Eagle Point Credit Company Inc. ($ECC)

Greetings, and welcome to the Eagle Point Credit Company First Quarter 2026 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Darren Daugherty, with Prosek Partners. Thank you. Please begin.

Thank you, operator, and good morning. Welcome to Eagle Point Credit Company's earnings conference call for the first quarter of 2026. Speaking on the call today are Thomas Majewski, Chief Executive Officer, and Ken Onorio, 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 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. 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 2026 financial statements and investor presentation with the Securities and Exchange Commission. These are also available in the Investor Relations section of the company's website eaglepointcreditcompany.com. A replay of this call will be made available later today. I will now turn the call over to Thomas Majewski, Chief Executive Officer of Eagle Point Credit Company. Tom?

Thanks, Darren. Good morning, everyone. We're glad you're joining us today on Eagle Point Credit Company's quarterly call. I'll start by providing some perspective on the recent quarter. CLO equity faced challenging market conditions in the first quarter of 2026 and and the company was not immune to those broader dynamics. While CLO fundamentals remain relatively stable, a decline in loan prices, especially in the software sector and a cautious tone in the credit markets broadly due to the ongoing war in Iran, weighed on our financial performance during the quarter. The software sector was particularly an area of focus during the quarter as investors continue to assess the potential impact of AI on certain business models and revenue streams. Importantly, however, our exposure is principally through broadly syndicated loans, not middle market lending that's commonly found in BDCs. The loans in our CLOs are typically larger, more liquid, institutionally syndicated credits that have observable market pricing, which can result in more immediate mark-to-market volatility during sector-specific pressure. ECC software exposure at quarter end stood at roughly 10.8%. While there's not one definitive number, many market sources would say BDCs typically have software exposure in the mid-20% range. While the volatility in loan prices impacted our quarterly valuations, we believe it also created opportunities for many of our CLO collateral managers to reinvest pay-downs and sale proceeds into discounted loans with attractive forward return potential. While these factors led to a decline in CLO equity valuations during the quarter, we believe the market typically undervalues the reinvestment option embedded in CLOs during times of dislocation. The ability to buy loans at material discounts to par, has allowed CLO equity to deliver attractive intermediate and long-term returns following short-term periods of volatility. During the quarter, we deployed $100 million into new investments at a weighted average effective yield of 18.9% as we took advantage of compelling relative value opportunities created by a particularly uncertain macro environment. Throughout the quarter, we continue to actively manage our CLO portfolio by completing 4 resets and 3 refinancings of our CLO equity positions, resulting in weighted average CLO debt cost savings up 43 basis points for those CLOs. In addition to lowering our debt costs, the reset positions extended the reinvestment periods to 5 years. Our portfolio's weighted average remaining reinvestment period or WARP ended the quarter at 3.4 years. This is higher than the market average of 2.8 years and also higher than our year-end level of 3.3 years. This reflects our continued focus on extending the reinvestment optionality in our CLO portfolio. We also continue to broaden ECC's opportunity set across credit, while CLO equity remains central to the company's strategy, as we've mentioned on the prior call, we have selectively increased our exposure to complementary asset classes, including infrastructure credit, regulatory capital relief, portfolio debt securities and certain other structured and specialty credit investments. These investments are sourced through dedicated teams across the Eagle Point platform, and are designed to enhance income, improve diversification and capture attractive relative value beyond just traditional CLO equity. One recent example of this strategy in action is a directly originated infrastructure investment that we made in the fourth quarter of 2025. We were able to successfully realize this investment just 4 months later, crystallizing an attractive return. This outcome demonstrates our ability to originate and monetize differentiated credit opportunities outside of CLO equity while still maintaining ECC's income-oriented investment focus. As of March 31, CLO equity represented 67% of our portfolio, while other credit asset classes represented 31%. The balance was held in cash. As of March 31, our NAV stood at $4.17 per share, and this represents a decrease of 26.8% from $5.70 per share at year-end. For the first quarter, the company generated a GAAP return on equity of negative 20.2%, and during the quarter, we paid $0.42 per share in cash distributions to our common shareholders. That said, ECC's portfolio rebounded sharply in April. Our NAV increased to between $4.49 and $4.59 per share, a nearly 9% increase at the midpoint [indiscernible] in line with our distributed quarter. Our current distribution level is aligned with the company's near-term earning profile and reflects our focus on maintaining a sustainable distribution over time. Separately, as disclosed in our recent public filings, members of our adviser senior investment team purchased more than 167,000 shares of the company's common stock during the first quarter, reflecting their confidence in the company's long-term value and our view that the current trading levels do not fully reflect the intrinsic value of our stock. Subsequent to quarter end, we completed the full redemption of our ECCW and ECCX notes. With that, I'll turn the call over to Ken to discuss the financial results in more detail.

