, respectively, for tax purposes. The ultimate tax character of the Fund’s earnings cannot be determined until tax returns are prepared after the end of the fiscal year, consequently, the tax characterization of distributions for the fiscal years ended March 31, 2020 will not be known until the tax returns for those years are finalized.

(2)      Given that the Company reports its net investment income quarterly, the respective monthly related information is not applicable.

(3)      We have not yet reported investment income for this period.

(4)      Beginning January 1, 2018, the Board began to declare monthly distributions in lieu of quarterly distributions.

For the six months ended September 30, 2019 we paid dividends totaling $3,390,001 and $2,302,944 on the Series 2023 Term Preferred Shares and Series 2024 Term Preferred Shares, respectively. For the fiscal year ended March 31, 2019 we paid dividends totaling $6,780,002 and $4,605,888 on the 7.50% Series 2023 Term Preferred Shares and 6.75% Series 2024 Term Preferred Shares, respectively. For the fiscal year ended March 31, 2018, we paid dividends totaling $6,780,002, $1,174,249 and $3,671,916 on the Series 2023 Term Preferred Shares, 8.125% Series 2024 Term Preferred Shares the (“8.125% Series 2024 Term Preferred Shares”) and 6.75% Series 2024 Term Preferred Shares, respectively. For the fiscal year ended March 31, 2017, we paid dividends totaling $5,844,609 and $4,102,473 on the Series 2023 Term Preferred Shares and 8.125% Series 2024 Term Preferred Shares, respectively. The 2017 Term Preferred Shares were fully redeemed in July 2015 and the 8.125% Series 2024 Term Preferred Shares were fully redeemed in July 2017.

For accounting purposes the distributions declared on our common stock and for the fiscal years ended March 31, 2019, 2018, 2017, 2016 and 2015 were in excess of the reported earnings under Generally Accepted Accounting Principles, or “GAAP.” However, as a RIC, earnings and distributions are determined on a tax basis. Furthermore, taxable earnings are determined according to tax regulations and differ from reported income for accounting purposes under GAAP. Therefore, the characterization of distributions for U.S. federal income tax purposes may differ from the characterization for GAAP. For the fiscal years ended March 31, 2016 and March 31, 2015, taxable earnings exceeded our distributions, and there was no tax return of capital for these years. For the fiscal years ended March 31, 2019, March 31, 2018 and March 31, 2017, there was a tax return of capital of approximately $0.67 per share, $1.46 per share and $0.48 per share, respectively, for U.S. federal income tax purposes.

The tax characterization of distributions for the year ended March 31, 2020 will not be known until the tax return is finalized. To the extent that taxable earnings for any fiscal year are less than the amount of the distributions paid during the year, there would be a tax return of capital to shareholders. Distributions in excess of current and accumulated taxable earnings and profits will generally not be taxable to the shareholders, because a tax return of capital represents a return of a portion of a shareholder’s original investment in our common stock, net of fund fees and expenses, to the extent of a shareholder’s basis in our stock. Generally, a tax return of capital will reduce an investor’s basis in our stock for federal tax purposes, which will result in the shareholder recognizing additional gain (or less loss)

S-4

when the stock is sold. Assuming that a shareholder holds our stock as a capital asset, any such additional gain would be a capital gain. Shareholders should not assume that the source of all distributions is from our net profits and shareholders may periodically receive the payment of a distribution consisting of a return of capital. The tax character of any distributions will be determined after the end of the fiscal year. Tax matters are very complicated and the tax consequences to an investor of an investment in our shares will depend on the facts of its particular situation. We encourage investors to consult their own tax advisors regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.

We have elected to be treated, and intend to continue to qualify annually, as a RIC under Subchapter M of the Code beginning with our 2011 taxable year. To maintain RIC tax treatment, we must, among other things, distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. In order to avoid certain U.S. federal excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of: (1) 98% of our ordinary income for the calendar year; (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year; and, (3) 100% of any ordinary income and net capital gains that we recognized in preceding years but were not distributed during such years and on which we paid no U.S. federal income tax. In addition, although we currently intend to distribute realized net capital gains (i.e., net long term capital gains in excess of short term capital losses), if any, at least annually, we may in the future decide to retain such capital gains for investment and elect to treat such gains as deemed distributions to you. If this happens, you will be treated as if you had received an actual distribution of the capital gains we retain and reinvested the net after tax proceeds in us. In this situation, you would be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we paid on the capital gains deemed distributed to you. See “Certain U.S. Federal Income Tax Considerations” in the accompanying prospectus. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, to the extent that we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

We may make distributions by issuing additional shares of our common stock under our distribution reinvestment plan, unless you elect to receive your dividends and/or long-term capital gains distributions in cash. We reserve the right to purchase shares in the open market in connection with our implementation of the distribution reinvestment plan. See “Distribution Reinvestment Plan” in the accompanying prospectus. If you hold shares in the name of a broker or financial intermediary, you should contact the broker or financial intermediary regarding your election to receive distributions in cash. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

Distribution Policy

Oxford Lane is subject to significant and variable differences between its accounting income under GAAP and its taxable income particularly as it relates to our CLO equity investments. We invest in CLO entities which generally constitute PFICs and which are subject to complex tax rules; the calculation of taxable income attributed to a CLO equity investment can be dramatically different from the calculation of income for financial reporting purposes under GAAP. Taxable income is based upon the distributable share of earnings as determined under tax regulations for each CLO equity investment, which may be consistent with the cash flows generated by those investments (although significant differences are possible), while accounting income is currently based upon an effective yield calculation (this requires the calculation of a yield to expected redemption date based upon an estimation of the amount and timing of future cash flows, including recurring cash flows as well as future principal repayments). The Fund’s final taxable earnings for the fiscal year ended March 31, 2020 will not be known until our tax returns are filed but our experience has been that cash flows from CLO equity investments have historically represented a generally reasonable estimate of taxable earnings; however, we can offer no assurance that will be the case in the future, particularly during periods of market disruption and volatility. There may be significant differences between Oxford Lane Capital’s GAAP earnings and its taxable earnings, particularly related to CLO equity investments where its taxable earnings are based upon the taxable reported earnings provided by the CLO equity positions in which we invest, while GAAP earnings are based are upon an effective yield calculation. In general, the Fund currently expects its taxable earnings to be higher than its reportable GAAP earnings. However, under certain circumstances, we may be required to take into account income for tax purposes no later than when such income is taken into account for GAAP purposes.

