Eagle Point Credit Company (ECC) Earnings Call Transcript & Summary

Greetings and welcome to Eagle Point Credit Company's First Quarter 2020 Financial Results Call. [Operator Instructions] Please note, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Mr. Garrett Edson with ICR. Thank you. You may begin.

Thank you, Rob, and good morning. By now, everyone should have access to our earnings announcement and investor presentation which was released prior to this call, which may also be found on our website at eaglepointcreditcompany.com. Before we begin our formal remarks, we need to remind everyone 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 those projected in such forward-looking statements and projected financial information. 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 and projection of financial information made during this call is based on 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. A replay of this call can be accessed for 30 days via the company's website, eaglepointcreditcompany.com. Earlier today, we filed our first quarter 2020 financial statements and our first quarter investor presentation with the Securities and Exchange Commission. These materials are also available on the company's website. Financial statements can be found by following the Financial Statements and Reports link, and the investor presentation can be found by following the Presentations and Events link. I would now like to introduce Tom Majewski, Chief Executive Officer of Eagle Point Credit Company.

Thank you, Garrett, and welcome, everyone, to Eagle Point Credit Company's first quarter earnings call. If you haven't done so already, we invite you to download our investor presentation from our website, which provides additional information about the company, including about our portfolio and underlying corporate loan obligors. For today's call, I'll provide some high-level commentary on the first quarter and recent events and then turn the call over to Ken who will walk us through the first quarter financials in more detail. I'll then return to talk a bit more about the macro environment, our strategy and provide updates on our recent activity. And of course, we will open the call to questions from participants. Before we begin, we certainly hope that you and all of your families continue to remain safe and healthy during these quite challenging times. I also especially want to thank our entire Eagle Point team and note how proud I am of them. Our team has been working incredibly hard over the past 2 months and done an absolutely tremendous job as our operations have transitioned to a 100% remote environment. As a result, we've been able to consistently and proactively manage our portfolio of CLO securities through what has been a very challenging economic environment. When we last spoke to you in late February, COVID-19 was a serious concern in the market, but there were, at that point, relatively few cases reported in the United States. When we look back to past pandemics, SARS, MERS, Ebola, among others, while many people in certain regions of the world were impacted by these illnesses, the United States was fortunate to have largely been spared. This time, as we know, nearly everyone around the globe has been impacted by the COVID-19 pandemic, including the United States. The lockdowns and economic reaction was sudden and at times unforgiving as we headed into an immediate recession and are now just beginning the long process of reopening the domestic and global economies. We went into the pandemic with cash on our balance sheet, leverage within our targeted band and no short-term financing maturities. While we did not specifically predict the COVID-19 pandemic, our management team has been at this long enough to know how to manage the company, anticipating that there would be bouts of extreme volatility from time to time. The prudent approach that we use to managing the company allowed us to be on the offense during the time when few others -- where others were for sellers. When we evaluate how our portfolio is doing today, our investments are performing in line generally with how we would expect in such a market. Overall, despite the severe drop in loan prices in March, March was one of the worst months on record in the loan market, and rapid downgrades from the rating agencies in late March and early April, the vast majority of our portfolio of securities continue to make payments as scheduled in April. We've had cash on our balance sheet available to invest at all times this year. The company has remained in compliance with its applicable 1940 Act coverage limits on all measurement dates. To put things more simply in a market like this, when we look at both the left sides -- left and right sides of our balance sheet, we see what we'd like to see. During the first quarter, the company received recurring cash flows from our portfolio of $0.90 per weighted average common share. Our net investment income and realized capital losses were $0.33 per common share. So far in the second quarter, through May 14, we received recurring cash flows from our portfolio of $20.1 million with a few investments scheduled to pay later in the quarter. We've discussed on repeated occasions that when determining our common distribution level, besides GAAP earnings, we also evaluate the cash flow we receive from our investments and the estimates for taxable income during each year. We've consistently highlighted that it is taxable income that sets a functional floor on our common distribution. As the economic environment became increasingly challenged, our adviser and Board comprehensively reviewed the level of our monthly distribution against the backdrop of what we expect taxable income, GAAP income and cash flows to be for the foreseeable future. We also considered the benefit of growing our cash balance to allow the company to continue to be on the offense in these volatile markets. After careful deliberation, we made the prudent decision in light of the ongoing COVID-19 pandemic to adjust our monthly common distributions to $0.08 per share for the second quarter of 2020. That's a monthly distribution. Earlier this month, we declared common distributions for the third quarter $0.08 per month effective for the third quarter. During -- despite the extreme price movements over the past couple of months for CLO securities, the vast majority of our -- vast majority of CLOs outstanding have continued to make payments as scheduled. According to research from Deutsche Bank, 84% of CLOs that were scheduled to make payments in April did so. In our equity portfolio, roughly 92% weighted by the value of our holdings of our portfolio that were scheduled to make payments in April paid as scheduled. The principal reason for the small percentage of CLOs in our portfolio not making payments was an increase in CCC-rated loans within those portfolios. Indeed, beginning in late March, the rating agencies took a very rapid action and downgraded or placed on negative watch almost 1/4 of all corporate loans outstanding. Some of the downgrades were multiple notches. I don't believe there has been such a rapid and far-reaching set of rating actions in the loan market ever before. To make matters worse, many of these actions were taken just as CLOs were reaching their quarterly payment determination dates. And that sort of begs the question, how do these downgrades impact us? Once the CLO's concentration of CCC rated loans exceeds 7.5%, in a typical CLO, the portion over 7.5% requires a temporary haircut in the numerator of a CLOs over collateralization test. If a lot of loans get downgraded, which is what happened earlier this year, we could end up with more than 7.5% CCCs in some of our CLOs. If the haircut for CCC-rated loans gets too big, the CLO could temporarily fail their OC Tests and distribution of interest that would normally be paid to the equity get diverted to repay senior debt within the CLO. While we prefer that our CLOs continue to make equity distributions, if a CLO is failing its OC Test, the only substantive consequence to us is the use of what would have been our distribution to instead repay senior debt on that payment date. When an OC Test is failing, a CLO does not go into any sort of lockup mode, nor are there required forced sales of loans. For CLOs in the reinvestment period, which nearly all of our holdings are, the collateral managers can continue to actively manage the CLO's portfolios even if OC Tests are failing. While the price of loans has fallen and CCCs have increased, the trailing 12-month default rate for syndicated loans has moved up less than 1% at the end of April versus where it stood at the end of 2019. Quite a few of the companies that defaulted recently, frankly, were companies that many considered to be near default even prior to COVID-19. Much of the market, including us, anticipate a further increase in corporate defaults in the months ahead. When evaluating a CLO, however, the loan default rate is only part of the equation. Equally importantly are the loan repayment rates and the reinvestment opportunity set. Indeed, since the onset of COVID-19, billions and billions of dollars of syndicated loans continue to be repaid in full or in part at par. CLO collateral managers can take those par dollars and reinvest in loans at discounted prices, which are available today. In markets like these, they can also easily make par building trades, selling one loan and buying a different loan at a lower price that they perhaps consider to be mispriced or misunderstood by the market. We believe the low cost of financing embedded in CLOs and the value of the reinvestment period is undervalued by many in the CLO market. Indeed, across our CLO equity portfolio, the weighted average senior AAA spread is approximately 117 basis points over LIBOR. To help quantify just how in the money that is as of May 19, the JPM CLOIE index indicates that the market spread or discount margin is the technical term where AAAs is 198 basis points over LIBOR. So our CLO's AAAs are roughly 81 basis points in the money today. The financing provided by the AAAs and other debt classes in our CLOs do not have mark-to-market triggers. That means that if the price of loans fall, which they have, the holders of our CLO debt can't demand that we put in more equity capital or force our CLOs to sell loans simply based on the price of the performing loans. At quarter end, our equity portfolio's weighted average remaining reinvestment period stood at 2.9 years. This allows our CLOs to continue to be on the offense during these challenging markets. We are in a very challenging and volatile environment, but we believe the market does not fully appreciate the value of the right side of our CLO equity portfolio's balance sheet. We believe our portfolio consists withstand a prolonged recession and likely thrive in it. This is not because we're blind to default, but because we better appreciate the value that can be created through reinvesting. Members of our team have been through difficult market environments before, the 2000 to 2002 tech telecom cycle, the 2008 financial crisis and several other mini cycles in between. Past performance is obviously not a guarantee of future results, but there are important distinctions between the economic situation then and now. Nevertheless, as we look back on what occurred in the '08, '09 cycle, CLO equity saw a 57% drawdown during the worst of the crisis in 2008. But for the ensuing 3-year period from 2009 to 2011, CLO equity generated an IRR of nearly 80%, well above the returns from many other asset classes. Further, our company's cash position and long-term-oriented balance sheet has allowed us to be on the offense in this volatile market. Over the past few weeks, we have been able to make acquisitions of both majority and minority equity at very attractive levels. You'll see these appear in our Q1 portfolio and additional investments, which will appear in future quarterly schedules of investments. To provide a few other brief updates. Our NAV fell to $6.12 a share as of March 31, and we estimate that it increase back to between $6.23 and $6.33 net of common distributions per share at the end of April. During the first quarter, we issued 1.1 million shares of common stock via our ATM program for net proceeds of $16.3 million, and that allowed us to capture about $0.15 per share in NAV premium through those sales during the first quarter. Also during the first quarter, we deployed $26.2 million of gross capital into new investments. Of the new CLO equity investments that they made, they had a weighted average effective yield of 47.4% at the time of investment with several made deep into the March lows in the market. During the first quarter, we received $14.6 million in proceeds from the sale of investment. And while it now seems like ages ago, we actually did reset 1 CLO and refinanced 1 CLO back in the first quarter. We do expect refi and reset activity to be muted for the foreseeable future. Overall, we believe we were well positioned going into the cycle. We've had cash to be on the offense, maintain compliance with our asset coverage ratio on all measurement dates and have over 6 years before a single dollar of our debt is due to be repaid. After Ken's remarks, I'll walk you through the current state of the corporate loan and CLO markets and then provide some further insight into where we think we'll be transpiring over the balance of 2020. I'll now turn the call over to Ken.