Thank you, Tom, and thanks, everyone, for joining us today. For the first quarter of 2026, the company recorded NII less realized losses from investments of $19 million or $0.14 per share. This compares to NII less realized losses from investments of negative $0.26 per share in the fourth quarter of 2025 and NII and realized gains from investments of $0.33 per share in the first quarter of 2025. Including unrealized losses, the company recorded a first quarter GAAP net loss of $148 million or $1.12 per share. This compares to a GAAP net loss of $0.84 per share in both the previous quarter and the first quarter of 2025. Recurring cash flows for the first quarter was $62 million or $0.47 per share. This was $0.11 per share shy of our aggregate common distribution and total expenses for the quarter. A reminder that all of our financing remains at a fixed rate, and we have long duration capital with no maturities prior to January 2029. In addition, a significant portion of our preferred stock financing is perpetual with no set maturity date, providing additional flexibility to support our investment strategy. We are unaware of any other publicly traded entity that invests primarily in CLO equity with perpetual financing and consider this to be a significant competitive advantage for the company. As of April 30, pro forma for April performance and the redemption of ECCX and ECCW, our leverage was 47% based on the midpoint of management's unaudited estimated range of the company's April NAV. Over time, we plan to bring the company's leverage ratio back to our target range of 27.5% and to 37.5% when generally operating the company under normal market conditions. Through April 30, we have collected $51 million in recurring cash flows and expect additional collections during the remainder of the quarter. Management's unaudited estimate of NAV as of April month end, was between $4.49 and $4.59 per share, the midpoint being a 9% increase from quarter end. With that, I'll turn the call back to Tom.

Thanks, Ken. I'd now like to share some additional thoughts on the loan and CLO markets as well as how we are positioning the portfolio. During the first quarter, new CLO issuance totaled $47 billion while reset and refinancing activity remained strong at $32 billion and $24 billion, respectively, despite the volatility in the market. The S&P UBS Leveraged Loan Index fell 50 basis points in the first quarter. But in April, it rebounded by 1.2%, bringing the total return positive for the year. Corporate revenue and EBITDA growth remained positive during the first quarter, supporting overall credit fundamentals across the broadly syndicated loan market, despite the decline in loan prices. While the trailing 12-month default rate ended the first quarter at 1.4%, modestly higher than year-end levels, it still remains well below the long-term average of 2.5%. ECC's look-through default rate remains low at 32 basis points, significantly below the broader market average, and we believe this reflects both the quality of our underlying loan holdings and our dedication to a robust collateral manager selection process. While lower loan prices may have impacted CLO valuations in the near term, they've also created attractive reinvestment opportunities for our CLOs. The percentage of loans trading above par has declined meaningfully, creating the potential for price appreciation across the broader loan market in quarters ahead. At the same time, repricing activity has slowed considerably resulting in wider spreads on new loans and improving the forward return outlook. This is an important shift as repricing activity led to spread compression, which was a key headwind to the CLO equity market in 2025. Turning to our portfolio positioning. Our CLO equity portfolio metrics continue to compare favorably to the broader market. As of quarter end, CCC rated exposures in our portfolio were 4.1%, which is lower than the market average of 4.9%, and our weighted average junior over-collateralization ratio stood at 4.4% roughly 10% above the market average of 4.0%. These metrics reflect our disciplined approach and focus on higher-quality collateral managers and help position the portfolio to navigate periods of challenging market conditions. Beyond CLO equity, we continue to see compelling opportunities in credit investments that offer strong structural protections, contractual or asset-based cash flows and attractive risk-adjusted return potential. These investments are not intended to entirely replace CLO equity but rather complemented in our portfolio by adding differentiated sources of income and returns. Looking ahead, we believe the current environment is considerably more attractive than the headlines of the first quarter would suggest. Lower loan prices, reduced loan repricing activity and continued market dispersion have improved the opportunity set for new capital deployment. At the same time, Eagle Point's NAV recovery reinforces our view that the first quarter decline was largely driven by short-term mark-to-market pressure rather than fundamental deterioration in the long-term earning power of our portfolio. We remain focused on allocating capital to the best relative value opportunities across CLO equity and complementary credit investments. Our goal is to produce durable, attractive long-term returns for our shareholders, focused on income-oriented investments and supported by a stable or growing NAV over time. Thank you for your time and interest in Eagle Point Credit Company. And then I will now open the call to your questions. Operator?