S-5

While reportable GAAP income from our CLO equity investments for the six months ended September 30, 2019 was approximately $53.7 million, we received or were entitled to receive approximately $68.4 million in distributions from our CLO equity investments. While the tax characterization of our distributions for the fiscal year ended March 31, 2019, will not be known until our tax returns are finalized, we expect that our taxable income will exceed our earnings and profits determined under GAAP for this period. In general, we currently expect our annual taxable income to be higher than our GAAP earnings on the basis of the difference between cash distributions from CLO equity investments actually received or entitled to be received and the effective yield income calculated under GAAP. Our distribution policy is based upon our estimate of our taxable net investment income.

Oxford Lane Management

Our investment activities are managed by Oxford Lane Management, which is an investment adviser that has registered under the Investment Advisers Act of 1940, or the “Advisers Act.” Under our investment advisory agreement with Oxford Lane Management, which we refer to as our “Investment Advisory Agreement,” we have agreed to pay Oxford Lane Management an annual base management fee based on our gross assets, as well as an incentive fee based on our performance. See “Investment Advisory Agreement” in the accompanying prospectus.

We expect to benefit from the ability of our investment adviser’s team to identify attractive opportunities, conduct diligence on and value prospective investments, negotiate terms where appropriate, and manage and monitor a diversified portfolio although we do not intend to operate as a “diversified” investment company within the meaning of the 1940 Act. Our investment adviser’s senior investment team members have broad investment backgrounds, with prior experience at investment banks, commercial banks, unregistered investment funds and other financial services companies, and have collectively developed a broad network of contacts to provide us with our principal source of investment opportunities.

Our investment adviser is led by Jonathan H. Cohen, our Chief Executive Officer, and Saul B. Rosenthal, our President. Messrs. Cohen and Rosenthal are assisted by Darryl M. Monasebian, Executive Vice President, and Debdeep Maji, who serves as Senior Managing Director for Oxford Lane Management. We consider Messrs. Cohen, Rosenthal, Monasebian and Maji to be Oxford Lane Management’s senior investment team.

Messrs. Cohen, Rosenthal, Monasebian and Maji together with the other members of Oxford Lane Management’s investment team, have developed an infrastructure that we believe provides Oxford Lane Capital with a competitive advantage in locating and acquiring attractive CLO investments.

Charles M. Royce is a non-managing member of Oxford Lane Management. Mr. Royce serves as Chairman of the Board of Managers of Royce & Associates, LLC, or “Royce & Associates.” From 1972 until 2017, Mr. Royce served as Chief Executive Officer of Royce & Associates. He also manages or co-manages eight of Royce & Associates’ open- and closed-end registered funds. Mr. Royce currently serves on the Board of Trustees of The Royce Funds and Board of Directors of Oxford Square Capital Corp. Mr. Royce is also a non-managing member of Oxford Square Management, LLC, the investment adviser for Oxford Square Capital Corp. Mr. Royce, as a non-managing member of Oxford Lane Management, does not take part in the management or participate in the operations of Oxford Lane Management.

We will reimburse Oxford Funds, an affiliate of Oxford Lane Management, our allocable portion of overhead and other expenses incurred by Oxford Funds in performing its obligations under an administration agreement by and among us and Oxford Funds, or the “Administration Agreement,” including rent, the fees and expenses associated with performing administrative functions, and our allocable portion of the compensation of our Chief Financial Officer and any administrative support staff, including accounting personnel. We will also reimburse Oxford Funds for the costs associated with the functions performed by our Chief Compliance Officer that Oxford Funds pays on the Company’s behalf pursuant to the terms of an agreement between us and Alaric Compliance Services, LLC. These arrangements could create conflicts of interest that our Board of Directors must monitor.

Investment Focus

Our investment objective is to maximize our portfolio’s risk-adjusted total return. Our current focus is to seek that return by investing in structured finance investments, specifically the equity and junior debt tranches of CLO vehicles, 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

S-6

or auto loans. Our investment strategy also includes investing in warehouse facilities, which are financing structures intended to aggregate Senior Loans that may be used to form the basis of a CLO vehicle. As of September 30, 2019, we held debt investments in six different CLO structures and equity investments in approximately 110 different CLO structures. We may also invest, on an opportunistic basis, in a variety of other types of corporate credits.

The CLO investments we currently hold in our portfolio generally represent either a residual economic interest, in the case of an equity tranche, or a debt investment collateralized by a portfolio of Senior Loans. The value of our CLO investments generally depend on both the quality and nature of the underlying portfolio it references and also on the specific structural characteristics of the CLO itself.

CLO Structural Elements

Structurally, CLO vehicles are entities formed to originate and manage a portfolio of loans. The loans within the CLO vehicle are generally limited to loans which meet established credit criteria and are subject to concentration limitations in order to limit a CLO vehicle’s exposure to a single credit.

