Eagle Point Credit Q1 2025 Earnings Report

Eagle Point Credit EPS Results

• Actual EPS: $0.28
• Consensus EPS: $0.26
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Eagle Point Credit Revenue Results

• Actual Revenue: $52.30 million
• Expected Revenue: $53.54 million
• Beat/Miss: Missed by -$1.24 million
• YoY Revenue Growth: N/A

Eagle Point Credit Announcement Details

• Quarter: Q1 2025
• Date: 5/28/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 28, 2025
• Conference Call Time: 10:00AM ET

Eagle Point Credit (NYSE:ECC) is a closed ended fund launched and managed by Eagle Point Credit Management LLC. It invests in fixed income markets of the United States. The fund invests equity and junior debt tranches of collateralized loan obligations consisting primarily of below investment grade U.S. senior secured loans. Eagle Point Credit Company Inc. was formed on March 24, 2014 and is domiciled in the United States.

Eagle Point Credit Q1 2025 Earnings Call Transcript

Key Takeaways

• The company priced three new CLO equity investments, reset nine positions to extend reinvestment periods, and refinanced seven CLOs in Q1, lifting its weighted average remaining reinvestment period to 3.5 years—over 1.1 years above the market norm.
• Eagle Point delivered $0.33 per share of net investment income and realized capital gains in Q1, comprising $0.28 of NII and $0.05 of gains as part of its rotation from CLO debt into CLO equity.
• Net asset value declined to $7.23 per share at March 31, a 13.7% drop driven by broad-based price weakness in CLO markets.
• Recurring cash flows totaled $79.9 million (or $0.69 per share) in Q1, exceeding common distributions and expenses by $0.08 per share.
• The portfolio maintains higher credit quality than the market (4.9% CCC vs. 6.2% market average, and a 4.6% junior OC cushion vs. 3.7%) and benefits from 100% fixed-rate financing with no maturities before April 2028.

Presentation

[Operator]

Greetings, and welcome to Eagle Point Credit Company Incorporated First Quarter twenty twenty five Financial Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

[Operator]

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Darren Dougherty. Thank you. You may begin.

[Darren Daugherty, Managing Director at Prosek Partners]

Thank you, operator, and good morning. Welcome to Eagle Point Credit Company's earnings conference call for the first quarter of twenty twenty five. Speaking on the call today are Thomas Majewski, Chief Executive Officer and Ken Inorio, Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to remind everyone that the matters discussed on this call include forward looking statements or projected financial information that can involve risks and uncertainties that may cause the company's actual results to differ materially from such projections. 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.

[Darren Daugherty, Managing Director at Prosek Partners]

Each forward looking statement or projection of financial information made during this call is based on the 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. Earlier today, we filed our first quarter twenty twenty five financial statements and investor presentation with the Securities and Exchange Commission. These are also available in the Investor Relations section of the company website, eaglepointcreditcompany.com. A replay of this call will also be made available later today.

[Darren Daugherty, Managing Director at Prosek Partners]

I will now turn the call over to Thomas Majewski, Chief Executive Officer of Eagle Point Credit Company. Tom?

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Thank you, Darren. Good morning, everyone, and thank you for joining us on the call today. The company started off 2025 with a strong part of the first quarter. We priced three new issue majority CLO equity investments. We reset nine positions in our portfolio, lengthening the reinvestment periods to five years, and we refinanced seven CLOs.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

The second part of the quarter saw a downturn in markets globally, driven in large part from the uncertainty caused by the anticipation of tariff announcement. The prices of nearly all broadly syndicated loans and CLO securities fell in March. The company's portfolio is in an advantageous position and is designed to thrive in periods of volatility. Indeed, with a weighted average remaining reinvestment period, or WARP, of three point five years, our CLOs are well positioned to capitalize on this volatility. Our CLO equity portfolio's warp is more than one point one years above the market average and is a result of our team's efforts to reset many of our CLOs in our portfolio over the last year plus.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Indeed, during 2024 and the first quarter of twenty twenty five, '40 '5 CLOs in our portfolio were reset. The company generated net investment income and realized capital gains of $0.33 per share for the first quarter of twenty twenty five, consisting of $0.28 of net investment income and $05 of realized capital gains. The realized gains were principally driven by trading activity, selling appreciated securities as part of our strategy to rotate from CLO debt into CLO equity. Our NAV as of March 31 was $7.23 per share. This is a 13.7% decrease from $8.38 per share at year end.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

The decline was driven predominantly by the drop in prices of nearly all CLO securities in the market, including those in our portfolio. That drawdown did continue into April as well. While our NAV may decline in environments like these, it is important to remember that the prices of CLO equity securities will generally move more than middle market loans held by many BDCs. We view the drawdown in our portfolio as a short term market price fluctuation and not indicative of concerns specific to our portfolio. In fact, in our view, the market price of CLO equity significantly undervalues the reinvestment optionality within CLOs during periods like these.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