Thanks, Tom. For the first quarter of 2020, the company recorded net investment income and realized capital losses of approximately $9.6 million or $0.33 per common share. This compares to net investment income and realized capital losses of $0.23 per common share in the fourth quarter of 2019 and net investment income and realized capital gains of $0.36 per common share in the first quarter of 2019. The company's net investment income and realized capital losses for the first quarter consisted of net investment income of $0.36 per common share, offset by $0.03 of realized capital losses. When unrealized portfolio depreciation is included, the company recorded a GAAP net loss of approximately $131 million or $4.42 per common share. This compares to a GAAP net loss of $0.47 per common share in the fourth quarter of 2019 and GAAP net income of $1.93 per common share in the first quarter of 2019. Just a reminder that our short-term cash flow generation is largely unaffected by the unrealized appreciation or depreciation we record at the end of each quarter. The company's first quarter GAAP net loss was comprised of total investment income of $17.7 million, which was more than offset by unrealized mark-to-market losses of $140.2 million, realized capital losses of $1 million and net expenses of $7.1 million. At the beginning of the first quarter, the company held $10 million of cash, net of pending investment transactions and the scheduled redemption of the ECCA preferred stock. As of March 31, available cash was $23 million. In the second quarter as of May 14, we deployed an additional $7.2 million of gross capital into new investments. As of March 31, the company's net asset value was approximately $183 million or $6.12 per common share. Each month, we publish on our website an unaudited management estimate of the company's monthly NAV as well as quarterly net investment income and realized capital gains or losses. Management's unaudited estimate of the range of the company's NAV as of April 30 was between $6.23 and $6.33 per common share. The company's asset coverage ratios as of March 31 for preferred stock and debt calculated pursuant to Investment Company Act requirements were 220% and 330%, respectively. These measures are above the statutory minimum requirements of 200% and 300%, respectively. As of March 31, the company had debt and preferred securities outstanding totaling approximately 45.5% of the company's total assets, less current liabilities, which is outside our range of generally operating the company with leverage between 25% and 35% of total assets under normal market conditions. Being outside of our range was principally due to the drawdown in asset prices at quarter end. Thanks to our strong liquidity position in the second half of March, we capitalized on our baby bonds trading at low prices. In addition to making attractive CLO investments, we also capitalized on market dislocation by repurchasing $4.8 million of ECC's debt securities on the open market at an average price of $0.72 on the dollar. Moving on to our portfolio activity in the second quarter. As of May 14, the company received recurring cash flows on its investment portfolio of $20.1 million or $0.67 per common share. This compares to $26.7 million or $0.90 per common share received during the full first quarter of 2020. Consistent with prior periods, we want to highlight some of our investments are expected to make payments later in the quarter. The reduction quarter-on-quarter was primarily due to approximately 8% of our equity portfolio trapping payments as a result of OC Tests. During the first quarter, we paid 3 monthly distributions of $0.20 per share of common stock as scheduled. On April 15, we declared monthly distributions of $0.08 per share of common stock for each of April, May and June, with the scheduled April payment made on May 4. Earlier this week, we declared monthly common distributions for the third quarter in the same amount. In terms of our ATM issuance program in the first quarter, the company issued approximately 1.1 million shares of its common stock at a premium to NAV for total net proceeds to the company of approximately $16.3 million, which resulted in NAV accretion of approximately $0.15 per common share. On January 31, the company redeemed all of the outstanding shares of its ECCA preferred stock. I will now turn the call back to Tom.

