What Eagle Point Credit (ECC) Said on Its Q3 Earnings Call

Key Points

• Q3 income covered distributions: Normalized net investment income plus realized gains was $0.18 per share, matching common distributions of $0.18; an early infrastructure-credit repayment added $0.11 per share. However, NAV fell 8% to $4.17 per share, and management estimated a further decline to $3.73–$3.83 at October month-end.
• Eagle Point is diversifying beyond CLOs: Infrastructure credit, regulatory capital relief and specialty finance reached about 38% of the portfolio, up from 16% a year earlier. The company said its non-CLO investments since 2020 have generated an approximately 18% gross IRR.
• Leverage remains above target: Debt and preferred equity were 49% of total assets less current liabilities, compared with a 27.5%–37.5% target range. The company announced preferred-equity and note redemptions to support compliance with its 200% asset-coverage requirement.

Eagle Point Credit NYSE: ECC reported third-quarter earnings that covered its common distributions, helped by an early repayment of a private infrastructure credit investment, even as its net asset value declined and leverage remained above its target range.

Net investment income less realized investment losses was $0.29 per share, compared with negative $0.62 in the second quarter and $0.16 a year earlier, Chief Financial Officer and Chief Operating Officer Ken Onorio said. The early repayment contributed $0.11 per share to net investment income. Excluding that contribution, normalized net investment income plus realized gains was $0.18 per share, matching the quarter’s common distributions.

Including unrealized losses, the company reported a GAAP net loss of $16 million, or $0.12 per share. Net asset value fell 8% from June 30 to $4.17 per share at Sept. 30. Onorio said management’s unaudited estimate for October month-end was $3.73 to $3.83 per share, with the midpoint down 9% from the end of the third quarter.

Portfolio shift away from CLOs

Chief Executive Officer Thomas Majewski said Eagle Point expects collateralized loan obligations, or CLOs, to become a smaller share of its portfolio as it allocates more capital to other credit investments. Complementary investments, including infrastructure credit, regulatory capital relief transactions and specialty finance, represented about 38% of the portfolio at Sept. 30, up from 16% a year earlier.

Majewski said CLO equity returns have suffered as spreads on underlying loans compressed more than CLO financing costs. During the question-and-answer session, he estimated that more than three-quarters of new CLOs have been supported by captive funds or managers with access to internal capital, while acknowledging that exact data are unavailable. He said the shift has contributed to demand for loans and supply of CLO debt and could persist in the medium term.

“Our job is to make money for investors, and we’re frustrated with the stock price. We’re frustrated with the NAV,” Majewski said.

The CEO said Eagle Point has invested more than $800 million in credit assets outside CLOs since 2020, generating an approximately 18% gross internal rate of return before company-level expenses. Nearly $350 million of those investments had been fully realized, with an approximately 28% gross internal rate of return.

Onorio said the company’s existing documents generally limit non-CLO investments to 50% of the portfolio. Majewski clarified that the limit is measured at the time of investment, so subsequent changes in market values could push the allocation above that level. He said the documents could potentially be amended in coming quarters.

Financing costs and distributions

Eagle Point completed seven resets and nine refinancings in its CLO equity portfolio during the quarter, producing weighted-average CLO debt cost savings of 20 basis points for the transactions reopened, Majewski said. Resets also extended those CLOs’ reinvestment periods to five years. The portfolio’s weighted-average remaining reinvestment period rose to 3.6 years from 3.4 years at June 30.

The company deployed $62 million into new investments during the quarter at a weighted-average effective yield of 19.6%. It also collected $46 million, or $0.35 per share, in portfolio cash flows during the quarter. Eagle Point paid three monthly common distributions of $0.06 per share and declared the same monthly amount for the first three months of 2027.

Debt and preferred equity represented 49% of total assets less current liabilities at September month-end, above the company’s long-term target range of 27.5% to 37.5%. Onorio said Eagle Point had announced a full redemption of its ECCC term preferred equity and a 25% partial redemption of its ECCV unsecured notes. The company has no debt maturities before January 2029, he said.

Asked about asset coverage, Majewski said the redemptions were intended to help the company remain above its 200% asset coverage requirement. He also cited that ratio when asked why fourth-quarter deployments had been slower, noting that cash was needed for the announced redemptions.

Infrastructure investment explained

Onorio addressed questions about the infrastructure investment that boosted quarterly income. He said Nexus Apex Holdings had a $72 million cost and a $94 million fair value at June 30; the difference reflected a minimum multiple on invested capital associated with the expected repayment.

Onorio said the initial transaction was refinanced on July 30, with a new senior secured loan and equity positions appearing in the September investment schedule. A significant portion of the $22 million difference was recognized as income when the minimum return was realized, he said, adding that the change did not represent a quarter-over-quarter drop in fair value.

Majewski cautioned that gains like that may not occur every quarter. He said the investment illustrated the company’s aim to find credit opportunities with potential equity upside.

About Eagle Point Credit (NYSE:ECC)

Eagle Point Credit Company is a publicly traded, externally managed investment company focused primarily on investments in collateralized loan obligations (CLOs). Its portfolio may include CLO equity and debt securities, as well as other investments related to CLOs and structured credit. CLOs are investment vehicles that pool loans, often loans to businesses, and issue securities with different levels of risk and payment priority. Eagle Point's strategy centers on these securities, with exposure principally to CLOs backed by corporate loans in the United States and, where applicable, other markets.

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