Eagle Point Income Q2 2024 Earnings Report

Eagle Point Income EPS Results

• Actual EPS: $0.44
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Eagle Point Income Revenue Results

• Actual Revenue: $10.92 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Eagle Point Income Announcement Details

• Quarter: Q2 2024
• Date: 8/6/2024
• Time: N/A
• Conference Call Date: Tuesday, August 6, 2024
• Conference Call Time: 11:30AM ET

Eagle Point Income (NYSE:EIC) Company (NYSE: EIC) is a closed-end management investment company that primarily invests in the equity and junior debt tranches of collateralized loan obligations (CLOs). Launched in 2019 and domiciled in Maryland, the company seeks to provide shareholders with high current income and the potential for capital appreciation by focusing on structured credit opportunities. Eagle Point Income maintains a diversified portfolio of CLO equity positions, targeting both seasoned and newly issued transactions across multiple risk profiles.

The company’s investment strategy centers on identifying mispriced or underfollowed CLO tranches, where it believes its team’s deep industry expertise can add value. Eagle Point Income may employ hedging strategies, including credit default swaps and interest rate hedges, to manage portfolio volatility and downside risk. Its investment horizon generally spans the life of the underlying CLO structures, allowing the portfolio managers to capture income distributions and reinvestment opportunities throughout market cycles.

Eagle Point Income is externally managed by Eagle Point Credit Management LLC, a specialized credit manager focused on CLO equity and other structured credit investments. The management team draws on decades of combined experience in credit analysis, structured finance and portfolio management. This partnership structure aligns the interests of the investment adviser with those of common shareholders, as incentive fees are tied to performance benchmarks and net asset value growth.

While the company principally invests in U.S. and Western European CLOs, its flexible mandate permits opportunistic allocations to other credit-related structured products. Eagle Point Income pays monthly distributions to common shareholders, reflecting its commitment to delivering consistent cash flow. As a NYSE-listed vehicle, it offers both institutional and retail investors access to a niche segment of the credit markets that has traditionally been accessible only to large, specialized funds.

Eagle Point Income Q2 2024 Earnings Call Transcript

Key Takeaways

• The company generated recurring cash flows of $12.4 million (≈$0.87/share) in Q2, comfortably exceeding common distributions and operating expenses.
• Net asset value rose to $15.24 per share at June 30, up ≈1% quarter-over-quarter, supported by ATM issuance accreting $0.07/share.
• Balance sheet was bolstered with $33.6 million net proceeds from Series C preferred issuance and ATM sales, leaving $41 million of cash and revolver capacity.
• The portfolio maintained a robust deployment yield of 11.6% on CLO purchases, while loan default exposure remains low at 0.60%, well below historical averages.
• Adjusted net investment income plus realized gains were $0.54 per share, slightly below Q1’s $0.56 due to timing of preferred and ATM deployment.

Presentation

[Operator]

Greetings, and welcome to the Eagle Point Income Company second quarter 2024 financial results Conference. At this time, all participants are on a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Peter Sceusa of ICR. Please go ahead.

[Peter Sceusa, Investor Relations Senior Associate at ICR]

Thank you, and good morning. As a reminder, before we begin our formal remarks, the matters discussed in this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from those projected in such forward-looking statements and projected financial information. For further information on factors that could impact the company and the statements and projections contained herein, please refer to the company's filings with the Securities and Exchange Commission. Each forward-looking statement and projection of financial information made during this call is based on information available to us as of the date of this call. We disclaim any obligation to update our forward-looking statements unless required by law. A replay of this call can be accessed for 30 days via the company's website, www.eaglepointincome.com.

[Peter Sceusa, Investor Relations Senior Associate at ICR]

Earlier today, we filed our Form N-CSR half year 2024 financial statements and our second quarter investor presentation with the Securities and Exchange Commission. The financial statements in our second quarter investor presentation are also available within the investor relations section of the company's website. The financial statements can be found by following the Financial Statements and Reports link, and the investor presentation can be found by following the Presentations and Events link. I will now turn the call over to Tom Majewski, Chairman and Chief Executive Officer of Eagle Point Income Company.

[Tom Majewski, Chairman and CEO at Eagle Point Income Company]

Thank you, Peter, and welcome everyone to Eagle Point Income Company's second quarter earnings call. We appreciate your interest in Eagle Point Income Company or EIC. If you haven't done so already, we invite you to download our investor presentation from our website at eaglepointincome.com. This presentation contains detailed information about the company and our investment portfolio. The company's strong momentum from the first quarter continued into the second quarter. We had yet another quarter-over-quarter increase in gross portfolio cash flows. We grew our NAV from the prior quarter end and continued to strengthen our balance sheet. Our portfolio, designed specifically for elevated rate environments, continues to generate robust cash flows. Among our highlights, recurring cash flows were again comfortably in excess of our regular common distributions and operating expenses. The company received recurring cash flows of $12.4 million, or $0.87 per share, during the quarter.