A CLO vehicle is formed by raising multiple “tranches” of debt (with the most senior tranches being rated “AAA” to the most junior tranches typically being rated “BB” or “B”) and equity. As interest payments are received the CLO vehicle makes contractual interest payments to each tranche of debt based on their seniority. If there are funds remaining after each tranche of debt receives its contractual interest rate and the CLO vehicle meets or exceeds required collateral coverage levels (or other similar covenants) the remaining funds may be paid to the equity tranche. The contractual provisions setting out this order of payments are set out in detail in the CLO vehicle’s indenture. These provisions are referred to as the “priority of payments” or the “waterfall” and determine any other obligations that may be required to be paid ahead of payments of interest and principal on the securities issued by a CLO vehicle. In addition, for payments to be made to each tranche, after the most senior tranche of debt, there are various tests which must be complied with, which are different for each CLO vehicle.

CLO indentures typically provide for adjustments to the priority of payments in the event that certain cashflow or collateral requirements are not maintained. The collateral quality tests that may divert cashflows in the priority of payments are predominantly determined by reference to the par values of the underlying loans, rather than their current market values. Accordingly, we believe that CLO equity and junior debt investments allow investors to gain exposure to the Senior Loan market on a levered basis without being structurally subject to mark-to-market price fluctuations of the underlying loans. As such, although the current valuations of CLO equity and junior debt tranches are expected to fluctuate based on price changes within the loan market, interest rate movements and other macroeconomic factors, those tranches will generally be expected to continue to receive distributions from the CLO vehicle periodically so long as the underlying portfolio does not suffer defaults, realized losses or other covenant violations sufficient to trigger changes in the waterfall allocations. We therefore believe that an investment portfolio consisting of CLO equity and junior debt investments of this type has the ability to provide attractive risk-adjusted rates of return.

The diagram below is for illustrative purposes only. The CLO structure highlighted below is illustrative only and depicts structures among CLO vehicles in which we may invest may vary substantially from the illustrative example set forth below.

S-7

We typically invest in the equity tranches, which are not rated, and to a lesser extent the “B” and “BB” tranches of CLO vehicles. As of September 30, 2019, 96.0% of our portfolio on a fair value basis was invested in the equity tranches of CLO vehicles.

The Syndicated Senior Loan Market

We believe that while the syndicated leveraged corporate loan market is relatively large, with Standard and Poor’s estimating the total par value outstanding at approximately $1.2 trillion as of December 31, 2019, this market remains largely inaccessible to a significant portion of investors that are not lenders or approved institutions. The CLO market permits wider exposure to syndicated Senior Loans, but this market is almost exclusively private and predominantly institutional.

The Senior Loan market is characterized by various factors, including:

•        Floating rate instruments.    A Senior Loan typically contains a floating versus a fixed interest rate, which we believe provides some measure of protection against the risk of interest rate fluctuation. However, all of our CLO investments have many Senior Loans which are subject to interest rate floors and since interest rates on Senior Loans may only reset periodically and the amount of the increase following an interest rate reset may be below the interest rate floors of such Senior Loans, our ability to benefit from rate resets following an increase in interest rates may be limited.

•        Frequency of interest payments.    A Senior Loan typically provides for scheduled interest payments no less frequently than quarterly.

Investment Opportunity

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.

The long-term and relatively low-cost capital that many CLO vehicles have secured, compared with current asset spreads, 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.

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.

Summary Risk Factors

The value of our assets, as well as the market price of our securities, will fluctuate. Our investments may be risky, and you may lose all or part of your investment in us. Investing in Oxford Lane Capital involves other risks, including the following:

•        Our portfolio of investments may lack diversification among CLO vehicles which may subject us to a risk of significant loss if one or more of these CLO vehicles experiences a high level of defaults on its underlying Senior Loans;

•        The Senior Loan portfolios of the CLO vehicles in which we will invest may be concentrated in a limited number of industries, which may subject those vehicles, and in turn us, to a risk of significant loss if there is a downturn in a particular industry in which a number of our CLO vehicles’ investments are concentrated;

•        The application of risk retention rules under Section 941 of the Dodd-Frank Act to CLOs may have broader effects on the CLO and loan markets in general, potentially resulting in fewer or less desirable investment opportunities for the Company;

•        Our financial results may be affected adversely if one or more of our significant equity or junior debt investments in such CLO vehicles defaults on its payment obligations or fails to perform as we expect;

S-8

•        Investing in CLO vehicles, Senior Loans and other high-yield corporate credits involves a variety of risks, any of which may adversely impact our performance;

•        Uncertainty relating to the LIBOR calculation process may adversely affect the value of our portfolio of the LIBOR-indexed, floating-rate debt securities;

•        Our ability to enter into transactions involving derivatives and financial commitment transactions may be limited;

•        The CLO equity market has experienced significant downturns from time to time, which has negatively impacted our net asset value per share and, if those reduced values are realized over time, you may not receive dividends or our dividends may decline or may not grow over time;

•        We have a limited operating history as a closed-end investment company;

•        Our investment portfolio is recorded at fair value, with our Board of Directors having final responsibility for overseeing, reviewing and approving, in good faith, its estimate of fair value and, as a result, there will be uncertainty as to the value of our portfolio investments;

•        We are dependent upon Oxford Lane Management’s key personnel for our future success;

•        Our incentive fee structure and the formula for calculating the fee payable to Oxford Lane Management may incentivize Oxford Lane Management to pursue speculative investments, use leverage when it may be unwise to do so, or refrain from de-levering when it would otherwise be appropriate to do so;

•        A general increase in interest rates may have the effect of making it easier for our investment adviser to receive incentive fees, without necessarily resulting in an increase in our net earnings;

•        A disruption or downturn in the capital markets and the credit markets could impair our ability to raise capital and negatively affect our business;

•        Regulations governing our operation as a registered closed-end management investment company affect our ability to raise additional capital and the way in which we do so. The raising of debt capital may expose us to risks, including the typical risks associated with leverage;

•        We may borrow money and/or issue Preferred Stock to leverage our portfolio, which would magnify the potential for gain or loss on amounts invested and will increase the risk of investing in us;

•        We may experience fluctuations in our quarterly results;

•        We will be subject to corporate-level U.S. federal income tax if we are unable to maintain our RIC status under Subchapter M of the Code;

•        There is a risk that our stockholders may not receive distributions or that our distributions may not grow or may be reduced over time, including on a per share basis as a result of the dilutive effects of this offering;

•        Any amounts that we use to service our indebtedness or preferred dividends, or that we use to redeem our Preferred Stock, will not be available for distributions to our common stockholders;

•        Our common stock is subject to a risk of subordination relative to holders of our debt instruments and holders of our Preferred Stock;

•        Holders of our preferred stock have the right to elect two members of our Board of Directors and class voting rights on certain matters.