We believe the opportunities to purchase discounted loans today within our CLOs will benefit the company in the medium term, just as it did in 2020 and in other periods of volatility. We substantially completed our planned portfolio rotation from CLO debt into CLO equity and other investments prior to the start of this most recent bout of volatility. During the first quarter, sales and paydowns of CLO debt in our portfolio totaled $48,500,000 and the company generated zero five dollars per share of realized gains. The new investments we've deployed these proceeds into are expected to generate more net investment income for the company in the coming quarters. Recurring cash flow from our portfolio remained strong in the first quarter.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

We collected $79,900,000 of recurring cash flows or $0.69 per share. This exceeded our quarterly aggregate common distributions and total expenses by $08 per share. This compares to $82,000,000 or $0.74 per share for the fourth quarter of twenty twenty four. These slightly lower recurring cash flows were principally driven by loan spread compression. Some fluctuations in cash flow are expected from quarter to quarter due to new investments in addition to semiannual paying bond positions in some of our CLO portfolios.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Approximately 18% of our CLO equity portfolio based on fair value are new investments or recently reset CLOs and are scheduled to make their initial payments in subsequent quarters. During the first quarter, we deployed over $190,000,000 into new investments. New CLO equity purchases during the first quarter had a weighted average effective yield of 18.9%. During April, we received recurring cash flows from our portfolio totaling approximately $75,500,000 We expect additional collections in May and June. A number of the CLOs in our portfolio are not scheduled to make their first payments until the third quarter, which should bolster cash flows in future periods.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

For the first quarter, we utilized our at the market program to issue $66,000,000 of common stock at a premium to NAV. This resulted in NAV accretion for shareholders of $02 per share. We also issued approximately $22,000,000 of our 7% Series AA and AB convertible perpetual preferred stock as part of our continuous public offering. We believe the 7% distribution rate on this perpetual preferred stock represents a very attractive cost of capital for the company. This continuous offering provides the company with a material advantage over our competitors, and we are unaware of any other publicly traded entity focused principally on investing in CLO equity having such a program.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

During the first quarter, we paid $0.42 per share of cash distributions to our common shareholders across three monthly distributions of $0.14 per share. Earlier today, we declared common regular monthly distributions for the third quarter of twenty twenty five also of $0.14 per share. I'd also like to take a moment to highlight Eagle Point Income Company, which also trades under the New York Stock Exchange. It trades under symbol EIC. EIC primarily invests in junior CLO debt securities.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

We'll be hosting an investor call for EIC today at 11:30 a. M, and we invite you to join us and visit eaglepointincome.com to learn more. After Ken's remarks, I'll take you through the current state of the loan and CLO markets. I'll now turn the call over to Ken.

[Kenneth Onorio, CFO & COO at Eagle Point Credit Company]

Thank you, Tom, and thanks, everyone, for joining our call today. For the first quarter of twenty twenty five, the company recorded NII and realized gains of 38,000,000 or $0.33 per share. This compares to NII less net realized losses of $0.12 per share in the fourth quarter of twenty twenty four and NII and net realized gains of $0.29 per share in the first quarter of twenty twenty four. The company's first quarter GAAP net loss was $97,500,000 This was comprised of total investment income of $52,300,000 and realized capital gains of $5,300,000 offset by total net unrealized depreciation on investments of $122,300,000 net unrealized appreciation on certain liabilities held at fair value of $9,600,000 financing costs and operating expenses of 20,000,000 and distributions and amortization of offering costs on temporary equity of $3,200,000 As a reminder, temporary equity refers to our multiple series of perpetual preferred stock. Additionally, the company recorded other comprehensive income of $7,100,000 for the first quarter.

[Kenneth Onorio, CFO & COO at Eagle Point Credit Company]

The company's asset coverage ratios on March 31 for preferred stock and debt calculated pursuant to Investment Company Act requirements were 244492%, respectively. Our debt and preferred securities outstanding as of March 31 totaled approximately 41% of the company's total assets. This is above our target leverage range of 27.5% to 37.5 at which we expect to operate the company under normal market conditions, largely due to the recent drop in the value of our portfolio. Consistent with our long range financing strategy for the company, all of our financing remains fixed rate and we have no maturities prior to April 2028. In addition, a significant proportion of our preferred stock financing is perpetual with no set maturity date.