[Tom Majewski, Chairman and CEO at Eagle Point Income Company]

This compares to cash flows in the prior quarter of $10.7 million, or $0.88 per share. A driver of the $0.01 decline in the per share amount was that many of the securities we purchased during the quarter, using the preferred issuance proceeds and ATM proceeds, didn't make payments until the third quarter. The company generated net investment income plus realized gains, excluding non-recurring expenses related to our 8% Series C Term Preferred offering in April, of $0.54 per share. Similar to the first quarter, we paid 3 monthly common distributions of $0.20 per share in the second quarter. Our NAV as of June 30 was $15.24, and that's an increase of about 1% from March 31. We continue to strengthen our balance sheet.

[Tom Majewski, Chairman and CEO at Eagle Point Income Company]

As I mentioned earlier, in April, we issued our Series C Term Preferred and received net proceeds of about $33.6 million during the second quarter. Through our At-the-Market program, or ATM, we issued approximately 2.7 million common shares at a premium to NAV, generating NAV accretion of $0.07 per share during the quarter. We also realized about $100,000 of additional proceeds from sales of Series B and Series C Term Preferred Stock via the ATM. Daily average trading volume for our common stock continued to increase, with volumes in the second quarter 15% higher than the first quarter and nearly quintupling the average trading volume on a year-over-year basis. We're very happy to see the increased volume for our shareholders.

[Tom Majewski, Chairman and CEO at Eagle Point Income Company]

I'd quickly like to add some highlights, before I turn the call over to Dan Ko for his market commentary. Subsequent to the end of the quarter, we declared monthly common distributions of $0.20 per share through the end of 2024. As of July 31, we have over $41 million of cash and revolver borrowing capacity available to us, ample dry powder with which to invest and further expand our portfolio. All of our CLO BB coupons are in the double digits, with some CLO BBs having the potential to yield even more if the CLOs are called early. Further, the portfolio's CLO equity exposure continues to further enhance our portfolio's earnings ability. You've heard us reiterate our long-term focus as investors.

[Tom Majewski, Chairman and CEO at Eagle Point Income Company]

We remain consistent in our approach to construct a portfolio to weather any economic cycle and believe the portfolio is strongly positioned for continued performance. For additional commentary on the overall market and our recent portfolio activity, I'd like to turn the call over to Senior Principal and Portfolio Manager, Dan Ko.

[Dan Ko, Senior Principal and Portfolio Manager at Eagle Point Income Company]

Thank you, Tom. There continues to be attractive investment opportunities across the CLO market, in particular, the junior debt and equity portions of the capital structure. We believe EIC successfully capitalized on the elevated rate environment by investing in floating rate CLO debt, but is still well positioned to succeed should rates begin to be lowered later this year. The Credit Suisse Leveraged Loan Index continued to perform well, generating a total return of 1.86% for the quarter and 4.44% for the first half of 2024. The index continued its trajectory in July, with loans up five point two one percent year to date as of July 31st. Over the past few days, there has been some softness in loan prices in line with the broader market volatility, but the impact on loan prices has so far been relatively modest.

[Dan Ko, Senior Principal and Portfolio Manager at Eagle Point Income Company]

We continue to see attractive return profiles in the primary and secondary markets. In the second quarter, we deployed approximately $61 million in net capital into attractive CLO junior debt and CLO equity investments. The weighted average effective yield of the CLO purchases during the quarter was a robust 11.6%. Our CLO collateral managers remain focused on building par through relative value trading or by reinvesting par prepayments into discounted loans. During the second quarter, approximately 9% of leveraged loans market-wide, or roughly 35% annualized, repaid at par. The prepayments were driven by loan issuers focused on refinancing their near-term maturities in an effort to further extend the maturity profile of their debt.

[Dan Ko, Senior Principal and Portfolio Manager at Eagle Point Income Company]

Regarding new CLO issuance, we saw $53 billion of new issuance in the second quarter of 2024 and $102 billion for the first half of 2024, the fastest pace ever, and approximately 82% higher than the prior year period. As noted on our Q1 call, third-party CLO equity investors, including us, have returned to the primary market as CLO debt spreads have tightened. We continue to see a significant uptick in resets and refinancings, driven by tighter CLO debt spreads. In the first half of 2024, we completed 3 refinancings and 1 reset of our CLO equity positions, lowering their debt cost by an average of 32 basis points in the refinancings and extending the reinvestment period to 5 years in the case of the reset, increasing our portfolio's weighted average remaining reinvestment period.