[Operator Instructions] Our first question comes from the line of Erik Zwick with Lucid Capital Markets.

I wanted to start with a question. In the press release, you mentioned the weighted average yield on new investments that includes a provision for future credit losses. So I'm curious, just given the magnitude of geopolitical and macroeconomic uncertainty today. Could you maybe talk a little bit about what level of credit losses you provision for today and whether that's unchanged from what you've typically done in the past [indiscernible] pretty consistent over the market cycle?

Yes, certainly, Erik, it's Ken here. So there is a standard default rate that we have with each cycle evaluation that we include as a constant default rate as a credit loss. And then I would say we also calibrate to market which is a little bit more fluid and reflective of current economics and the current standing of the market for credit and CLO equity. So there is a portion that is standard, and there is a component that is variable to market conditions. And if you if you wind back to February of the first quarter and also to November of the fourth quarter, those were significantly volatile months with significant impact to credit, which we reflected in our valuations. As that dynamic improves, as the market improves, you'll have the reverse effect, which obviously, in this past April was a very solid month for loans and credit where that variable component of credit loss adjustment is considered in a positive way. So the way to look at it, standard default rate, no matter what quarter or what market dynamic is in play and a variable component based on the current market environment, which changes month-to-month or we update on a month-to-month basis.

That's very helpful. And that kind of leads into my next question a little bit. Curious if you could talk just a little bit about what factors specifically drove the increase in the NAV in April, whether it was spreads or market liquidity or some other factors? And I guess, are you seeing a continuation of that through May at this point?

Yes, sure. So I would say we seen a broad rebound of what we experienced in the first quarter. So credit fundamentals across the board, market sentiment, particularly in the software SaaS space has also improved. So I would really look at April as a rebound for the first quarter or normalization to the first quarter downdraft in valuations. And then certainly, to this extent as where we stand today, we do see a continuation of strong performance in loans and in our CLO equity portfolio as well as our non-CLO portfolio.

Our next question comes from the line of Gaurav Mehta with Alliance Global Partners.

I wanted to ask you on the new investments that you made in 1Q, $100.2 million. How much was -- how much of that was in non-CLO versus CLO equity?

Sure. We've got to look that up. Hang on one second.

If you have another question you could while I go to the tape here.

As a follow-up on the balance sheet, just curious to learn more about the preferred stock redemptions that you guys did in 1Q and 2Q. Was there any specific driver to redeem those stock?

So we did a buyback or a redemption in full -- of 2 baby bonds. Those were redeemed a week or 2 ago at this point, and that was part of a broader -- so that was an unsecured debt of the company, not a preferred stock, but looks and feels very similar. The rationale on that was getting the company back towards its target leverage ratio. We target over the long term to run the company to a certain leverage ratio. We're still above that right now, but we have been proactive in retiring debt. to get the leverage back on site. One of the benefits of that is on site with our targets, pushing out our nearest maturity, previously, I think we had some 2027 paper outstanding. Now our nearest maturity is 2029. And an increasing portion of our portfolio -- of our debt portfolio or our liabilities, be it debt or preferred is now perpetual in nature both through the ECCPRD and then the ECC Series AA and AB, which obviously, we like that from a stability perspective. We also have ECCC, which is preferred stock outstanding and that does trade at a little bit of a discount to par. And we do buy that sometimes in the open market.

That's correct. So we're active buyers of our debt where it makes sense, where it's trading at a discount. So we gradually -- and the purpose of that is twofold. One is it helps build cushion to our leverage ratio. In addition to that, we do make a little bit of gain on it on retirement. So it's a quick way to make a few bucks. So we're opportunistic when we see our debt trading at a discount, and we buy it back and retire it.

And then to the first question we've got here. This is in the investor deck on Page -- this is just an internal report we have, but do you want to share that?

Yes, sure. So the purchase percentages for the first quarter was roughly 75% of purchases were in the non-CLO investments with the remaining 25% being in CLO investments. The 75-25 split weighted towards non-CLOs.

[Operator Instructions] Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann.