[Kenneth Onorio, CFO & COO at Eagle Point Credit Company]

I will now hand the call back over to Tom for his market insights and updates.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Thank you, Ken. Let me share some updates on what we see in the loan and CLO markets, and I'll share a bit more about our portfolio. Starting off with loan performance, the S and P UBS Leveraged Loan Index generated a total return of 0.6% during the first quarter. After two positive months, during March, the index experienced its first negative monthly return since 2023. The decline in the loan index reversed, and as of May 23, the index is now up 1.8% for the year.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

During the first quarter, there were only three leveraged loans that defaulted, and as of March 31, the trailing twelve month default rate stood at 82 basis points, which is well below the long term average of 2.6%, and certainly below most dealer forecasts. Our portfolio's look through default exposure as of March 31 stood at 40 basis points. Bank research desks have revised their 2025 forecasts for default rates upward, with many estimates now between 35% for the year. We continue to believe this represents an overly pessimistic outlook, especially in light of how many bank estimates significantly overstated corporate default risk in both 2023 and 2024. During the first quarter, approximately 5% of leveraged loans or roughly 20% annualized prepaid at par.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Many loan issuers have been proactively tackling their near term maturities, and the maturity wall of the market continues to get pushed out further and further. As part of many of these repayments, however, borrowers issue new loans at tighter spreads. This has been driving the spread compression that we've talked about for the past few quarters. Looking to our portfolio, the weighted average spread of our CLO's underlying loan portfolios stood at 3.36 as of March 31. This compares unfavorably to 3.49% as of year end and 3.74% as of 03/31/2024.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Spread compression has been a meaningful headwind to the CLO equity market over the past year. While a significant majority of the loan market was trading at a premium to par on 01/31/2025, thankfully, as of May 23, less than 20% of the loan market is now trading at a premium. While it will likely reappear at some point in the future, for now, spread compression is largely behind us. Indeed, we are starting to see increases in some of the spreads of our CLOs' loan portfolios. The weighted average AAA spread within our CLO equity portfolio tightened by about three basis points during the quarter to 137 basis points.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

This was primarily driven by our reset and refinancing activity. While CLO debt spreads in the market have widened over the past sixty days, still over 36% of the CLOs in our equity portfolio have AAA spreads wider than 140 over, with some as wide as 200 basis points over SOFR. This means that even in the current market, some of our portfolio still has the potential for reset and refinancing upside. We are focusing on these CLOs and expect to complete multiple resets and refinancings in the coming weeks and months. In terms of new CLO issuance, we saw $49,000,000,000 issued during the first quarter of twenty twenty five.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Combined with the $64,000,000,000 of reset activity and $41,000,000,000 of refinancing activity, the total issuance volume reached 153,000,000,000 during the quarter, significantly above the $88,000,000,000 from the first quarter of twenty twenty four. This activity was concentrated at the beginning of the quarter as market volatility led to wider CLO AAA spreads and a subsequent slowdown in the latter part of the quarter. We continued to deploy significant amounts of capital throughout the quarter, placing a greater emphasis on secondary market opportunities given the dislocation during the latter part of the quarter. CCC concentrations within our CLO equity portfolio stood at 4.9% as of quarter end. This compares favorably to the broader market average of 6.2%.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Similarly, the percentage of loans trading below 80 within our CLOs stood at 2.9%. This is also more favorable than the market average of 4.6%. Further, our CLO equities weighted average junior OC cushion stood at 4.6% at quarter end. This is also significantly better than the market average of 3.7%. By all three of these measures, it's very clear that our portfolio is a much higher quality portfolio than the broader market.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

This doesn't happen by accident it's a direct result of our advisors' time tested proactive investment process. Looking at the company's capital structure, we continue to maintain 100% fixed rate financing with no maturities prior to 2028. This provides us protection from any future rise in interest rates and locks us into an attractive cost of capital for years to come. Before wrapping up, I'd also like to touch on our current market outlook. Defaults remain low, and we're not seeing signs of fundamental weaknesses in many companies.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Indeed, revenue and EBITDA of many borrowers continues to grow. The spread compression that we observed this past year plus has largely abated, and we're seeing CLO refinancing and reset activity pick up again in May as markets stabilize. We've continued selectively with resets, and this should lead to lower CLO financing costs within our portfolio of CLO equity. Macro factors, particularly global tariff policy, will remain in focus for some time. While macro uncertainty nearly always brings price volatility to the CLO market, our view is that in credit, the rumor is worse than the news, and that loan prices will move more than the actual default rates in the market.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Every loan that doesn't default pays off at par, and that's how today's discounted reinvestment opportunities ultimately translates into good returns for ECC in the medium term. In closing, we continue to focus on enhancing our net investment income and cash flow. Our proactive investment approach, particularly our focus over the past year on resetting and refinancing CLOs, as well as rotating from CLO debt to CLO equity, has been effective. Indeed, our resulting CLO equity portfolio has a significantly better WARP and weighted average OC cushion than the broader market. We believe the company is well positioned for continued strong performance going forward.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

We thank you for your time and interest in Eagle Point Credit Company. Ken and I will now open the call to your questions. Operator?

[Operator]

Thank you. At this time, we'll be conducting a question and answer session. Please proceed with your question.

