Eagle Point Credit Company Inc. Q3 FY2025 earnings call

Portfolio Management

• Actively deployed almost $200 million into new investments in primary and secondary markets, with CLO equity having a 16.9% weighted average effective yield.
• Proactively completed 16 refinancings and 11 resets during the quarter, strengthening the CLO equity portfolio's earning power.

Financials

• Third quarter recurring cash flows were $77 million (59¢ per share), down from $85 million (69¢ per share) in Q2.
• Generated net investment income less realized losses from investments of $0.16 per share, with 24¢ of net investment income offset by 8¢ of realized losses from sales on certain investments.
• NAV was $7 per share, down 4.2% from $7.31 per share as of June 30.

Capital Raising

• Utilized at-the-market program to selectively 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.

Market Insights

• Loan market saw repricing activity slow down post-First Brands, but 42% of loans trading above par again. CLO market had $53 billion of volume in Q3, with reset and refinancing activity up. Portfolio metrics like lower triple C exposures and higher junior OC cushion were highlighted.

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. 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.

Forward-Looking

• Expect to take action on over 20% of the portfolio to unlock refinancing upside in the coming months and quarters.
• Unaudited estimate of NAV as of October month-end was between $6.69 and $6.79 per share.
• Continues to have a robust pipeline of resets and refinancings planned into 2026, with over 75 corporate actions in the year and expecting more in the future.

Risks

• Spread compression in the loan market impacting cash flows and NAV.
• Impact of events like First Brands on repricing activity and credit market sentiment, leading to slower repricing and uncertainty.
• Potential for credit market volatility affecting portfolio valuations and default rates, including uncertainty around recovery values in cases like First Brands.

Q: Gaurav Mehta asks about the timeline and impact of portfolio resets and refis.

A: Thomas Majewski states they completed many refis and resets in Q3, with over 20% of the portfolio expected to be acted on in 1-2 quarters, market-dependent, and mentions a proactive ownership program with over 75 corporate actions in the year.

Q: Mickey Schleien asks about loan spreads post-First Brands and long-term outlook.

A: Thomas Majewski discusses spread compression slowing post-First Brands, linked to the credit market's reaction, and provides long-term outlook on loan spreads tied to CLO and loan market dynamics.

Q: Eric Zwick asks about funding activity and share buyback vs ATM.

A: Thomas Majewski talks about long-term focus, current discount to NAV of the stock, and that decisions are made on a long-term basis, considering options but remaining long-term focused.

Q: Christopher Nolan asks about trailing default rate and fraud vetting.

A: Thomas Majewski explains the trailing default rate pickup was driven by First Brands, low exposure to it, and details the fraud vetting chain in the CLO market.

Q: Timothy D'Agostino asks about common stock issuance accretion to NAV and Q4 resets/refis.

A: Ken Inorio says common stock issuance created ~2-3¢ accretion to NAV, and Thomas Majewski states they continue with resets/refis but don't publish mid-quarter stats on the number done.