[Dan Ko, Senior Principal and Portfolio Manager at Eagle Point Income Company]

We expect that refinancings, resets, and calls will lead to some of our previously discounted CLO BB purchases being repaid at par, crystallizing the convexity in certain of our investments sooner than anticipated. There were only 6 leveraged loan defaults in the second quarter, and the trailing twelve-month default rate declined to 0.92% as of quarter end, remaining well below the historical average of 2.65%. EIC's portfolio's default exposure as of June 30 stood at 60 basis points. Even if defaults should rise from these levels, we continue to believe our portfolio is well positioned for environments like these. As we've consistently noted, CLO BBs have withstood multiple economic downturns in the past, experiencing very low long-term default rates.

[Dan Ko, Senior Principal and Portfolio Manager at Eagle Point Income Company]

We believe it would take a significant amount of loan defaults, well above the historical average, coupled with limited loan price volatility, for EIC to be materially impacted by a default wave. Moving forward, we remain well positioned to deploy new capital into additional investments that offer compelling risk-adjusted returns for the company's portfolio. With that, I will now turn the call over to our advisors, Chief Accounting Officer, Lena Umnova, to walk through our financial results.

[Lena Umnova, Chief Accounting Officer at Eagle Point Income Company]

Thank you, Dan. During the second quarter, the company recorded net investment income, or NII, and realized gains of $6.3 million or $0.44 per share. When excluding non-recurring expenses related to the issuance of the company's 8% Series C Term Preferred Stock, NII and realized gains were $0.54 per share. This compares to NII and realized gains of $0.56 per share recorded for the first quarter of 2024, and NII of $0.49 per share for the second quarter of 2023. As Tom mentioned earlier, the second quarter decline in NII was driven in part by taking a bit of time to deploy the proceeds from the Series C preferred stock and ATM issuances. When unrealized portfolio appreciation is included, the company recorded GAAP net income of $8.5 million or $0.60 per share.

[Lena Umnova, Chief Accounting Officer at Eagle Point Income Company]

The company's second quarter net income was comprised of total investment income of $10.9 million, net unrealized appreciation on investments of $2 million, net realized gains on investments of $0.3 million, and unrealized depreciation on certain liabilities held at fair value of $0.2 million, all of which were partially offset by financing costs and operating expenses of $4.9 million. Additionally, for the second quarter, the company recorded other comprehensive income of $0.6 million, representing the change in fair value on the company's financial liabilities attributed to instrument-specific credit risk. During the second quarter, we paid three monthly distributions of $0.20 per share, and last week we declared continued monthly distributions of $0.20 per share through the end of the year. As of quarter end, the company had outstanding preferred equity, which totaled 32% of total assets, less current liabilities.

[Lena Umnova, Chief Accounting Officer at Eagle Point Income Company]

This is within our long-term target leverage ratio range of 25%-35%, at which we expect to operate the company under normal market conditions. At the end of the quarter, we had nothing drawn on our revolver. The company's asset coverage ratio at the quarter end for preferred stock, calculated in accordance with Investment Company Act requirements, were at 311%. This is comfortably above the statutory requirement of 200% for preferred stock. As of June month-end, the company's Net Asset Value was $240 million, or $15.24 per share. This is approximately 1% decrease from March thirty-first. Moving on to our portfolio activity for the month of July. The company received recurring cash flows on its investments portfolio of $12.4 million.

[Lena Umnova, Chief Accounting Officer at Eagle Point Income Company]

Note that some of the company's investments are still expected to make payments later in the quarter. As of July 31st, net of pending investment transactions, the company had over $41 million of cash and revolver capacity available for investment. I will now turn the call back over to Tom to provide the closing remarks before we open it up for questions.

[Tom Majewski, Chairman and CEO at Eagle Point Income Company]

Thanks, Lena. EIC continues to perform quite strongly, and our proactive investment strategy continues to generate significant net investment income. Throughout the quarter, we focused on strengthening our balance sheet and believe our portfolio is well-positioned to succeed in any rate or economic environment. We maintain the view that CLO double Bs are one of the most resilient risk asset classes, attributable to their structural protection and floating rate nature, and remain confident that EIC is well-positioned to generate compelling risk-adjusted returns for our shareholders. We thank you for your time and interest in Eagle Point Income Company. Lena, Dan, and I will now open the call to your questions. Operator?

[Operator]

Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that's star one to register a question at this time. One moment please, while we poll for questions. Once again, ladies and gentlemen, that is star one if you would like to register a question at this time. We're showing no questions in queue at this time. I'd like to turn it over to Mr. Majewski for closing comments.

[Tom Majewski, Chairman and CEO at Eagle Point Income Company]

Great. Thank you very much, everyone, for dialing in today. Each of Lena, Dan, and I appreciate your time and interest in Eagle Point Income Company. We are available in the office later today, should anyone have any follow-up questions. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

Participants

Executives

• Dan Ko, Senior Principal and Portfolio Manager
• Lena Umnova, Chief Accounting Officer
• Tom Majewski, Chairman and CEO

Analysts

• Peter Sceusa, Investor Relations Senior Associate at ICR