[Mickey Schleien, MD - Equity Research at Ladenburg Thalmann]

Hey, good morning everyone. Tom, you mentioned that the dislocation in the markets feels temporary, but CLO NAVs have been weak now for several quarters, which is obviously disheartening. Meanwhile, I see that your estimated yields at fair value are almost 20% and they're even higher in terms of cash yields. So other than some clarity on the administration's tariff policy, what do you think it's going to take for the market to recognize what seems to be a relatively stable background for CLO cash flows?

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

I don't know if it's the short answer on that. The cash flows have been stable for CLO equity since I've been doing this. Twenty five years, give or take, thirty in total in the markets, twenty five in CLOs largely. The cash just keeps coming. Mean, we saw this in COVID.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

In the financial crisis, half of CLOs missed a payment, some missed two, not many did worse than that. The cash just keeps coming. I've looked over our track record, I think going back to 2015, and the average cash versus the value of the portfolios on an annualized basis this is, I think, firm wide, not just ECC between 2530%. The cash just keeps coming. So that's the first thing.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

So at least historically, the money keeps coming at the end of the day. That's what we're to generate. Now, the prices of CLO securities move around more than, in my opinion, the real fair value suggests, but marks are the marks, and this is the price of securities. You've seen other public CLO funds have similar mark to market trends in the first quarter, and in April as well, which was another down month. Without opining on our specific portfolio, credit markets are generally stronger in May and trending in the right direction.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Obviously, the month's not over yet, so too soon to call what's going to happen in our portfolio, but I'll say in general, the tide has turned, and if you look at like the JPMorgan BB Index, the CLOE Index just as a market indicator, you can see that's up a bunch from the lows in May. So we view situations like this as an opportunity on a two pronged basis. First is we can buy stuff cheaper. To be candid, we can't buy enough, volumes lighten in situations like this, but we have been able to buy some things at cheaper prices, so we like that. And then within our CLOs, this is the time when they really can shine.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

And like, if you look at the total return on our NAV from 01/01/2020 to January or 12/31/2021, just look at the change in NAV, proverbially investing the day before COVID, you could see just how well it did. And that's a function of what I think the market underappreciates is the reinvestment optionality. Okay, spread, if we were having this call on April 15, and I'm kind of glad we weren't, spreads had gapped out a bunch. Loans were down, CLO equity was down, CLO debt was wider. But our CLOs have locked in financing for the next up to twelve years at yesterday's spreads.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

We've got CLO AAA spreads as low as 115, maybe even lower in the book. And we can keep reinvesting within each CLO and making relative value trades. It's hard to do that in strong markets. The biggest thing that was a drawback with the benefit of hindsight over the last fifteen plus months, frankly, has been spread compression, not defaults and things like that, people always ask about defaults. The challenge over the last fifteen months, really ending proverbially April or March 1, was loan spreads tightening.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

And you can see the weighted average spread in our loan portfolio is down about 35, 40 bps, Ken, something in that And we've done our part to lower the right side of our balance sheet, but we haven't done it as we've done more actions than probably anyone in terms of resets and refinancings. That said, we still got to keep doing more, and the good news is we have an active pipeline of it, because we still got a lot of stuff above AAAs wider than the market, including as wide as 200 over. So we're still going to be keeping, resetting, lowering the right side of our balance sheet. Right now, essentially no loan borrowers resetting or repricing their financing. If anything, we're seeing collateral managers start to get spreads up in portfolios, which is good.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Against that, while dealers talk about 3%, four five % default rates, show me the data. I mean, it's just not there. There are some loan modification exercises going on, LMEs. Sometimes that creates winners and losers alone, and in many cases many of our CLOs have actually built par over the last year, which is great, suggesting they're net winners in LMEs, not everyone of course, but some, and I think many are. But this is the vagary of the market.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

And I appreciate, I made the direct comparison to BDC middle market loans. Loans were down a bunch. Middle market loans probably didn't move as much as the broader syndicated market. I'll leave it to others to decide what's right and wrong there. I appreciate that our NAV moves differently than others, more than others, I guess would be the way to put it.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

But what I hope you see, and you can look back over years and years of our public data, up markets, down markets, sky's sunny, sky's raining, the cash just keeps coming. And that's, at the end of the day, what we're here to create and keep doing.

[Mickey Schleien, MD - Equity Research at Ladenburg Thalmann]

Yeah, I agree, Tom. And thanks for your insight. It's always helpful. And I appreciate your time this morning.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Very good. Thanks so much. And if you have any follow-up questions on the numbers, feel free to give us a call later. Thank you, Mickey.

[Operator]

Our next question is from Randy Biner with B. Riley Securities. Please proceed with your question.

[Randy Binner, Managing Director at B.Riley Securities]

Okay. Good morning. Thank you. I had a Good morning, Dom.