•        An investment in the Series 2027 Term Preferred Shares with a fixed interest rate bears interest rate risk;

•        A liquid secondary trading market has not developed and may not develop for the Series 2027 Term Preferred Shares;

•        The Series 2027 Term Preferred Shares are not rated;

S-9

•        The Series 2027 Term Preferred Shares bear a risk of early redemption by us;

•        Claims of holders of the Series 2027 Term Preferred Shares are subject to a risk of subordination relative to holders of our debt instruments;

•        We are subject to risks related to the general credit crisis and related liquidity risks;

•        Holders of the Series 2027 Term Preferred Shares bear reinvestment risk;

•        Holders of the Series 2027 Term Preferred Shares bear dividend risk; and

•        There is a risk of delay in our redemption of the Series 2027 Term Preferred Shares, and we may fail to redeem such securities as required by their terms.

See “Risk Factors” beginning on page S-18 of this prospectus supplement and on page 20 of the accompanying prospectus, and the other information included in this prospectus supplement and the accompanying prospectus for additional discussion of factors you should carefully consider before deciding to invest in the Series 2027 Term Preferred Shares.

Operating and Regulatory Structure

Oxford Lane Capital is a Maryland corporation that is a non-diversified closed-end management investment company that has registered as an investment company under the 1940 Act. As a registered closed-end fund, we are required to meet regulatory tests. See “Regulation as a Registered Closed-End Management Investment Company” in the accompanying prospectus. We may also borrow funds to make investments. In addition, we have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the Code. See “Certain U.S. Federal Income Tax Considerations” in the accompanying prospectus.

Our investment activities are managed by Oxford Lane Management and supervised by our Board of Directors. Oxford Lane Management is an investment adviser that is registered under the Advisers Act. Under our Investment Advisory Agreement, we have agreed to pay Oxford Lane Management an annual base management fee based on our gross assets as well as an incentive fee based on our performance. See “Investment Advisory Agreement” in the accompanying prospectus. We have also entered into an administration agreement with Oxford Funds, which we refer to as the Administration Agreement, under which we have agreed to reimburse Oxford Funds for our allocable portion of overhead and other expenses incurred by Oxford Funds in performing its obligations under the Administration Agreement, including furnishing us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing us with other administrative services. See “Administration Agreement” in the accompanying prospectus.

Oxford Funds also serves as the managing member of Oxford Lane Management. Messrs. Cohen and Rosenthal, in turn, serve as the managing member and non-managing member, respectively, of Oxford Funds.

Recent Developments

 

THIRD QUARTER OF FISCAL 2020 FINANCIAL HIGHLIGHTS

•        Net asset value (“NAV”) per share as of December 31, 2019 stood at $6.81, compared with a NAV per share on September 30, 2019 of $6.63.

•        Net investment income (“NII”), calculated in accordance with generally accepted accounting principles (“GAAP”), was approximately $20.0 million, or $0.32 per share, for the quarter ended December 31, 2019.

•        Our core net investment income (“Core NII”) was approximately $39.1 million, or $0.62 per share, for the quarter ended December 31, 2019.

•        Core NII represents NII adjusted for additional applicable cash distributions received, or entitled to be received (if any, in either case), on our collateralized loan obligation (“CLO”) equity investments. See additional information under “Supplemental Information Regarding Core Net Investment Income” below.

•                          We emphasize that our taxable income may materially differ from our GAAP NII and/or our Core NII, and that neither GAAP NII nor Core NII should be relied upon as indicators of our taxable income.

S-10

•                Total investment income for the third fiscal quarter amounted to approximately $32.4 million, which represented an increase of $4.0 million from the quarter ended September 30, 2019.

•        For the quarter ended December 31, 2019 we recorded investment income from our portfolio as follows:

•        $30.8 million from our CLO equity investments, and

•        $1.6 million from our CLO debt investments and other income.

•        As of December 31, 2019 the following metrics applied (note that none of these metrics represented a total return to shareholders):

•        The weighted average yield of our CLO debt investments at current cost was 12.4%, compared with 10.4% as of September 30, 2019.

•        The weighted average effective yield of our CLO equity investments at current cost was 16.4%, compared with 16.4% as of September 30, 2019.

•        The weighted average cash distribution yield of our CLO equity investments at current cost was 25.2%, compared with 22.1% as of September 30, 2019.

•        For the quarter ended December 31, 2019 we recorded a net increase in net assets resulting from operations of approximately $18.8 million, or $0.30 per share, comprised of:

•        Net investment income of $20.0 million;

•        Net realized loss of $1.6 million; and

•        Net unrealized appreciation of $0.4 million.

•        During the quarter ended December 31, 2019 we made additional CLO investments of approximately $106.4 million, and received $16.2 million from sales and repayments of our CLO investments.

•        For the quarter ended December 31, 2019, we issued a total of 9,116,419 shares of common stock pursuant to an “at-the-market” offering. After deducting the sales agent’s commissions and offering expenses, this resulted in net proceeds of approximately $78.9 million. As of January 31, 2020, we had approximately 69.0 million shares of common stock outstanding.

•        On December 26, 2019, the Fund amended its Repurchase Transaction Facility (“Repo”) with Nomura Securities International, Inc., to extend the maturity date of the Repo from April 2, 2020 to October 2, 2020, and increase the maximum facility size of the Repo from $35.0 million to $50.0 million.

