Oxford Square Capital Corp. (OXSQ) stock intrinsic value fair value estimate & owner earnings analysis

Oxford Square Capital Corp is a business development company that invests primarily in senior secured loans to mid-sized companies and in the equity and debt tranches of collateralized loan obligations (CLOs) — pools of those same loans. As of December 31, 2025, the portfolio was roughly 59% senior secured notes, 38% CLO equity, and 4% other equity, funded partly with borrowed money (about $155–161 million of debt against roughly $135–145 million of net assets). Because this is a lending vehicle rather than an operating company, the earnings figure we build the valuation on is net investment income — interest, dividend and fee income the fund collects each year, less operating expenses and interest on its own borrowings. Gains and losses from marking the portfolio to market are excluded from this figure; they are real but they are not the same as the cash income the fund actually earns and can distribute each year, and including them would mix two different things. There is no meaningful capital spending or stock compensation for a fund structured this way, so no further adjustments were needed. Net investment income per share has been $0.32, $0.42, $0.51, $0.42 and $0.30 in 2021 through 2025 — noticeably lower in 2025 than in the two prior years. The main reason: the yield the portfolio earns on its floating-rate loans fell from about 15.8% at the end of 2024 to about 14.5% at the end of 2025 as short-term interest rates declined, and the CLO equity portion of the portfolio, which carries no interest-rate floor, felt the same pressure. The decline continued into the first half of 2026. We used the median of the five years, $0.42 per share, as the reference level for the business's underlying earning power, but built the near-term path down from the more recent, lower figures rather than assuming an immediate snap-back to that median. The fund has also continued paying $0.42 per share in distributions through 2025 and into 2026 even though it earned only $0.30 per share in investment income in 2025 — the gap has to be funded from somewhere else, typically capital. If that persists, it shrinks the pool of assets generating future income, on top of the rate-driven pressure already described. Bear case: income keeps falling as further rate declines compress the loan book (most loans carry interest-rate floors, but current rates may sit well above them, leaving room to fall before those floors bind) and the unprotected CLO equity sleeve compresses further; a small portion of the loan book is already on non-accrual status, a sign of some credit deterioration. Investment income per share drifts down toward roughly $0.07 before stabilizing at a much smaller base. This produces a value of about $1.36 per share — close to the fund's actual net asset value today. Base case: income continues the decline already visible in 2025 and the first half of 2026, but the pace slows as more of the loan portfolio's built-in interest-rate floors are reached, eventually settling around $0.17 per share. This produces a value of about $2.90 per share. Bull case: short-term rates stabilize near current levels, the floors embedded in most of the loan book limit further compression, and investment income per share recovers toward the upper end of the range the company has actually delivered over 2021–2025 (around $0.42–$0.44), rather than exceeding it. This produces a value of about $6.98 per share. Given how directly this fund's earnings are tied to short-term interest rates outside its control, how concentrated its earnings power is in a leveraged CLO-equity sleeve, and its long history of per-share value erosion (net asset value per share has fallen from roughly $9.90 in 2012 to about $1.29 in mid-2026), the margin-of-safety price sits at a considerable discount to our base-case estimate, at about $1.20 per share. A higher margin-of-safety price applies only after two consecutive quarters in which investment income per share stops falling.