Thanks, Ken. Let me take you through where the macro loan and CLO markets currently stand, and then I'll touch a little bit on our recent portfolio activity for everyone. The Credit Suisse Leveraged Loan Index saw a first quarter decline of over 13%, which was easily the worst performance since late 2008. Notably, the total return for senior secured loans fell more than the S&P 500 did in March. It's not often that senior secured credit, in some cases, to companies that are components of the S&P 500, fell more than the value of a common stock. In April, the loan index saw a bit of a rebound moving up about 4%. And that slow upward grind has continued through much of May. Retail loan outflows were muted in the first 2 months of 2020, but then increased to $13 billion in March, the largest outflow we have seen since December 2018. In April, we also saw loan outflows of a little over $3 billion. No loan in the J.P. Morgan Loan Index is currently trading above par. And according to S&P, 63% of the loan market is trading below 90%, and 24% of the loan market is trading below 80%. Having so many loans trading below 90% is very important as it allows our CLOs to continue to reinvest and build par through buying loans at attractively discounted prices. On a look-through basis, the weighted average spread in our portfolio reduced from 361 basis points in December to 357 basis points at the end of March and moved down slightly further to 356 basis points at the end of April. The decline, in many cases, was due to CLO collateral managers selling what they consider to be higher risk loans and moving into lower risk loans, though, typically at discounted prices. The total amount of institutional corporate loans outstanding remained essentially unchanged from the end of 2019, with about $1.2 trillion of loans outstanding as of March 31. While the 12-month lagging default rate moved up to 1.84% according to capital -- S&P Capital IQ at the end of March, it moved up further to 2.32% at the end of April. Many of the defaults in April, as I mentioned earlier, were companies that were long expected to default, but those defaults were brought to a head with the economic slowdown. While the default range remains below the historic average for now, in this economic environment we expect to see further increases in defaults in the coming months. The projections as of now from many research desks anticipate defaults between 5% and 10% during 2020. Our default exposure as of March 31 stood at 1.01%. While defaults are expected to rise, we believe the corporate default rate will remain lower than it otherwise would, frankly, had loans figured financial maintenance covenants, in that payments defaults are the principal driver of default in companies, not technical footfalls. We believe the company, Eagle Point Credit Company, and the vast majority of our investments are well positioned to go on the offense to take advantage of discounted loan prices given the benefit of the long-term locked in place, non-mark-to-market financing inherent in our CLOs and the company's long-term balance sheet. As of April 30, our company's weighted average junior OC cushion was about 2%, and that's down from 3.47% at quarter end and principally reflects the impact of downgrades of loans by the rating agencies. That said, many of our largest holdings have significantly greater OC cushion than that average. Based on market value, only a single-digit percentage of our portfolio diverted equity payments in April. Of those that were newly deferred, most were concentrated in 2 collateral managers, frankly, which you can see from our quarterly portfolio reports typically run amongst the highest spread portfolios. To sum up, we acted quickly and decisively to manage our portfolio in March and April, capitalizing on the dislocation, both through making new investments and opportunistically repurchasing our debt at distressed prices. As of May 14, we have $35 million of dry powder available as we continue to look for attractive opportunities. Our balance sheet is very strong, and we have no debt maturities in the next 6 years. And the long-term locked in place, non-mark-to-market financing is a key advantage of our CLOs, which we consider to be unappreciated by many. Our adviser has deep experience. We've been through cycles like this before, and we believe our portfolio management will also be a key advantage for the company going forward. While we remain cautious in the near term on the overall macro environment, we know how CLOs have performed historically. Many consider 2006 and 2007 to be some of the best vintages of the CLO 1.0 era. If today's CLOs perform even half as well as the 1.0 set bid, we believe this will be a very attractive outcome. We also highlight before we open for questions, at 11:30 today, we have a separate call for Eagle Point Income Company. That is an affiliated vehicle also managed by Eagle Point, which principally focuses on BB securities. That call will begin at 11:30 today, and we do hope many people from this call will be able to join that call. With that, we thank you for your time and interest in Eagle Point. Ken and I will now open the call to your questions. Operator?

[Operator Instructions] Our first question comes from Chris Kotowski with Oppenheimer.

I was wondering, can you run us through the mechanics of the junior OC cushion test. And then you were going a little fast. I missed where you said it was at, at the most recent date.

Sure. Maybe -- can you hear us okay, Chris?

Yes. Yes.