•        On January 31, 2020 our Board of Directors declared the following distributions on our common stock:

 

Month Ending

 

Record Date

 

Payment Date

 

Amount Per Share

   

April 30, 2020

 

April 15, 2020

 

April 30, 2020

 

 $0.135

 

May 31, 2020

 

May 14, 2020

 

May 29, 2020

 

 $0.135

 

June 30, 2020

 

June 15, 2020

 

June 30, 2020

 

 $0.135

 

Our Board of Directors 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

 

March 17, April 15, May 14

 

March 31, April 30, May 29

Series 2024

 

$

0.140625

 

March 17, April 15, May 14

 

March 31, April 30, May 29

S-11

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

We provide information relating to Core NII (a non-GAAP measure) on a supplemental basis. This measure is not provided as a substitute for GAAP NII, but in addition to it. Our non-GAAP measures may differ from similar measures by other companies, even in the event of similar terms being utilized to identify such measures. Core NII represents GAAP NII adjusted for additional applicable cash distributions received, or entitled to be received (if any, in either case), on our CLO equity investments. OXLC’s management uses this information in its internal analysis of results and believes that this information may be informative in gauging the quality of OXLC’s financial performance, identifying trends in its results and providing meaningful period-to-period comparisons.

Income from investments in the “equity” class securities of CLO vehicles, for GAAP purposes, is recorded using the effective interest method; this is based on an effective yield to the expected redemption utilizing estimated cash flows, at current cost, including those CLO equity investments that have not made their inaugural distribution for the relevant period end. The result is an effective yield for the investment in which the difference between the actual cash received, or distributions entitled to be received, and the effective yield calculation is adjusted to the cost. Accordingly, investment income recognized on CLO equity securities in the GAAP statement of operations differs from the cash distributions actually received by the Company during the period (referred to below as “CLO equity adjustments”).

Furthermore, in order for the Company to continue qualifying as a regulated investment company (“RIC”) for tax purposes, we are required, among other things, to distribute at least 90% of our investment company taxable income annually. Therefore, Core NII may provide a better indication of our estimated taxable income for a reporting period than GAAP NII; we can offer no assurance that will be the case, however, as the ultimate tax character of our earnings cannot be determined until after tax returns are prepared at the close of a fiscal year. We note that this non-GAAP measure may not serve as a useful indicator of taxable earnings, particularly during periods of market disruption and volatility, and, as such, our taxable income may differ materially from our Core NII.

The following table provides a reconciliation of GAAP NII to Core NII for the three months ended December 31, 2019:

 

Three Months Ended
December 31, 2019

   

Amount

 

Per Share Amount

GAAP Net investment income

 

$

19,976,648

 

$

0.32

CLO equity adjustments

 

 

19,086,164

 

 

0.30

Core Net investment income

 

$

39,062,812

 

$

0.62

Our Corporate Information

Our offices are located at 8 Sound Shore Drive, Suite 255, Greenwich, CT 06830, and our telephone number is (203) 983-5275.

S-12

THE OFFERING

The following is a brief summary of the terms of this offering. For a more complete description of the rights, preferences and other terms of the Series 2027 Term Preferred Shares, see “Description of the Series 2027 Term Preferred Stock” in this prospectus supplement.

Issuer

 

Oxford Lane Capital Corp.

Listing

 

We have applied to list the Series 2027 Term Preferred Shares on the NASDAQ Global Select Market and we expect trading to commence thereon within 30 days after the date of initial delivery of the Series 2027 Term Preferred Shares under the symbol “OXLCP.” Our Series 2023 Term Preferred Shares are currently listed on the NASDAQ Global Select Market under the symbol “OXLCO.” Our Series 2024 Term Preferred Shares are currently listed on NASDAQ Global Select Market under the symbol “OXLCM.” Our common stock is currently listed on the NASDAQ Global Select Market under the symbol “OXLC.”

Securities Offered

 

         shares of       % Series 2027 Term Preferred Shares (        shares if the underwriters exercise their over-allotment option in full).

Liquidation Preference

 

$25 per share, plus accrued but unpaid dividends, if any. In the event of any liquidation, dissolution or winding up of our affairs, holders of the Series 2027 Term Preferred Shares, pari passu, or equally, with the holders of the Series 2023 Term Preferred Shares and the Series 2024 Term Preferred Shares, will be entitled to receive a liquidation distribution per share equal to $25 per share (which we refer to in this prospectus supplement as the Liquidation Preference), plus an amount equal to all accrued but unpaid dividends, if any, and distributions accumulated to (but excluding) the date fixed for distribution or payment, whether or not earned or declared by us, but excluding interest on any such distribution or payment. See “Description of the Series 2027 Term Preferred Stock — Liquidation Rights.”

Dividends

 

The Series 2027 Term Preferred Shares pay a monthly dividend at a fixed annual rate of         % of the Liquidation Preference, or $        per share per year, which we refer to as the Fixed Dividend Rate. The Fixed Dividend Rate is subject to adjustment under certain circumstances.

   

Cumulative cash dividends or distributions on each Series 2027 Term Preferred Share are payable monthly, when, as and if declared, or under authority granted, by our Board of Directors out of funds legally available for such payment. We will pay monthly dividends on the Series 2027 Term Preferred Shares offered pursuant to this prospectus supplement, commencing on March 31, 2020.

Ranking

 

The Series 2027 Term Preferred Shares are senior securities that constitute capital stock of the Company.

S-13

 

The Series 2027 Term Preferred Shares rank:

•        senior to our common stock in priority of payment of dividends and as to the distribution of assets upon dissolution, liquidation or winding-up or our affairs; and

•        equal in priority with the Series 2023 Term Preferred Shares, the Series 2024 Term Preferred Shares and all other future series of Preferred Stock we may issue, which we refer to in this prospectus supplement, collectively with the Series 2027 Term Preferred Shares, as the Preferred Stock, as well as any other series of Term Preferred Stock (as such term is defined in the Articles Supplementary), or the “Term Preferred Stock,” as to priority of payment of dividends and as to distributions of assets upon dissolution, liquidation or the winding-up of our affairs.

