Eagle Point Credit Company Inc. Q3 FY2025 earnings call

• Actively managed the portfolio, deploying nearly $200 million into new investments in primary and secondary markets. CLO equity investments had a 16.9% weighted average effective yield.
• Proactively completed 16 refinancings and 11 resets to strengthen the CLO equity portfolio's earning power.
• Third quarter recurring cash flows were $77 million or 59¢ per share, down from the second quarter. NAV was $7 per share, down 4.2% from June 30.
• Loan market faced pressure from repricings, but 42% of loans are trading above par again. Exposure to First Brands was small and losses were within annual credit loss assumptions.
• Saw pickup in LBO activity in September, supportive of loan spreads. Utilized at-the-market program to issue $26 million of common stock at a premium to NAV and $13 million of 7% series double a and b convertible perpetual preferred stock.
• Paid 42¢ per share in cash distribution to common shareholders and declared 14¢ per share monthly distributions for 2026. Highlighted Eagle Point Income Company (EIC) and invited participation in EIC's investor call.
• Loan fundamentals strong: S&P UBS Leveraged Loan Index returned 1.6% in Q3, trailing twelve-month default rate at 1.5% (up from 1.1% in Q2 but below long-term average).
• CLO market volume in Q3 was $53 billion, reset and refinancing activity was $69 billion and $36 billion respectively. Portfolio metrics favorable vs market: triple C rated exposures at 4.6% (lower than market average of 4.8%), loans trading below eighty at 2.7% (vs market average of 3.4%), weighted average junior OC cushion at 4.6% (excess of market average of 3.7%).
• Near-term investment pipeline active due to stabilized market conditions; expect to take action on over 20% of portfolio if CLO debt spreads flat or tighten.

During the third quarter, Eagle Point Credit Company deployed nearly $200 million into new investments, with CLO equity investments having a weighted average effective yield of 16.9%. Recurring cash flows came in at $77 million or 59¢ per share, a decrease from $85 million or 69¢ per share in the second quarter. The company generated net investment income less realized losses from investments of $0.16 per share, consisting of 24¢ of net investment income offset by 8¢ of realized losses from sales on certain investments. NAV stood at $7 per share, down 4.2% from $7.31 per share as of June 30. The portfolio's weighted average remaining reinvestment period (WARP) ended the quarter at 3.4 years, roughly 26% above the market average. GAAP return on equity for the third quarter was 1.6%.

• Anticipate over 20% of the portfolio will be reset and refi in the next 1-2 quarters, market condition specific.
• Near-term investment pipeline active as market conditions have stabilized; expect to take action on over 20% of portfolio if CLO debt spreads remain flat or continue to tighten.
• Opportunistically deploying capital at attractive levels, executing resets and refinancings to strengthen recurring cash flows.

• Loan repricing pressure in the market, which can impact cash flows and NAV.
• Impact of credit events like First Brands on the broader market, though exposure was small for Eagle Point.
• Spread compression, which has been a factor in the decline of recurring cash flows and can affect earning power.
• Market conditions affecting the ability to execute resets and refis as planned.
• Potential impact of interest rate changes on funding costs and the company's capital structure.

Q: Gaurav Mehta asked about portfolio resets and refi timeline and impact.

A: Thomas Majewski said they were proactive in Q3, anticipate over 20% of portfolio to be reset and refi in next 1-2 quarters, market condition specific, and highlighted detailed portfolio positions in the investor deck.

Q: Gaurav Mehta asked about near-term investment opportunities in primary and secondary markets.

A: Thomas Majewski said primary market has plenty of issuance opportunities with loan accumulation facilities, secondary market has selective opportunities, and they are active participants but selective in investments.

Q: Mickey Schleien asked about loan spreads trends relative to September and longer-term outlook.

A: Thomas Majewski said loan spread compression has slowed since First Brands news, at ten-year low on spreads, and can't call a bottom but near ten-year low means potential upside, focus on spread compression.

Q: Mickey Schleien asked about decline in recurring cash flows and factors for keeping dividend stable.

A: Thomas Majewski said spread compression was a factor, and board considers multiple factors including cash flow, GAAP earnings, and taxable income when setting dividend.

Q: Mickey Schleien asked about funding activity and share buyback strategy.

A: Thomas Majewski said they are long-term focused, currently stock traded at discount, but will consider long-term decisions on share buyback.

Q: Eric Zwick asked about arbitrage opportunity and NAV decline.

A: Thomas Majewski said over long term arbitrage should balance out, NAV decline due to excess of distributions over NII, and they are working on rotating portfolio to increase earnings.

Q: Christopher Nolan asked about twelve-month trailing default rate and fraud vetting.

A: Thomas Majewski said default rate picked up due to First Brands, exposure was low, and fraud vetting involves investment banks, CLO managers, and auditors.

Q: Timothy D'Agostino asked about common stock issuance accretion and reset/refi stats.

A: Ken Inorio said stock issuance created 2-3¢ accretion to NAV, and they don't publish mid-quarter reset/refi stats as it's episodic.