Perfect. Yes. So there's a couple of things in there. First, as of the April trustee reports, our weighted average cushion was 2% across the portfolio, although that's obviously an average and there's a dispersion. Some CLOs have negative OC cushion at this point and others have meaningfully more cushion. In general, the newer deals, which are typically bigger holdings will often have more cushion and older deals, which are largely decayed in value, will typically have less, although it can vary. In our investor presentation, we publish deal-by-deal OC cushion level. So you can see it for each position in our portfolio. The way the test is calculated, there is a numerator and a denominator, and that ratio needs to exceed a certain amount. And that amount can be -- varies on a deal-by-deal basis. And what we look at when we're evaluating an investment is what is the result of that ratio versus what is the minimum test level. So when we talk about the cushion, that's the difference between what the actual calculation is and what the required threshold is. So to put it simply, a CLO may have a [ 104 ] OC Test actual requirement. And if we had 2% cushion, that would suggest the OC Test where we stand is at [ 106 ]. And then to kind of look at how that [ 106 ] is calculated, what that is, at a high level, is the ratio of the par of assets in a portfolio with a few adjustments, which I'll come back to, over the par of the CLO liabilities. And to the extent that ratio exceeds [ 104 ], the equity can continue to get paid. Now where the devil in the details comes in is in the adjustments to the numerator. And there are a couple of things that become adjustments to the numerator. In general, the numerator is the par amount of all the loans in the CLO. The adjustments to it are if we have CCC loans in excess of 7.5%, the lowest priced CCC loans -- let's say, we have 8.5% CCCs, let's just pick that. You would take a haircut to the numerator equal to the price discount from par of your lowest priced CCC-rated loan. So if in my 8.5% CCCs, let's say you had a 1% CCC loan that was trading at $0.40 on the dollar, you'd have to take a 60 basis point or 60% haircut on that loan for looking at your numerator. Other factors that play in. If you have defaulted loans, those are carried effectively at market value for the numerator. So if you bought a loan at 100, it's defaulted trading at 30, you'd have to take a 70% haircut on something like that. Now any loan -- it also reflects the cumulative realized gains and losses in the portfolio that if a year ago the CLO manager bought a loan at 95, and it paid off at par, that enures to the benefit permanently of the OC Test. That money is trapped in the system. Similarly, if they sold a loan historically at a loss, bought something at par and sold it for 95, that would permanently reduce the numerator. And then finally, the last variable, and this is very important, if any loan purchased at 80 or above counts as 100 in the OC numerator. So if a collateral manager -- and this is why I highlighted the percentage of loans in the market trading below 90, which is quite significant. If you buy a performing loan at $0.85 on the dollar, that immediately counts as 100 cents on the dollar in your OC Test. Even if it trades down further, unless it defaults or becomes CCC rated, your assets will continue -- that asset would continue to be counted at par.

Okay. That's very helpful. And you said at the end of April, the average was 2%. But can you say how many were -- what percentage of your CLOs were trading or were -- had failed their OC cushion test at the end of April?

Yes. On a market value basis, it was 8% as of payment date or is that as of April, Ken? I forgot.

Fair value as of March.

Got it. Okay. And so it's 8% -- so most CLOs make quarterly payments in April, the vast majority of our portfolio. And of those, based on market value, 8% were failing the test. Since...

That's at the end of March?

Well, the test is determined at a random day determined in the CLO documents in April, typically between April 5 and April 15. So some -- so we -- CLOs only publish a monthly update. So we're only beginning to get those updates now for where they stand right now. So we have just roughly across our portfolio mid-April data. And at that point, it was 8% on a market value basis, failing 92% on sides.

And I don't suppose there's any way to estimate or guesstimate where the average OC cushion or the percentage failing would stand at, say, end of May or June?

We do, actually. Yes. So we have partial information. And part of our proprietary system lets us look through each CLO and model forward. Okay, we know the portfolio, let's say, as of April 15. We haven't gotten the new report yet. But of the loans they owned on April 15, assuming that collateral manager didn't buy or sell anything, we actually do have a way to evaluate what it looks like today. However, what we don't know is what the CLO collateral manager may have done with the portfolio in the interim. So we have a guesstimated live -- we call it a live number. We don't publish it, though, because it's based on incomplete information. And frankly, it could be misleading and that a CLO manager may have sold 5 loans that have been subsequently downgraded to CCC. So it's -- we use it for trading as a bit of a road map, but it's not -- you have to apply some judgment as well. It's not definitive.

And presumably, all that was taken into consideration on setting the distribution to $0.08 a month?

Yes. There is a collage of factors that were considered, both the cash flow generation on the portfolio, the likely taxable income within the company, GAAP earnings. And then what -- one of the things driving the cash flow, of course, is what are the OC cushions. To the extent they fall, you would obviously see less and less cash flow off of certain investments.

Our next question comes from Mickey Schleien with Ladenburg.

Can you hear me?

We can, yes.

I have a lot of questions, Tom. So please be patient and bear with me. But given this extreme volatility, we're getting a lot of calls and questions and trying to put ourselves in the best position to answer them. So just going back to the $20 million of cash that you mentioned you received in April and through sort of mid-May. As you noted, CLOs tend to pay in the first month of the quarter. So was it extremely front-end loaded? In other words, of that $20 million, how much was in April alone? And was there a meaningful return of capital from call deals in that $20 million?

Very good questions. And Ken, correct me if I'm wrong, that was just the recurring cash flow number, the $20.1 million?

Yes, that's correct. That would exclude any proceeds from call deals.

Did it include any outsized inaugural payments on new deals?

I believe it included one.

Just one. Okay. Because my understanding is the inaugural payment can sometimes be outsized as you sort of catch up, correct?

You are correct. Yes. Looking here, that -- I think that included just one inaugural payment, if memory serves. And the -- so if you look back to historic quarters, you'll see the significant majority, perhaps, it's 90% of our investments. If -- when we give a mid-quarter cash number and then if you were to reconcile that to the end of quarter cash number, roughly 90%, maybe a little more, a little less, is already received by the time we do this call. So that $20-plus million number is the vast -- is -- consistently would have been, and we expect for this period, the vast majority of the cash that will be received. That's just from recurring cash flows. I don't actually think we have any active liquidating calls right now. We have few legacy calls that maybe the last few pieces, haven't been realized. Today is certainly not -- you wouldn't be expecting to call CLOs at this point. We did have one call in Q1 of 2020, but that was the only biggy. So when you look back to -- we had $28.7 million of total cash in the first quarter. Just shy of $3 million of that was related to a call deal. So that puts us around $25 million of run rate cash. And if we're down to a little over $20.5 million or something at this point, the difference between those 2 is a combination of a little bit of lower LIBOR flowing through and then recognizing that a handful of formerly high cash-paying deals did not make payments.

