Oxford Lane Capital Baby Bonds: Misunderstood and Undervalued Opportunity

The article discusses Oxford Lane Capital baby bonds, which are undervalued and misunderstood by investors. The author, a finance expert with experience at Bloomberg, recommends these bonds due to their undervalued nature and potential for total return investment. The article highlights the importance of focusing on total return rather than just dividend yield.

In the realm of fixed-income securities, Oxford Lane Capital (NASDAQ: OXLC) baby bonds have been gaining attention for their undervalued nature and potential for total return investment. These bonds, often misunderstood by investors, are presented as a compelling opportunity by financial experts, particularly those focusing on conservative income portfolios.

The author, an experienced finance professional with a background at Bloomberg, highlights the significance of Oxford Lane Capital baby bonds. These bonds are fixed-rate preferred stocks, term preferred stocks, reset-rate preferred stocks, and floating rate preferred stocks, which are often overlooked by individual investors. The author emphasizes the importance of seeking undervalued fixed-income securities that provide both high yield and potential capital gains.

One of the key points the author makes is that Oxford Lane Capital and Eagle Point Credit (ECC) baby bonds offer a yield to maturity (YTM) that is at least 2.5% higher than bonds with equivalent safety. Despite this, these bonds are often priced as if they are risky, leading to a significant mispricing. The author attributes this to the fact that many investors focus on the underlying investments (CLOs) rather than the structure of the closed-end funds (CEFs).

CEFs are governed by government rules that ensure they never go bankrupt. This makes them ideal for bond investors who are primarily concerned with receiving quarterly interest payments and full redemption at maturity. The author notes that CEFs have an excellent track record, with none having gone bankrupt or defaulted on their preferred stocks.

The author provides a conservative rating of BBB- (Baa3) for the baby bonds, which would typically yield between 5.5% and 5.75% over a 7-year period. However, Oxford Lane Capital baby bonds, such as OXLCG, are currently trading at an 8.32% YTM, making them significantly undervalued.

Additionally, the author points out that the baby bonds are currently offering higher YTMs than the term preferred stocks from the same companies. This further highlights the mispricing and makes the baby bonds an attractive investment option.

The author recommends long positions in OXLCG, OXLCI, and OXLCZ, as well as the term preferred stock OXLCP. The article concludes by emphasizing the safety and high yield of these investments, making them an attractive option for investors seeking conservative income portfolios.

References:
[1] https://seekingalpha.com/article/4796643-oxford-lane-capital-baby-bonds-misunderstood-and-very-undervalued