[Randy Binner, Managing Director at B.Riley Securities]

I had a couple, but yeah, obviously appreciate the commentary and the solid result. The first is on the resets and refis, initially I thought that was nine resets and seven refis was a lot. But I think I heard in your commentary that it could kind of keep that pace for the next couple of quarters. So just wondering if we get a little more color there on if that level of activity is something we should kind of plan on this given movement in the market and interest rates or what's driving that? And did I hear it right that it would stay at this level?

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

So I think we said nine resets, we focused principally there. That was actually, I think, a late quarter for us, kind of in the latter part, certainly March, we were not particularly active, everyone was just kind of seeing what's going on in the world. So if I, to make a generic statement, that nine feels like a two month number, not a full quarter number. Okay, got it. That said, if you look back to our Q4 and Q3, you'd see much higher numbers, frankly.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

That said, looking forward, we shared a number, what was it, in the 30s percent of our CLOs that have AAAs over 140?

[Kenneth Onorio, CFO & COO at Eagle Point Credit Company]

Yep.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

We have it in the prepared remarks, it was 30 something percent of our CLOs have AAAs over 140. You can see in our presentation, you know, line by line on our website, the AAA spread on every single CLO where the equity ends, so you know exactly what we're talking about. We've got AAA spreads from 141 to 200, so we're going to keep working on ripping those costs out as best we can. The market's a little slower now compared to the first quarter, while it's back open, yeah, everyone, it was a big bang, everyone's still kind of behaving a little cautiously, but I would certainly expect single digit, maybe double digit resets a quarter in current market conditions, obviously that can change very quickly for the portfolio. One of the analogies I like to make when you look at what's happened to us on the loan spread side, which has come down a ton as I mentioned, we've got somewhere between 1,502,000 obligors underlying all our CLOs.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Picture like a wall of sand, these little grains coming at you, there's so many, so many, so many, and we've got 150 or give or take CLOs, we're kind of pushing boulders the other way, 10 times bigger than the sand coming at us. And it just takes unfortunately long, we could get 40% of our loans, 60% of our loans to reprice in our face very quickly. We can't reset all of our CLOs that quickly. What that does get us is kind of forced vintage diversification. And on February 15, I didn't know if spreads would be wider or tighter on May 28.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

I couldn't reset everything I wanted to on February 28 just because the market's not big enough. Now if spreads kept tightening, great, would've said, great, we'll refinance tighter today, it turns out they widened, but by virtue of the diversity of our portfolio, we still have things that we can do to keep creating value on the right side of our balance sheet. Going back to the earlier questioner's question, the biggest thing though is you just look at the trend in cash flows on the portfolio, these things just keep generating gobs and gobs of cash, these changes in prices are frustrating. My skin is perhaps a little thicker to it, having done it for so long, but as we said very clearly, we believe this is a short term mark to market swing, not any sort of fundamental issue with our portfolio, and the proof is in the pudding with the cash that keeps coming off of it.

[Randy Binner, Managing Director at B.Riley Securities]

All right, that's helpful. And then the other one I had was just kind of higher level, and it goes to the I think it was covered in your prepared remarks and the press release. You said you deployed nearly 200,000,000 of new investments, but then the specific number of net capital into the CLO structures was 95,000,000. And I'm not reconciling that number based on what we've put into our model. Could you just clarify that? What's the difference between the 95 and the 200?

[Kenneth Onorio, CFO & COO at Eagle Point Credit Company]

Sure. The difference it's Ken here. So the difference between the 200 and the 95, it's gross versus net. As you recall, we have done a significant rotation program of CLO debt into CLO equity. So those sales would bring down the overall number to a net basis, as well as any other conversions of loan accumulation facilities or other assets that were sold off the balance sheet and redeployed it to new investments.

[Randy Binner, Managing Director at B.Riley Securities]

Okay. Got it. Thank you. Appreciate it.

[Kenneth Onorio, CFO & COO at Eagle Point Credit Company]

No problem.

[Operator]

Our next question comes from Eric Zwick with Lucid Capital Markets. Proceed with your question.

[Erik Zwick, Managing Director, Equity Research at Lucid Capital Markets LLC]

Thanks. Good morning, Tom and Ken. Maybe I'll start just with a follow-up to that last question on deployments. In the press release, you indicate since April 30 deployed $4,200,000 of net capital, which seems like a relatively slower pace compared to the 95,000,000 that was just referenced in the first quarter. I realized April was a fairly volatile month in the market.

[Erik Zwick, Managing Director, Equity Research at Lucid Capital Markets LLC]

So curious if that slower pace of deployment grows into the net numbers and maybe the gross number was larger. But just curious kind of what you saw in April that resulted in the slower net deployment and that was market related. Has that maybe not resolved yet, but lessened so that deployment in May and June will potentially be at a higher level?