I understand. Tom, you made some remarks about the new level of the dividend. I just wanted to follow up on that. So when the Board set this new dividend, did they look for a level which they believe the company can earn on a taxable income basis even during the current downturn? I mean there's no doubt we're in a recession right now. We're probably going to be negative also in the third quarter. Beyond that, I have no idea. Or did this new dividend take a longer-term view with some sort of rebound assumption down the road?

There were so many different factors that went into it. In general, it was a collage of cash flow, taxable income and GAAP earnings that the Board factored in as well as the desire to husband a little bit of cash, shall we say, within the vehicle. I think that was also considered in terms of building up a little bit more of a war chest, not that we don't have a good amount of cash where we stand, but rather having a little more than a little less. In that, while prices have moved up a little since March month end, to the extent what you talk about plays out of recession continuing for another quarter or so, we think, there's a reasonable chance we'll see some very attractive opportunities in the future.

Okay. I understand that's really the...

All those things considered.

Tom, in terms of the CLO equity market, how wide are bid-ask spreads currently in that market?

So that's a tricky one to answer right now. Obviously...

Yes. That's why I'm asking.

Yes, very good question. So sellers, obviously, think their bonds are worth boatload and buyers don't want to pay pennies on the dollar. The right answer is probably somewhere in between. The amount of secondary trading has begun to increase, and this is consistent with how we've seen things in the -- in past shocks to the market where volume largely slows up for a period of time. And then kind of into late -- we had bought 1 majority piece in late March at less than $0.25 on the dollar. We've continued to make investments of majority and minority investments into this quarter. The way security -- so compared to the loan market, for example, where J.P. Morgan or Bank of America will send out a run sheet where they'll say, we'll buy this loan at X, and we'll sell you this loan at Y, I mean, that bid-ask might be 1, 2, 3 or 4 points, depending on the day of the week and the loan. Right now, dealers are not making 2-way markets on loans -- on CLOs. So the way the securities transact, they're either BWICs. For example, there's a BWIC today with 4 or 5 pieces of CLO equity on it, minority pieces, just looking through -- this is live price talk between the low 20s on 1 -- 20s on 1 security to low 40s on another. Obviously, who knows where they'll trade. But what happens is that's a customer saying, I'd like to sell these securities and investors put in, yes, we'll bid you this price for those securities. And then you pay the dealer a small commission, maybe an eighth or a quarter or something like that. But -- so there's not a -- like on BBs, you can see offer sheets or runs where there's a 2-way market, and those might be, in some cases, 3 points today. Equity, there's not a published 2-way market. So when transactions ultimately occur, there's very little friction, but there is a natural -- no one wants to part -- very few people want to part with securities at these prices. Some people want to buy them, although -- including us, although the good fact in all of this is -- and we saw this in late March and we -- we're hopeful to see this again in late June of forced selling from motivated sellers. In late March, we saw some people running BWICs for junior CLO securities, which were same-day BWICs or T plus 0 settlement, meaning you had to send the money in today. That's usually not a sign of strength for those sellers. And as people are getting close to either margin calls or client redemptions, if you're in an open-end vehicle, there could be an increased amount of that in June as well this year. So not a perfect answer. I can't tell you there's a 5-point bid-ask, a 10-point bid-ask. There's not really a published market at this point, but there is a lot of volume, but it is customer-to-customer volume.

And to follow up on that, Tom. Toward the end of your -- I think it's actually the last page, right, of your presentation, you have this liquidity chart. Of the $15 billion in trading for the first quarter, that -- in the non-investment-grade tranche, that would be obviously the BBs, any single Bs and the equity. Was there any meaningful equity within that $15 billion being traded?

Definitely. Yes. The majority of that $15 billion would be BBs, but a nontrivial amount would be equity.

Okay. So I guess it's fair to say that the CLO equity is -- it's very fragmented at the moment in terms of wide bid-ask spreads and inconsistent volume and -- et cetera. So if the market in CLO equity is disjointed, how are you approaching your mark-to-market valuation? And in particular, can you walk us through the change -- I was surprised that the effective yields on most of your portfolio climbed very meaningfully from December to March. So can you walk us through valuation thesis and how effective yields went up?

Sure. So there's 2 separate questions there. Valuation first off. Our valuation process has stayed unchanged as it has since we've gone public and even prior to that, frankly, which involves multiple traders putting a mark on things, multiple dealer, nonbinding indicative bids on a security and then a paid valuation from a third-party independent valuation firm. That process has continued without exception and is unchanged. As volumes thin, you have less and less -- you have fewer and fewer data points to point to, but you have greater than zero volume. So when we're valuing securities at quarter end or even for our management estimate at April month end, we are looking to the data points in the market to see where different types of securities have traded. If you look through our March marks, you'll see some stuff as marked at less than $0.10 on the dollar. The highest priced securities probably are over $0.50 on the dollar with an average in the 20s or 30s -- $0.20 or $0.30 on the dollar versus par. But you'll see there's a very, very wide dispersion across the securities, but there's a rationale to all of that. And then if you have a CLO that's past the end of its reinvestment period and perhaps may have even been failing its OC Test before COVID, nearly very likely that security is marked in pennies on the dollar, sub $0.10. There may be some exceptions. But by and large, you'd look at that at this point as really just option value. It's probably a 2014 vintage deal that had a lot of energy pain. And just as its reinvestment period is ending, it's now facing yet another difficult cycle. At the flip side, a lightly seasoned 2019 vintage deal that we bid in seemingly rosier days of 2019, say, November of 2019, a deal like that is going to be valued quite keenly relative to our average, in many cases, 40s, 50s. In some cases, we've seen things trade in the 60s lately. And that's reflecting that those deals have 4.5 years left of reinvestment period, with AAAs locked in on the eve of the crisis. So the market is putting a very high value on those. We've seen all of those types trade. And while there's -- they're not -- each trade is not visible on trace, being deeply ingrained market participants, even if it's a security, we're not buying or selling, we're going to have -- usually have pretty good color on where things are trading. I think if you line up our marks versus other public reporters -- at least a handful of other public reporters, maybe not everyone, I think, in general, you'll see valuations pretty consistent for the type of -- for the various types of security. Then as to effective yield, the -- what played out there, the effective yield is based on where the amortized cost is and what our outlook for the future cash flows on a security may be. And certainly -- and we have refreshed our assumptions periodically as we've gone through 5-plus years and not trying to typically move -- spreads are wider 5 basis points or 10 basis points. We -- these are long-term investments. However, when there's a fundamental shift in the world, which unambiguously happened in the first quarter, as we looked to determine our yields, we refreshed both weighted average purchase price in the near term for reinvestments, the default rates, the -- and reinvestment spreads. And the collage of that actually improved the yield outlook on the -- the effective yield outlook on the portfolio in the first quarter. While that maybe seem counterintuitive when we're talking about we said -- we think defaults will be higher and many in the markets think defaults will be higher, the flip side of that, of course, is the companies are -- CLOs are able to reinvest at cheaper and cheaper prices than we ever contemplated previously. And with a significant percentage of the market trading below 90, to the extent you can buy those loans very attractively, every loan that doesn't default ultimately pays off at par, the reinvestment option actually got a lot better, in our view, even though the default rate outlook certainly went up. This is reasonably in line with history. And one of the things you can find a lot of market research on this that shows the 2007 vintage of CLOs was typically the best vintage with a median return according to some research we've seen in the high teens versus the 2003 vintage with a median return in the low to mid-single digits. So we're seeing that come through in both the valuation. Slightly seasoned stuff is worth more. Stuff at end-of-life is worth a lot less. And then yields on securities what we saw was going into credit cycles. Those with the longest runways ultimately had the best return. So the ability to keep reinvesting for a longer period of time at today's discounted prices is, in many cases, kind of help the yield on a CLO -- on a lightly seasoned CLO security in particular.