Tom, when you mentioned the lower loan prices for loans. As a clarification, are those for loans already in the CLO or for loans being bought from the banks or the CLO?

A little of everything. So broadly through the first quarter, the loan market was down, not every single loan, but the vast majority were -- so both the loans and the CLOs in general are down. At the same time, loans continue to prepay and repay typically at a double-digit percentage per annum, such that there's always -- while loans are at a discount, money coming back into the system at par within a CLO, which when loans are at a discount collateral managers can go buy those loans instead of paying par -- they can buy the $0.97, $0.98 on the dollar or whatever the price may be. There's been a relatively limited supply of new issue loans, none, but there's not a ton of new loans coming out. And while I don't have data on them, typically a loan would come out at like 99.5% issue price. I'm going to wager to say the price that -- of loans that came out in the first quarter was probably a smidge lower than normal, but not a lot lower, where the market was probably getting compensated on new loans was probably a little bit of a higher spread than where it would have otherwise been on a new issue. So when we say prices are down, that's referring to both loans in the CLO portfolios in general and the reinvestment option in the secondary market to new issue loans, probably a tiny bit of price movement but not [indiscernible].

Great. And as my follow-up, if I understand correctly, the new deployments have effective yield of roughly 18%. And -- the existing portfolio has an effective yield of CLO equity of 9.3%...

At that 9.3%, I believe is that amortized cost, not at fair value. Is that correct, Ken?

Yes. So the 9 and change weighted average effective yield, that is the yield on the overall portfolio, Chris? But you might that we disclose each quarter, so that includes historical positions, legacy positions that were on the books. The new CLO equity where we're still deploying 20 plus percentage.

Yes, given that disparity, at what point do we start seeing these much higher yields to these new investments start lifting the effective yield in the portfolio and starting to have a cascading effect into earnings and so forth?

The 9% number -- 9% area number you're citing is based on original cost -- amortized cost, rather. The effective yield based on the market value of the portfolio is much higher because the portfolio does have unrealized depreciation -- do we publish the -- why don't we give that other number as well.

Expected yield is 26.3% on the portfolio fair value.

Is that the CLO equity portfolio or whole...

The CLO equity portfolio.

So on the CLO equity portfolio based on fair value it's a smidge over 26% on a loss-adjusted effective yield basis. And one of the complications, if you were to take the NAV, which reflects unrealized gains and losses, you used that 26% if you were to use amortized cost, then you use that lower number. The 9%.

So would it be fair to say that the new investments don't necessarily offer a material yield advantage over the existing portfolio?

Yes, that's correct. If you look at the existing portfolio, we're talking maybe $1 billion in assets, roughly, maybe a little less, versus new purchases that are maybe in the tens of millions. So just on a weighting perspective and wouldn't have a material effect.

And when you're thinking about -- if the book is marked at 26%, why buy in the 20% lower 20s would be a logical question. One of the things -- and we published the effective yield on an investment-by-investment basis in our investor presentation. So you can see how different investments are carried. Most of the investments we're buying new or even in the secondary market today are going to be skewed towards those that have a longer remaining reinvestment period. things with longer remain reinvestment periods typically trade at a tighter effective yield than than in bonds that have our CLO equity that has a shorter remaining RP. So there is a dispersion and a material fact in what yield of a CLO equity trades that is how much time is left. And in general, the purchases we're making are going to be longer RP paper.

Tom, you would have made a great college professor. Very good way to explain this. Just one last question. One more, if I may. The dividend -- the new $0.18 quarterly dividend annualized roughly 17% on the first quarter NAV that seems awfully high and potentially unsustainable from my perspective, given everything that you said. Or am I looking at it wrong?

Well, our earnings are roughly -- our NII is roughly in line with that even a smidge above. And we obviously did make a significant change months ago to the distribution rate -- but where we looked at that, we look at the earnings power of the portfolio and the rate we set the distribution to was below the NII we've had over the last few quarters. So with the view of, obviously, we can't accurately predict the future again and again, but we did seek to make that a number that we believe we could sustain for the foreseeable future. Obviously, market conditions will will be a factor. But where we look at where our historic earned NII has been that was a key factor and our best guesstimates of forward NII all drove that.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Majewski any final comments.

Great. Thank you very much. We appreciate everyone's time and interest in Eagle Point Credit Company. Ken and I will be available later today if anyone has any other follow-up questions. Thank you.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.