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Yeah. So it's frustrating. So the marks are down. We've got cash. Show me the trades, unfortunately.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

What happens in the CLO market, and this happened during COVID, this happened during the regional bank crisis, happened, or turmoil, pardon me, this happened during the energy blip in 2015, prices drop and volume grinds to a halt in the CLO equity market. Grinds, slows significantly, let me say, let me correct my statement. And that kind of stinks. So while we have ample cash and can be on the offense, we were working in a market where sellers hadn't, everyone agreed where they buy something, sellers hadn't agreed to sell there yet. So we got a little bit in the ground, kind of four to six weeks after a big bang event, and that big bang event measured on 04/02/2025 this year for us, you start to see things open up again, and literally today I'm watching the Bloomberg messages here as we're talking.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Lots of CLO equity actually trading today, think we'll be bidding on a bunch of stuff that's up for auction today. While the prices in general are up from the April lows, they're still, I'd call them, pretty attractive levels. So unfortunately there's a lag. Whenever there's a disruption in CLO equity, we do the best we can, we don't overpay just to act, but the market, sellers kind of acquiesce and the market kind of comes to them a little bit. And that's a tried and true thing in the CLO markets, so four to six weeks typically what happens.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Now that said, CLO BBs have a little more, they come back to life a little quicker in terms of activity and they move around faster, there's shorter, weaker hands in there. The good and the bad news, while lots of folks like us and some of our public competitors, the good news is we're stable hands, the bad news for us is the other guys are stable hands and not a lot of forced sellers. There were a couple in COVID who had ACR issues or repo stuff, but by and large equity is in pretty sticky hands. CLO debt moves around a little more. So the other spot we did put some money into the ground this quarter has been in CLO BBs.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

I mentioned we largely completed our rotation back in kind of February, which was great, we bought a bunch of stuff in the 80s and 90s and sold it in the high 90s to even par area, sometimes maybe even above. But we got back in a little bit in COBBs, and certainly anything we purchased in April would certainly be today. So we'll continue to deploy, we've got a stable hand, we've got the right balance sheet to be in this market, and we're, I don't want to say aggressively, but we're keenly looking to keep expanding the portfolio in discounted areas. You will see a little pickup in BBs, we might actually sell them before the end of the quarter, but on an interim basis, when equity was still quiet, did pick up some BBs.

[Erik Zwick, Managing Director, Equity Research at Lucid Capital Markets LLC]

I appreciate the color. That's great. And then next one, another one, just looking at the $75,500,000 of recurring cash distributions that you received since April 30. And I think you mentioned in your prepared comments here that additional cash flow is expected in May and June. Curious if you could just quantify that to any degree because I guess as I understand it, the majority of the cash flow you receive is usually front end weighted in the quarter.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Yeah. It's the vast majority even. So it's a few million bucks more. Like, if you look back to the earnings script or even probably the press release from Q1, we would have told you how much we received by January 31 or something like that, and then look at the total quarter. It's a little it's 5% more in that kind of context.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

I'll check the numbers to be sure, but that similar pattern you'd expect to see. The good thing we've got is we do have some resets and some other new issue investments that we did in Q1 that won't make first payments until July. So those payments tend to be oversized, which is good, And they're not they're a zero this quarter. They weren't scheduled to pay this quarter, but kind of the first payment date, proverbially July 15. So we'll continue to have more stuff coming our way.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

But if you look back to Q1 or Q4 and kind of piece together the scripts, you can see it's in a couple percent more cash.

[Erik Zwick, Managing Director, Equity Research at Lucid Capital Markets LLC]

Yep. Makes sense. And then last one, you talked about just the spread compression that you're battling over the past fifteen months or so. And if I look at Slide 19, your deck, that's certainly apparent. However, when I look at like the longer term trend, your slide points out that over the past ten years, maybe a little bit more, the average spread has been higher, about 55 basis points over that longer term average.

[Erik Zwick, Managing Director, Equity Research at Lucid Capital Markets LLC]

So wondering if you could just from a bigger picture perspective talk about what's happened, I guess really kind of looking at that chart from kind of post GFC to today that has resulted in the higher spreads relative to that pre GFC period?

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Yeah, that's a really good question. You see the long term average there is three fifteen bips, the ten year average is three seventy bips, and you can see the viciously painful spread compression from the last three years. I have a version of the chart the team gave you that has a red arrow there, we didn't publish that one, but I don't like it. So broadly, what gave rise to the I think your question is helping me understand the three fifteen versus three seventy. Exactly, yep.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Not just mathematically, you obviously get the math as why. So if you look at the drivers into that three fifteen, if you ran an average ending in 02/2007, that's going be a two handle average even. Things you had going on then. You had bank so in the olden days, pre financial crisis, we'd sell AAAs at LIBOR plus 25. And we'd get excited if we'd get a LIBOR plus 24 print, that was like a high five.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