I understand. That's very helpful color. Tom, what's your view on the potential impact of the Fed's term asset-backed loan facility on -- the impact on the ability to use CLO debt as collateral?

While we laud the efforts in Washington and we think they've certainly taken bold and decisive action, in some cases, maybe some familiar muscle memory from 10 or 12 years ago helping guide things, and they've certainly provide some -- provided ebullience to the equity markets and investment-grade corporate markets. The way CLOs -- I guess there are 2 areas of interest where we've crossed tab or maybe 3 or third where we didn't, the PDCF or Primary Dealer Credit Facility, that's great. All exist -- this is only open to dealers who have access to the Fed window. CLO, AAAs can be deposited in there at, I think, 25 basis points financing rate or something like that, very, very attractive. That's financing only available to dealers. The flip side, while the Fed has begun buying ETFs and particularly the fallen angels and certainly investment grade, they have not begun to my knowledge a meaningful investment in the corporate loan market. That said, they're buying a high corporate bonds, has probably helped avoid some of the values of loans and CLOs. So the most notable thing that's gotten a lot of attention, but in my view, largely misses the mark, although we certainly appreciate the effort and are working with trade groups to try and improve the program, health as it relates to CLOs or the term asset-backed loan facility, which lets investors take different types of AAA-rated securitizations and get the medium-term non-mark-to-market financing from the Fed largely misses the mark for CLOs. Among the number of requirements that we find highly problematic and unattractive are that the CLOs need to be static pools and that there's no ability to sell credit risk assets out of the vehicle, except if the sponsor buys them out at par unless the loan itself actually defaults. And we've gone so far as to say, broadly, we think if all CLO 1.0s were static pools, set up the way laid out in this term sheet -- in the TALF term sheet, there would not be a CLO 2.0 market today in that the ability to continue to reinvest was the saving grace, and in fact, the thing that helps CLOs thrive. So while we're pleased to see at least some consideration of CLOs in the program, I think we and many in the market expect it will have very, very little take-up in today's market conditions.

Okay. Yes. That's certainly consistent with what I've read. Just a couple more questions, and I do appreciate your patience. American Airlines is well known as a large leverage loan issuer and represents a meaningful amount of exposure months CLO collateral, and the jury is out as to what's going to happen, obviously. Very difficult times. My question is, is there significant exposure within CLO collateral to other airlines that we should be aware of?

Sure. So -- and if you look at our portfolio update on Page 31 of the investor deck, you'll see we have roughly 70 basis points exposure to American Airlines. So it's a non -- it's a top 10 exposure for us. The other major airline that came out actually, Delta, today did a deal in -- I forget, it was April or early May, ages, some point in the last few weeks, which has certainly percolated into the CLO market. And when we look at a credit like this, there have been times over the past few weeks and months where the, like, equity options market is pricing a 1/3 probability of default on American this year. I don't know where their CDS is trading at present, but I struggle to see it not with points upfront significantly. And by and large, the airline industry is built for capacity at 100. And right now, they're running at 10% capacity, while they can ground planes and the government has certainly done a long way to bridge them, seeing certainly United Chairman saying the other day, he struggles to see volume returning anywhere near to normal in the next year or 2. What makes this loan interesting and the Delta loan that came into the market and did do reasonably well is the collateral. So while -- essentially all of our loans are senior secured and have a blanket pledge of all of the company's assets, the American loan -- and there may be a few different tranches, but different collateral packages, so I'll speak in generalities here -- and the recent Delta airlines loan have some very interesting collateral. To both -- some of the American tranche's outstanding and the Delta -- new Delta loan have pledged as collateral in both of their cases, their slots and gates at National and LaGuardia. You could say, I don't know who -- what airline is going to be flying people there. But at the same time, when people are going to fly, those are certainly going to be airports that people are going to be flying to. The Delta loan also included their Heathrow rights as well as several other very valuable transatlantic routes. In fairness, there are some questions on the Port Authority in their leases. Port Authority in New York and New Jersey at a minimum has very, very strong rights and can -- some have raised question as to their true ownership and ability to pledge such assets. I'm unaware of a situation where the port has taken away someone's rights. I could also say they're not building any more gate -- it's like they're not building any more real estate, but in fact, they are building more gates at LaGuardia right now. But the -- over time, if I could have collateral of airplanes or gates and landing rights, I would take those all day long. The American loan is actually trading reasonably high today. I mean excuse me for the exact quote. Last I saw it was trading at a very good -- a surprisingly high level considering the industry. But there, it's attributable to the collateral.

