Eagle Point Credit Co Inc. Q1 FY2026 earnings call

Market and Portfolio Context

• Broadly syndicated leveraged loan prices declined in Q1 2026, driven particularly by pressure in the software sector and market caution stemming from the ongoing war in Iran, leading to mark-to-market volatility for CLO equity holdings. The S&P UBS leveraged loan index fell 50 basis points in Q1 before rebounding 1.2% in April 2026.
• Overall credit fundamentals remain solid: corporate revenue and EBITDA growth stayed positive in Q1, the trailing 12-month leveraged loan default rate of 1.4% remains well below the long-term average of 2.5%, and Eagle Point's look-through default rate is just 32 basis points, significantly below the broader market average.

Active Portfolio Management

• The company deployed $100 million in new investments in Q1 2026 at a weighted average effective yield of 18.9%, taking advantage of discounted relative value opportunities created by market volatility.
• Management completed 4 CLO resets and 3 refinancings, delivering 43 basis points of weighted average debt cost savings and extending the reinvestment periods of these positions to five years. The portfolio's weighted average remaining reinvestment period (WARP) ended the quarter at 3.4 years, above both the market average of 2.8 years and the prior year-end level of 3.3 years, increasing portfolio reinvestment optionality.
• The company maintains lower exposure to the under-pressure software sector (10.8% of the portfolio) than the typical mid-20% average for BDCs, and holds higher quality collateral: triple C rated exposures are 4.1% of the portfolio, below the market average of 4.9%, and the weighted average junior over collateralization ratio is 4.4%, 10% above the market average of 4.0%.

Strategic Diversification

• While CLO equity remains the core of the company's strategy, management is selectively increasing exposure to complementary asset classes including infrastructure credit, regulatory capital relief, portfolio debt securities, and other structured and specialty credit. These assets are sourced by dedicated platform teams to enhance income, improve diversification, and capture additional attractive returns.
• A directly originated infrastructure credit investment closed in Q4 2025 was successfully monetized for an attractive return just four months after origination, demonstrating the viability of this diversification strategy. In Q1 2026, 75% of new investment deployment was allocated to non-CLO assets, with 25% allocated to CLO equity.

Capital Structure and Distributions

• All of the company's financing is fixed-rate, with no maturities prior to January 2029, and a large portion of preferred stock financing is perpetual, which management views as a significant competitive advantage for a CLO equity-focused firm. Subsequent to quarter end, the company completed full redemption of its ECCW and ECCX baby bonds, pushing the nearest maturity out to 2029 and moving leverage closer to the target range. Management is opportunistically repurchasing discounted outstanding company debt to improve leverage headroom and realize small gains on retirement.
• The company paid $0.42 per share in cash distributions to common shareholders in Q1 2026, and declared three monthly distributions of $0.14 per share total ($0.06 per share monthly) for Q3 2026, matching the Q2 2026 distribution level. Members of the advisor's senior investment team purchased over 167,000 common shares in Q1 2026, reflecting confidence in the company's long-term intrinsic value.

As of March 31, 2026, CLO equity represented 67% of the total portfolio, while complementary non-CLO credit asset classes represented 31%, with the remaining 2% held in cash. For the first quarter of 2026, the company recorded net investment income (NII) less realized losses from investments of $19 million, or $0.14 per share. This compares to NII less realized losses of negative $0.26 per share in Q4 2025, and NII plus unrealized gains of $0.33 per share in Q1 2025. Including unrealized losses, the company reported a GAAP net loss of $148 million, or $1.12 per share, compared to a GAAP net loss of $0.84 per share in both the prior quarter and Q1 2025. Recurring cash flows for Q1 2026 totaled $62 million, or $0.47 per share, which was $0.11 per share lower than aggregate common distributions and total expenses for the quarter. Net asset value (NAV) as of quarter end was $4.17 per share, a 26.8% decrease from $5.70 per share at year-end 2025. The Q1 2026 total gap return on equity was negative 20.2%.

• Over time, management plans to reduce the company's current pro forma leverage ratio of 47% (as of April 30, 2026) back to the target range of 27.5% to 37.5% for normal market conditions.
• The current distribution level is aligned with the company's near-term earnings profile, and management has set the distribution at a level it believes is sustainable for the foreseeable future, consistent with the portfolio's underlying earnings power.
• Management expects the lower loan price environment and reduced repricing activity (which has ended the spread compression that headwinded CLO equity in 2025) have created attractive long-term return opportunities for new capital deployment, with potential for price appreciation across the broader loan market in coming quarters.

• Broad macroeconomic and geopolitical uncertainty, including the ongoing war in Iran, has created cautious sentiment in credit markets and driven near-term loan price volatility and mark-to-market declines in CLO equity valuations.
• The software sector faces specific investor uncertainty around the impact of AI on business models and revenue streams, leading to disproportionate price pressure that has negatively impacted the company's near-term results, even with lower exposure than peer firms.
• Broadly syndicated loans held in the company's CLOs have more observable market pricing than middle market loans, leading to more immediate mark-to-market volatility during periods of sector-specific pressure, which can negatively impact quarterly reported NAV and earnings.

Q: How do you calculate credit loss provisions for new investments, and has the provision level changed given current macro and geopolitical uncertainty?

A: Provisions combine a fixed standard constant default rate that stays consistent across market cycles, plus a variable market-calibrated component that adjusts to reflect current economic and market conditions. The variable component was adjusted downward to reflect heightened volatility in Q1 2026, and will adjust upward as market conditions improve, as seen in the April 2026 rebound.

Q: What drove the April NAV rebound, and is this improvement continuing into May 2026?

A: The April increase was a broad market rebound and normalization from the Q1 2026 valuation downdraft, driven by improving overall credit fundamentals and improving market sentiment specifically for the software and SaaS sector. Management confirms that strong performance across loans, CLO equity, and the non-CLO portfolio has continued through early May 2026.

Q: What was the rationale for redeeming the ECCW and ECCX notes, and what is the split of Q1 new investment between CLO and non-CLO equity?

A: The full redemption was done to proactively reduce leverage to move closer to the company's long-term target leverage range, push the nearest outstanding debt maturity out to 2029, and increase the share of perpetual liabilities on the balance sheet for greater stability. For Q1 2026 new investments, 75% was allocated to non-CLO assets, and 25% to CLO equity.

Q: Is the 17% annualized dividend yield on Q1-end NAV sustainable?

A: The distribution rate was set below the company's recent net investment income run rate, which is roughly in line with (and slightly above) the current distribution level. Management set the rate at a level it believes is sustainable for the foreseeable future, based on historical earned NII and forward estimates of portfolio earnings power, despite inherent uncertainty about future market conditions.