   

We may issue additional shares of Preferred Stock, but we may not issue additional classes of capital stock that rank senior or junior to the Series 2027 Term Preferred Shares (other than Common Stock) as to priority of payment of dividends and as to distribution of assets upon dissolution, liquidation or winding-up of our affairs. We may, however, issue additional Preferred Stock only so long as the ratio of (1) the value of total assets less all liabilities and indebtedness not represented by senior securities to (2) the sum of all senior securities representing indebtedness and the outstanding Series 2023 Term Preferred Shares, Series 2024 Term Preferred Shares and Series 2027 Term Preferred Shares multiplied by $25 per share is at least 200%. In addition, we may borrow funds from banks and other lenders so long as the ratio of (1) the value of total assets less all liabilities and indebtedness not represented by senior securities to (2) the sum of all senior securities representing indebtedness is at least 300%.

Term Redemption

 

We are required to redeem all outstanding Series 2027 Term Preferred Shares on February 28, 2027, or the “Term Redemption Date,” at a redemption price equal to the Liquidation Preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the redemption date. We cannot effect any amendment, alteration or repeal of our obligation to redeem all of the Series 2027 Term Preferred Shares on February 28, 2027 without the prior unanimous vote or consent of holders of the Series 2027 Term Preferred Shares. See “Description of the Series 2027 Term Preferred Stock — Redemption” and “— Voting Rights.”

S-14

Mandatory Redemption for Asset
Coverage

 


If we fail to maintain an asset coverage ratio (as defined below) of at least 200% as of the close of business on any Business Day on which asset coverage is required to be calculated, and such failure is not cured by the close of business on the date that is 30 calendar days following such Business Day (referred to in this prospectus supplement as an Asset Coverage Cure Date), then we are required to redeem, within 90 calendar days of the Asset Coverage Cure Date, shares of Preferred Stock equal to the lesser of (1) the minimum number of shares of Preferred Stock that will result in our having an asset coverage ratio of at least 200% and (2) the maximum number of shares of Preferred Stock that can be redeemed out of funds legally available for such redemption. Also, at our sole discretion, we may redeem such number of shares of Preferred Stock (including shares of Preferred Stock required to be redeemed) that will result in our having an asset coverage ratio of up to and including 285%. The Preferred Stock to be redeemed may include, at our sole option, any number or proportion of the Series 2027 Term Preferred Shares and other series of Preferred Stock. If the Series 2027 Term Preferred Shares are to be redeemed in such an event, they will be redeemed at a redemption price equal to their liquidation preference per share plus accumulated but unpaid dividends, if any, on such liquidation preference (whether or not declared, but excluding, interest on accrued but unpaid dividends, if any) to, but excluding, the date fixed for such redemption.

   

Asset coverage for purposes of our Preferred Stock is a ratio calculated under Section 18(h) of the 1940 Act. We estimate that, on the Date of Original Issue (as such term is defined in the Articles Supplementary), our asset coverage, based on the composition and value of our portfolio as of September 30, 2019, and after giving effect to (1) the issuance of Series 2027 Term Preferred Shares in this offering, (2) the issuance of 9,316,689 shares of our common stock from October 1, 2019 to January 7, 2020 in an “at-the-market” offering, and (3) the payment of offering costs payable by us of $250,000 in connection with this offering, will be    %. See “Description of the Series 2027 Term Preferred Stock — Asset Coverage.”

Optional Redemption

 

At any time on or after February 28, 2023, at our sole option, we may redeem, from time to time, the Series 2027 Term Preferred Shares in whole or in part, out of funds legally available for such redemption, at a price per share equal to the sum of the Liquidation Preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption. See “Description of the Series 2027 Term Preferred Stock — Redemption — Optional Redemption.” See “Description of the Series 2027 Term Preferred Stock — Redemption.”

S-15

Voting Rights

 

Except as otherwise provided in our Articles of Amendment and Restatement to the Articles of Incorporation or as otherwise required by law, (1) each holder of Preferred Stock (including the Series 2027 Term Preferred Shares, the Series 2023 Term Preferred Shares and the Series 2024 Term Preferred Shares) will be entitled to one vote for each share of Preferred Stock held by such holder on each matter submitted to a vote of our stockholders and (2) the holders of all outstanding Preferred Stock and our common stock will vote together as a single class; provided that holders of Preferred Stock, voting separately as a class, will elect two of our directors and will be entitled to elect a majority of our directors if we fail to pay dividends on any outstanding shares of Preferred Stock in an amount equal to two full years of dividends and continuing during that period until we correct that failure. Preferred Stock holders will also vote separately as a class on any matter that materially and adversely affects any preference, right or power of holders of Preferred Stock. See “Description of the Series 2027 Term Preferred Stock — Voting Rights.”

Conversion Rights

 

The Series 2027 Term Preferred Shares will have no conversion rights.

Use of Proceeds

 

We intend to use the net proceeds from this offering (after the payment of estimated expenses of the offering of approximately $250,000) for acquiring investments in accordance with our investment objective and strategies described in this prospectus supplement, general working capital purposes and/or to redeem a portion of our outstanding Series 2023 Term Preferred Shares. As of February 3, 2020, the Company had approximately $90.4 million in aggregate principal value outstanding of its Series 2023 Term Preferred Shares. See “Use of Proceeds.”