That's really helpful. My last question, Tom. And you touched on some of this in that the April portfolio update showed the CCC bucket now above 10%. The junior OC cushion down to 2%. I've read reports indicated -- indicating that in April, somewhere between 10% and maybe 15% of CLOs are now failing their junior OC Tests. And we still have the overhang of the B- bucket, which in your portfolio is 23%, and the ratings agencies are obviously strongly biased downward in the current environment because they don't want -- they want to stay ahead of the curve. So in the financial crisis -- and I'm the first to admit that the financial crisis and the COVID crisis have a lot of differences. But the median CLO equity cash flow yield declined from over 20%, which is about where we were pre COVID to about mid-single digits before they started to recuperate. So I'm talking sort of the '08, '09 period. With what is going on in the market now, is there any reason to believe that CLO equity cash flows won't repeat that pattern?

I can't say I'm familiar with the data you're citing. Is that market-wide or is that deal-by-deal specific?

That's information from a large institutional investor, and it's market-wide.

Got it. What that largely flips with -- according to data from Wells Fargo and consistent with my general recollection, roughly 55% of CLOs missed payment to the equity in '08 and '09, which also suggests 45% never missed a payment. And judgmentally, those that missed typically missed 1 or 2 payments. There were only -- there was a relatively small number of prolonged payments. But if you took that ratio kind of 55-45 and applied it to roughly $0.10 -- $0.20 or 20% distributions, that could perhaps be what gets to that 8% or 9% distribution. CLOs either pay or they don't, or I guess they could also trip their diversion test, which would take some payments and we used to buy collateral. So I guess there's 3 stages of payments for CLO equity: payment in full, full PIK and a partial PIK. For CLOs that are on size with all their tests, the -- I wouldn't expect a significant change in cash flows in general. The other thing that's factored into the data that I suspect you -- that whoever that investor has looked at, LIBOR did go from 6% to close to 0 over that time frame. Here, we've been starting at a very low LIBOR rate to begin with. So while LIBOR had been creeping up, it had a lot less to fall than it did back then. But as you look across our portfolios -- and you can see, again, quarter-by-quarter cash flow. Let me just look at a specific page, our investor presentation. Yes. On Page 26, this is comparing Q4 to Q1, and you'll see similar things based on an aggregate level for what we described in Q2. You can see the cash difference between the periods, in many cases, went down somewhat but not heavily. In general, cash went down a little on performing investments across the CLO market in April versus the prior period for those that paid, but a lot of that was simply due to change in LIBOR. The impact -- to just kind of frame this, let's just make a very bold example. Let's say, a CLO has $100 of loans, $90 of CLO debt and $10 of equity, and a 1% loan defaults and recover 0. Just looking at the extreme example. It actually has very little impact on the ongoing cash flows and a much greater impact on the terminal payment. And so let's just say that $100 of loans was generating interest at 5%. So CLO has $5 of income coming in. And let's say, the $90 of CLO debt gets paid 2% so that they get $1.80 going out, and that would be in that case $3.20 of income for the equity against $10 purchase -- $10 of equity capital. Now if we have 1 loan default, recover 0 and just never pay $1 again, instead of getting $5 in on an ongoing basis, you're getting $4.95. So the equity in my prior example, which was getting $3.20, is now getting $3.15 on an ongoing basis. So the impact of defaults on current cash flows and equity, assuming they're passing the OC Test, is actually very modest. The real pain that's felt at the end of life, holding all else equal, instead of getting $10 back, you'd only get $9 back.

Our next question comes from Paul Johnson with KBW.

It's been a long call, and there's obviously been a lot of questions asked, so I'll just keep mine very brief. I was just wondering about the level of the ATM issuance quarter-to-date this quarter. There's been a little bit of activity. What is the plan going forward? Are you still comfortable with issuing shares down at a more depressed share price level, albeit still above NAV, of course, today and deploying into the market? Or do you expect it to be a little bit more reduced level to the previous quarters?

Sure. So I think we announced a small amount of share issuance in the second quarter in the press release. Am I right, Ken?

Yes. It would be in the subsequent events.

Yes. So about a trivial amount, I don't even think it was $1 million. So for the first time, I think ever since they've done one of these calls, the stock is at a discount. We've been fortunate. And since the time of IPO, we've largely been at a double-digit premium, in some cases, quite high. I'm just looking at Bloomberg right now, it's the delayed quote, showing 5.94 against the management estimate in the low 6s. So at present, we certainly do not issue stock at discounts under the ATM. So right now, it would be safe to assume that if the price is below the discount, we're not actively -- if price's below the NAV, we're not actively issuing. Against that, our broad approach to the ATM is a collage of factors. And I -- we've shared this, and this is unchanged. When we're looking at should we issue one share today, yes or no, we're evaluating is it obviously accretive? If we're selling at a 25% premium to NAV, that's accretive. And we talked about picking up about $0.15 per NAV -- per share of NAV gain in the first quarter from premium issuance. So that much is good. And then we look at what is our overall weighted average cost of capital within the complex. It's not just -- we kind of, in theory, could grow everything, the baby bonds and the preferred and the common, all nice and evenly. That's a theoretic approach, not an actual approach. But we do look at a blended cost of capital. And then we look at if we were to sell that proverbial one share today, can we invest it in the near to medium term at a level that's accretive to the ongoing earnings of the company versus the distributions to the common shareholders? Certainly, at today's distribution rate, in general, I think we could comfortably do that, but we could debate, however, the timing of that. We do have a nontrivial amount of cash on the balance sheet. We've always sought to run the company with an ample degree of liquidity. We don't have any unfunded revolvers or delayed draw term loans or a lot of things, other -- we're not a BDC, but a lot of BDCs face a lot of those challenges. We don't have. And frankly, having cash on our balance sheet, when we saw -- when all the baby bonds dipped in late March, Ken and I look at each other, like the stuff at $0.70 on the dollar, let's just go do it. We -- that was an offensive move. So we'll look across the capital structure. We'll use the ATM when we think it's unambiguously accretive to the common stockholders and the company in the long term. But today, the math would suggest we are on the sideline at present.

