Oxford Square’s 24% Yield Looks Attractive Until You See the NAV Collapse

Oxford Square Capital Corp. (NASDAQ:OXSQ) is paying a 24% annualized output astatine today's price, a fig that remains precocious contempt a past of important organisation cuts, astir notably a 48% simplification successful 2020. The superior interest for investors contiguous is that the fund's nett plus worth (NAV) has fallen each 4th successful 2025, dropping 26% from $2.30 to $1.69 per stock over the year. When a fund's NAV erodes faster than distributions accumulate, the output fig flatters a deteriorating representation of the underlying capital.

Oxford Square is simply a Business Development Company that lends wealth to mid-sized companies and passes income done to shareholders. It draws from 2 sources: floating-rate loans to middle-market businesses, and equity stakes successful collateralized indebtedness obligations (CLOs). CLOs are pools of leveraged loans wherever the equity tranche absorbs losses archetypal successful speech for higher imaginable returns. In Q4 2025, indebtedness investments generated $5.3 cardinal and CLO equity generated $4.3 million, making the 2 segments astir adjacent contributors.

The CLO equity broadside is wherever the communicative gets complicated, arsenic the effectual output connected that sleeve compressed from 9.7% successful Q3 to 8.6% successful Q4, reflecting broader accent successful the leveraged indebtedness market. The money recorded $18.3 cardinal successful combined unrealized and realized losses successful Q4 alone, much than treble the $7.5 cardinal nonaccomplishment from the anterior quarter. Management attributed the markdown chiefly to the CLO equity book, describing the losses arsenic "mainly a markdown of the CLO equity information of the book" and "principally unrealized."

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