Leverage

 

Although we have no current intention to do so, we may borrow funds to make investments. In addition, we may issue additional shares of Preferred Stock, which may be considered a form of leverage, after completion of this offering. As a result, we will be exposed to the risks of leverage, which may be considered a speculative investment technique. In addition, the CLO vehicles in which we invest will be leveraged, which will indirectly expose us to the risks of leverage. The use of leverage magnifies the potential gain and loss on amounts invested and therefore increases the risks associated with investing in our securities. In addition, the costs associated with use of leverage, including any increase in the management fee payable to our investment adviser, Oxford Lane Management, will be borne by our common stockholders. Under the 1940 Act, we are only permitted to incur additional indebtedness to the extent our asset coverage with respect to our outstanding senior securities representing indebtedness, as defined under the 1940 Act, is at least 300% immediately after each such borrowing. In addition, we are only permitted to issue additional Preferred Stock to the extent our asset coverage with respect to such Preferred Stock, as defined under the 1940 Act, which also reflects any outstanding borrowings, is at least 200% immediately after each such issuance. See “Regulation as a Registered Closed-End Management Investment Company” in the accompanying prospectus.

S-16

U.S. Federal Income Taxes

 

Prospective investors are urged to consult their own tax advisors regarding these matters in light of their personal investment circumstances.

We have elected to be treated for tax purposes, and intend to continue to so qualify each year, as a RIC under Subchapter M of the Code, and we generally do not expect to be subject to U.S. federal income tax.

Risk Factors

 

Investing in the Series 2027 Term Preferred Shares involves risks. You should carefully consider the information set forth in the sections of this prospectus supplement and the accompanying prospectus entitled “Risk Factors” before deciding whether to invest in our Series 2027 Term Preferred Shares. See “Risk Factors” beginning on page S-18 of this prospectus supplement and page 20 of the accompanying prospectus.

Information Rights

 

During any period in which we are not subject to the reporting requirements of Securities Exchange Act of 1934, as amended, or the Exchange Act, and any Series 2027 Term Preferred Shares are outstanding, we will provide holders of Series 2027 Term Preferred Shares, without cost, copies of our annual, semi-annual and quarterly reports, proxy statements and other information that we would have been required to file with the SEC pursuant to the Exchange Act if we were subject to such requirements.

Redemption and Paying Agent

 

We have entered into an amendment to our Transfer Agency and Service Agreement with Computershare Trust Company, N.A., which we refer to as the Redemption and Paying Agent in this prospectus supplement. Under this amendment, the Redemption and Paying Agent serves as transfer agent and registrar, dividend disbursing agent and redemption and paying agent with respect to the Series 2027 Term Preferred Shares.

S-17

RISK FACTORS

You should carefully consider the risks described below, and the risks described in “Risk Factors” beginning on page 20 of the accompanying prospectus, before deciding to invest in the Series 2027 Term Preferred Shares. The risks and uncertainties described below and in the accompanying prospectus are not the only ones we face. Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance and the value of the Series 2027 Term Preferred Shares. If any of the following risks or the risks described in the accompanying prospectus actually occur, our business, financial condition or results of operations could be materially adversely affected, and the value of the Series 2027 Term Preferred Shares may be impaired. If that happens, the trading price of the Series 2027 Term Preferred Shares could decline, and you may lose all or part of your investment.

An investment in Term Preferred Stock with a fixed interest rate bears interest rate risk.

Term Preferred Stock pays dividends at a fixed dividend rate. Prices of fixed income investments vary inversely with changes in market yields. The market yields on securities comparable to the Series 2027 Term Preferred Shares may increase, which would likely result in a decline in the secondary market price of the Series 2027 Term Preferred Shares prior to the Term Redemption Date. For additional information concerning dividends on the Series 2027 Term Preferred Shares, see “Description of the Series 2027 Term Preferred Stock — Dividends and Dividend Periods.”

A liquid secondary trading market may not develop for the Series 2027 Term Preferred Shares.

Although the Series 2023 Term Preferred Shares and Series 2024 Term Preferred Shares are, and the Series 2027 Term Preferred Shares will be, traded on the NASDAQ Global Select Market, they have and will have a limited trading market. As a result, we cannot predict the trading patterns of the Series 2027 Term Preferred Shares, and a liquid secondary market may not develop. Holders of the Series 2027 Term Preferred Shares may be able to sell such shares only at substantial discounts from the Liquidation Preference. There is a risk that the Series 2027 Term Preferred Shares may be thinly traded, and the market for such shares may be relatively illiquid compared to the market for other types of securities, with the spread between the bid and asked prices considerably greater than the spreads of other securities with comparable terms and features.

The Series 2027 Term Preferred Shares are not rated.

We do not intend to have the Series 2027 Term Preferred Shares rated by any rating agency. Unrated securities usually trade at a discount to similar, rated securities. As a result, there is a risk that the Series 2027 Term Preferred Shares may trade at a price that is lower than they might otherwise trade if rated by a rating agency.

The Series 2027 Term Preferred Shares bear a risk of early redemption by us.

We may voluntarily redeem some or all of the Series 2027 Term Preferred Shares on or after February 28, 2023 and we may be forced to redeem some or all of the Series 2027 Term Preferred Shares to meet regulatory requirements and the asset coverage requirements of such shares. Any such redemptions may occur at a time that is unfavorable to holders of the Series 2027 Term Preferred Shares. We may have an incentive to redeem the Series 2027 Term Preferred Shares voluntarily before the Term Redemption Date if market conditions allow us to issue other Preferred Stock or debt securities at a rate that is lower than the Fixed Dividend Rate on the Series 2027 Term Preferred Shares. For further information regarding our ability to redeem the Term Preferred Stock, see “Description of the Series 2027 Term Preferred Stock — Redemption” and “— Asset Coverage.”

Claims of holders of the Series 2027 Term Preferred Shares are subject to a risk of subordination relative to holders of our debt instruments.

