Company: OXLCZ
Filing Date: 2025-05-20
Form Type: N-CSR
Source: 0001213900-25-045605
Chunk: 94

Company: Oxford Lane Capital Corp.
Filing Date: 2025-05-20
Form: N-CSR
Chunk 94
---
 made to the CLO equity or CLO debt securities that we hold would instead be diverted to buy additional loans within a given CLO or paid to senior CLO debt holders as an early amortization payment. Interest Rate Risk.Our investments have initially been focused on investments in equity and floating rate junior debt tranches issued by CLO vehicles, and to a lesser extent warehouse facilities and corporate credits, each of which are exposed to interest rate risk. Since a CLO’s asset portfolio is typically comprised principally of floating rate loans and the CLO’s liabilities are also generally floating rate instruments, we expect CLO equity and junior debt tranches to provide potential protection against rising interest rates when the benchmark is above the average benchmark floor on a CLO’s assets. However, our investments in CLO Assets through investments in junior equity and debt tranches of CLOs are nonetheless sensitive to interest rate levels and volatility. For example, because CLO debt securities are floating rate securities, a reduction in interest rates would generally result in a reduction in the coupon payment and cash flow we receive on the junior debt securities and CLO equity in which we invest. Furthermore, because floating or variable rates only reset periodically, changes in prevailing interest rates can be expected to cause some fluctuations in our net asset value. Similarly, a sudden and significant increase in market interest rates may cause a decline in our net asset value. In addition, many underlying corporate borrowers can elect to pay interest based on a 1 -month, 3 -monthand/or other term base rates in respect of the loans held by CLOs in which we invest, in each case plus an applicable spread, whereas floating rate CLO securities generally pay interest based on a 3 -monthterm plus a spread. The 3 -monthterm rate may fluctuate in excess of other potential term rates, which may result in many underlying corporate borrowers electing to pay interest based on a shorter or lower, but in any event lower, base rate. This mismatch in the rate at which CLOs earn interest and the rate at which they pay interest on their debt tranches negatively impacts the cash flows on a CLO’s equity tranche, which may in turn adversely affect our cash flows, results of operations or net asset value, which may impact our ability to maintain required levels of asset coverage. Unless spreads are adjusted to account for such increases, these negative impacts may worsen as the amount by which the 3 -monthterm base rate exceeds the 1 -monthterm base rate increases. In addition