And banks would buy that kind of stuff, insurance companies would buy, and banks were funding at LIBOR minus back then. So they would say, well this is great, they'd even go and buy a credit default swap from a monoline insurer, pay that guy five basis points, so take his L plus 20 bond, hedge it to a guy for, let's say, five bips, so he's getting now L plus 20, but if you're funding at L minus 20, which is where a lot of major banks funded at that time, you did great. You're walking in that 40 basis point spread until kaboom, 02/2008 you don't fund at LIBOR minus 20 anymore, now you're funding at LIBOR plus 200 and you're losing. So we had some in the 'five, 'six, 'seven, we had a period of time of unusually cheap funding for CLO AAAs, which then brought loan spreads way, way in, versus look at where it got to in 'two, 'three. And then roll the clock back to the pre into the 1990s, ancient history, other than the next question person in the queue, probably not a lot of people even remember those days, that was just when banks bought loans.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

I mean, syndicated loans used to be called bank loans or par loans, they were just held to banks, sold to banks. There was kind of two prices, L plus 2.25 and L plus 2.75, and those were the two price of loans, but it all just went to banks directly without the structured market. So we've had a fundamental a really long answer here, sorry, but a fundamental re racking of the funding cost of loans. It used to be you could get the AAAs were 80 of your capital structure, you could get it done at LIBOR plus 25. Now you're getting 65% of your capital structure done at SOFR plus 140.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

So I think that's more here to stay because the yield on or the spread on loans is driven by where buyers can buy loans, and the number one buyer of loans is the CLO market, And as long as our AAA guys charge us what I think is a usurious 140 over, the price of the yield on loans is going to stay or spread is going to stay in the context where it is right now would be my expectation. So we provide this data just we're a data rich firm, and we like to share this data. I think the relevant measure to look at is really the last ten years. Please don't extrapolate. I pray we don't have to extrapolate the 'twenty three onward trend.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

It feels like loan spread compression is largely paused right now. It will resurface at some point, and you can see it did like between 'twenty look between 'twenty what is that, 'fifteen, 'sixteen, 'seventeen, it went from March to March. You listen to some of these calls, we would have lamented the same thing back then. That's what we've been facing right now. The good news is there's not a lot of defaults.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Many of our CLOs have net built par even through this stuff, but the markets move around, and I think I feel comfortable that the ten year average doesn't really move that much heretofore, unless we see a significant change in CLO debt costs, in which case this could come down.

[Erik Zwick, Managing Director, Equity Research at Lucid Capital Markets LLC]

Yeah, no, that's very helpful. I appreciate the commentary and historical perspective because you're right, it does seem and that was kind of the range of Yeah, GFC, something had changed and it seems like lenders are requiring more and the borrowers are paying more. But you're right, the kind of ten year, it seems like we've kind of entered a new period and it'll revolve around that ten year average of $3.70 ish or so.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

That's my expectation. I mean, I'd love to see AAAs come in a ton. Mean, in my opinion, those guys, they get pretty darn rich buying this stuff. Considering that wasn't worth it. In any event, I digress.

[Erik Zwick, Managing Director, Equity Research at Lucid Capital Markets LLC]

No, that's great. I appreciate it. Thank you so much. That's all I have today.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Okay. Very good. If you have any other questions on the numbers, feel free to follow-up later today, Eric. Thank you.

[Operator]

Our next question is from Steven Bavaria with Inside the Income Factory. Please proceed with your question.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Steve, you're the caller who remembers loans in the 1990s.

[Steven Bavaria, Editor/Publisher at The Income Factory]

Hey. Listen. I introduced loan ratings at Standard and Poor's back then. They thought I was nuts. Like, we don't do that, and it's a good thing they listened to me finally. Took a couple years.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

It all works. I think I think they make a few bucks doing that these days.

[Steven Bavaria, Editor/Publisher at The Income Factory]

They do. I wish they'd paid me more of it, but that's okay. I'm doing fine here. Hey. You know, all of us who are income investors love your dividend, your your distribution at 20 plus percent.

[Steven Bavaria, Editor/Publisher at The Income Factory]

And, you know, in our wildest dreams, we'd love to think that your total returns are gonna be that much over time as well. But what I'm curious about is, you know, in a real bank, I mean, you know, I say CLOs are virtual banks, but in JPMorgan and other places, they can reserve in advance, you know, for projected loan losses. I don't think CLOs can do that, and I don't think you can do that as a closed end fund. So you're, if I'm right, you're required to pay 90% or so of your taxable income as you move along. But I assume, since you can't create a reserve for loan loss in that like banks can, and a lot of the losses creep up probably when individual CLOs are actually, when they wind down.