Rights of holders of Series 2027 Term Preferred Shares will equal to the rights of holders of Series 2023 Term Preferred Shares and Series 2024 Term Preferred Shares. However, rights of holders of the Series 2027 Term Preferred Shares, the Series 2023 Term Preferred Shares, and the Series 2024 Term Preferred Shares will be subordinated to the rights of holders of our indebtedness. Therefore, dividends, distributions and other payments to holders of Term Preferred Stock in liquidation or otherwise may be subject to prior payments due to the holders of our indebtedness. In addition, under some circumstances the 1940 Act may provide debt holders with voting rights that are superior to the voting rights of holders of the Series 2027 Term Preferred Shares.

S-18

We are subject to risks related to a general credit crisis and related liquidity risks.

General market uncertainty and extraordinary conditions in the credit markets may impact the liquidity of our investment portfolio. In turn, during extraordinary circumstances, this uncertainty could impact our distributions and/or ability to redeem the Series 2027 Term Preferred Shares in accordance with their terms. Further, there may be market imbalances of sellers and buyers of Series 2027 Term Preferred Shares during periods of extreme illiquidity and volatility in the credit markets. Such market conditions may lead to periods of thin trading in any secondary market for the Series 2027 Term Preferred Shares and may make valuation of the Series 2027 Term Preferred Shares uncertain. As a result, the spread between bid and ask prices is likely to increase significantly such that an investor in the Series 2027 Term Preferred Shares may have difficulty selling his or her shares. Less liquid and more volatile trading environments could also result in sudden and significant valuation declines in the Series 2027 Term Preferred Shares.

Holders of the Series 2027 Term Preferred Shares bear reinvestment risk.

Given the seven-year term and potential for early redemption of the Series 2027 Term Preferred Shares, holders of such shares may face an increased reinvestment risk, which is the risk that the return on an investment purchased with proceeds from the sale or redemption of the Series 2027 Term Preferred Shares may be lower than the return previously obtained from the investment in such shares.

Holders of Series 2027 Term Preferred Shares bear dividend risk.

We may be unable to pay dividends on the Series 2027 Term Preferred Shares under some circumstances. The Series 2023 Term Preferred Shares are currently subject to redemption by us and the Series 2024 Term Preferred Shares will become subject to redemption by us on June 30, 2020. As a result, our redemption of the Series 2023 Term Preferred Shares and Series 2024 Term Preferred Shares (after June 30, 2020) may impact our ability to continue to pay dividends on the Series 2027 Term Preferred Shares. In addition, the terms of any future indebtedness we may incur could preclude the payment of dividends in respect of equity securities, including the Series 2027 Term Preferred Shares, under certain conditions.

There is a risk of delay in our redemption of the Series 2027 Term Preferred Shares, and we may fail to redeem such securities as required by their terms.

We will generally make investments in CLO vehicles whose securities are not traded in any public market. Substantially all of the investments we presently hold and the investments we expect to acquire in the future are, and will be, subject to legal and other restrictions on resale and will otherwise be less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to obtain cash equal to the value at which we record our investments quickly if a need arises. Additionally, our Series 2023 Term Preferred Shares and Series 2024 Term Preferred Shares are mandatorily redeemable prior to the Term Redemption Date. If we are unable to obtain sufficient liquidity prior to the Term Redemption Date, we may be forced to engage in a partial redemption or to delay a required redemption. If such a partial redemption or delay were to occur, the market price of the Series 2027 Term Preferred Shares might be adversely affected.

Uncertainty relating to the LIBOR calculation process may adversely affect the value of our portfolio of the LIBOR-indexed, floating-rate debt securities.

Concerns have been publicized that some of the member banks surveyed by the British Bankers’ Association, or “BBA,” in connection with the calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivatives positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental authorities in various jurisdictions are ongoing.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if at that time whether or not LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021.

S-19

The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large US financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities. Recently, the CLOs we have invested in have included, or have been amended to include, language permitting the CLO investment manager to implement a market replacement rate (like those proposed by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York) upon the occurrence of certain material disruption events. However, we cannot ensure that all CLOs in which we are invested will have such provisions, nor can we ensure the CLO investment managers will undertake the suggested amendments when able.

Additionally, on June 12, 2019, the SEC’s Division of Corporate Finance, Division of Investment Management, Division of Trading and Markets, and Office of the Chief Accountant issued a statement about the potentially significant effects on financial markets and market participants when LIBOR is discontinued in 2021 and no longer available as a reference benchmark rate. The Staff encouraged all market participants to identify contracts that reference LIBOR and begin transitions to alternative rates. On December 30, 2019, the SEC’s Chairman, Division of Corporate Finance and Office of the Chief Accountant issued a statement to encourage audit committees in particular to understand management’s plans to identify and address the risks associated with the elimination of LIBOR, and, specifically, the impact on accounting and financial reporting and any related issues associated with financial products and contracts that reference LIBOR, as the risks associated with the discontinuation of LIBOR and transition to an alternative reference rate will be exacerbated if the work is not completed in a timely manner.

We believe that because CLO managers and other CLO and corporate loan market participants have been preparing for an eventual transition away from LIBOR, we do not anticipate such a transition to have a material impact on the liquidity or value of any of our LIBOR-referenced CLO investments. However, because the future of LIBOR at this time is uncertain, the specific effects of a transition away from LIBOR cannot be determined as of the date of this prospectus.

Global economic, political and market conditions may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability.

The current worldwide financial market situation, as well as various social and political tensions in the United States and around the world, may contribute to increased market volatility, may have long-term effects on the U.S. and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide. The U.S. and global capital markets experienced extreme volatility and disruption during the economic downturn that began in mid-2007, and the U.S. economy was in a recession for several consecutive calendar quarters during the same period. In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt, which created concerns about the ability of certain nations to continue to service their sovereign debt obligations. Risks resulting from such debt crisis and any future debt crisis in Europe or any similar crisis elsewhere could have a detrimental impact on the global economic recovery, sovereign and non