[Steven Bavaria, Editor/Publisher at The Income Factory]

Is there a permanent sort of back ending of loan loss that you can't consider in calculating your required distributions that's going to sort of continually make it almost seem like a bit of an annuity as opposed you know what I'm asking? Is that a

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

I know exactly where we're going. Yeah, I understand the question. Yeah, the thoughts were masters to three things. GAAP, everyone loves GAAP income, no one gets fired for having too much GAAP income. Tax, as you point out, we've got to pay out, I think it's actually 98% of our taxable income within a year, so we have, I think of it as essentially all of our taxable income has to be paid out.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

And cash, and you can't pay any of that stuff without cash. So when we think, if I could have only one master, would be cash, because as long as we keep generating cash, the whole model works. And indeed, we continue to generate tons and tons of cash. Again, our portfolio generates in the high twenties cash on cash, so that's good. And to the point of loan loss reserves, a bank I mean, JPMorgan published 900,000,000 of loan loss reserve or some number like that recently I saw, or hundreds of millions of dollars.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

While we don't have a specific so me talk about GAAP for a minute, and then it comes to tax. So for GAAP, we kind of do have a loan loss reserve in that our effective yields have a provision for future losses. So if we ran our yields assuming no loans ever defaulted, our effective yields would be much higher. I don't know how much higher, but a bunch higher. So that assumes that the portfolios start to fall, they ramp, assumes very low defaults at the beginning, but they ramp up reasonably quickly.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Not a lot of these loans are first period defaults in the large corporate loan market, but there is a default assumption in our yields, so that's very important. That's unlike a BDC who can't use an effective doesn't use effective yield for their loans, we actually do. So from a GAAP basis, and that's why GAAP income is less than cash income, even though this is recurring cash flows from the interest column of the CLO, GAAP requires us to take a reserve. So there is a reserve there. Now sometimes we get it wrong, and we have had some write downs once in a while on end of life CLOs, generally relatively minor, they're already caught in the NAV, it's not like something's marked from 40 to zero, it's probably marked at one and then written from one to zero in the extreme case if our projections were off by a nontrivial amount, but that's relatively infrequent.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

But so for gap, the easiest way to think of it is the difference between cash income, recurring cash flows, and GAAP income is kind of a or investment income, gross investment income is the difference between recurring cash flows and gross investment income is our reserve for loan losses. So we do take that for GAAP. Now for tax, they don't care about any of that. Tax is basically on a cash basis for losses. So there have been years where the majority of our distributions have been treated as a return of capital, and that's because there were a lot of realized losses in CLOs.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Now it doesn't mean the CLOs took net losses per se, a collateral manager could have bought a loan at par, traded down to 90, he or she sold it for 90 and bought another loan at 89 on the same day, and if he or she was correct, that works out to be a one point gain when that 89 loan pays off at par. The nice thing is it actually helps shelter your taxable income. Now next year you've to pay the piper when, let's say, that loan pays off at par next year, and now you've got an 11 gain, which you pick up as taxable income. But there is tax losses, there's no reserve for taxes, no reserve for losses in tax. So we have all these different things, and we do a lot of things here pretty good.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Ken and I look at each other every time someone asks us about projecting taxable income. It's close to impossible, I think, in that let's say we have perfect information, our tax year ends November 30, let's say we have perfect information of where we are on November 15, which we would never actually have, if collateral managers sold a bunch of loans down to rotate into other loans, that could change our taxable income profile materially right at the end of the tax year, so it's hard. We make our best estimates, we have the outside tax preparers give some mid year estimates to kind of give us a flavor of where things are going, but we could have big portfolio rotation in November which takes away a lot of taxable income, or at the same time, a lot of stuff bought at discounts right now could all pay off and spike our taxable income. So it's frustrating. It's the law, so obviously we have to work within that.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

But GAAP, cash, and tax are three different masters. GAAP does allow a loan loss reserve, tax doesn't. Cash is what pays the distributions. And at the end of the day, while we love all numbers to be high except for taxable income, cash is the number one thing I like to make high.

[Steven Bavaria, Editor/Publisher at The Income Factory]

Thanks.

[Operator]

To time constraints, we don't have time. Go ahead, Tom.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

No, go on. Thank you.

[Operator]

To time constraints, we do not have time for additional questions. At this point, I'd like to turn the call back over to Thomas Majewski for closing comments.

[Thomas Majewski, Founder, Managing Partner, CEO & Director at Eagle Point Credit Company]

Great. Thank you very much, everyone. We appreciate your time and interest in Eagle Point Credit Company, and we do invite you to join Eagle Point Income Company's call later today at 11:30 if you are available. Thank you very much.

[Operator]

This concludes today's conference call. You may disconnect your lines at this time, and we thank you for your participation.

Participants

Executives

• Thomas Majewski, Founder, Managing Partner, CEO & Director
• Kenneth Onorio, CFO & COO

Analysts

• Darren Daugherty, Managing Director at Prosek Partners
• Mickey Schleien, MD - Equity Research at Ladenburg Thalmann
• Randy Binner, Managing Director at B.Riley Securities
• Erik Zwick, Managing Director, Equity Research at Lucid Capital Markets LLC
• Steven Bavaria, Editor/Publisher at The Income Factory