Sure. Okay. No. I appreciate that. That was a very good move for shareholders to buy some debt back at a discount. And then I guess on the leverage, you're obviously above the target leverage range due to the depreciation this quarter. I know you said that you're comfortable operating outside of this range, the 25% to 35% debt to assets. So -- but what is the plan, I guess, going forward? Is it to try to continue focusing on deleveraging slightly, maybe doing something like what you did last quarter with the -- repurchasing some of your debt with any sort of cash payments that you receive in preserving liquidity? Or is it more to just continue focusing on deploying into what you would consider a good -- really good market to invest in?

Much more on the offense versus defense across the spectrum. It's -- we haven't put any guidance on it. History has shown if we could buy our baby bonds at $0.70 on the dollar, we're -- at least historically, we've been a buyer. It depends what else is going on in the world. The price of CLO securities, obviously, can move around. Obviously, October was a significant down month in the market. April, you can see our NAV went up. So it was an up month in the market. We set the 25% to 35% band with a long-term view, knowing things like this can happen. It's a collage of using the ATM when it's accretive. We've shown a willingness to buy back our baby bonds when that's attractive to do. And we'll also look at the change in the price of our securities, which, frankly, of all the things here could be the biggest driver of our leverage ratio. Very possible CLO debt could be up 10% next -- CLO equity could be up 10%, could equally be down 10% in the next month. So as we look forward, it's kind of balancing a collage of all of those. And we try and have as many tools in the arsenal as possible to do it. I don't think there's any one particular thing we'll do, frankly, but we will -- we want the full menu available for us. And I think we've shown we've used them pretty prudently over the years.

Okay. And then in the -- in your outstanding bonds, are there any debt covenants or debt limitations that you guys are approaching that we should be aware of?

So the -- we have 2 types of securities outstanding. We have 2 series of baby bonds on the Xs and Ys. And we have one series of preferred stock outstanding, the Bs. None of those are callable at present, although there is a provision certainly in the baby bonds and maybe also in the preferred that at the extreme we can actually breach the noncall if we needed to buy to get back on size if we were off-size on the asset coverage ratio, plus building to a cushion as well. Beyond that, there is -- all of that debt is unsecured. Obviously, in the case of preferred stock, it's -- you can even defer payments if you need to. Obviously, that's not our plan or intent. But we have -- our total fixed debt service that we have to pay contractually each quarter is a little less than $2 million, and that's to the Xs and Ys. The preferred typing amounts as well, though there is a deferral option if we ever needed it. So where we look the balance sheet -- when we talk with bankers and we've issued these things, we haven't done anything less than 10 years, I think, since 2015. The bankers always say, "Oh, you could get it done a quarter tighter if you do 5-year paper." No, no, no. We've always throw it out there at 10 years. If we have to pay a quarter extra, we'll do it. And to be able to say, I have no debt maturities in 6 years, I don't think there's any of these '40 Act vehicles where they wouldn't like to be able to say, I have no debt maturities for 6 years. So that was, in our view, money well spent.

And I would agree. And then my last question. I know you touched on this a little bit during the call, and you've given us all a very detailed crash course in CLOs and CLO accounting. But I was hoping that you can just maybe very briefly go over how the mechanism for building par works for a CLO security and if there's any sort of limitation to that in terms of how much of the discount could be purchased or anything like that, that would be important to know?

Sure. So the rough mechanic -- let's say, a collateral manager owns a loan at 90 today because this is a really good loan, but I see another one at 80. That's also a really good loan. If that person sells the 90, you have presumably taken a 10-point loss, but then he uses those proceeds and goes and buys the 80 loan. He -- and then he has $0.10 left over in extra cash, assuming that's a par like trade. His OC numerator went up by about 10 points that he just bought. He sold a loan at 90 and bought a loan at 80. The difference between 90 and 80 goes immediately to the OC numerator. So that at a high level is the raw math. You don't have to do it on the same day. In many cases, we try and pair the trades together. But you could sell a loan 90 today, buy a different loan at 80 tomorrow, and you've achieved the same objective. Where it gets more interesting is if you buy a loan below 80, there, what you get is what's called purchase price credit. And it counts as purchase price until it trades over 90 typically for a month. So the way this works is if you bought a loan at 70, or let's just to complete earlier, like the American Airlines, like they're unsecureds are trading in the 30s and 40s. Their term loan due in April of 2023 is quoted in the mid-70s today. Let's say, if someone thought that loan was money good, it's got that great collateral, so on and so forth. You could buy that loan and you would get purchase price credit for it until -- so if you had $75 that just came in from a paydown, that's par dollars that came in, you just buy this loan that's offered at 74 today, you buy it at 74, and you get $0.74 on the dollar credit until such day it hopefully trades over 90 for a month and then jumps up to 100. So it's -- you don't get the full kick. I suspect if you look at many investment banks loan trading departments, they probably sell a lot of loans at 81 and probably don't sell a lot of loans at 79 because of that magic number. But it is pretty straightforward math for the CLO managers to be able to manage. And what they've got to look at is these OC Test that we talk about. They really only matter 4 days of the year. So if you failed your OC Test in April, something that happened, which really never happened in my experience before of having a downgrade wave right into the determination dates for many CLOs, such that you could have gone home the day before the determination date, you were on size, you come in the next morning, and oh goodness the rating agencies downgraded a bunch more of your loans. You thought you were passing the test now. Here, you are the next morning, you're failing. Can you trade your portfolio that day to get back on size? And frankly, some collateral managers did, others didn't. But even if you didn't, okay, now you've got until July to get yourself back on size. The bad news is you've probably got more downgrades coming at you, although the pace seems to be slowing. At the same time, you've got 89 days of runway to get yourself back on size. Finally, in a number of our CLOs, we bake in something called a nondiscounted swap. This is deep in the leaves, kind of highly esoteric provision. And what this allows is, let's say, a collateral manager bought a loan at 100, and it's now trading at 74. He thinks that loan -- he or she thinks that loan has more downside. What he could do is say, but I think this American loan is going to work out. Again, I'm not endorsing the American loan in any way, but I have the price on the screen. He could -- and there's a limitation as to how much typically 10% cumulative. He could sell that one loan at 74 that he thinks is going down, redeploy that money into the American loan. As long as he flags it as a nondiscounted swap, linking the 2 trades, that 74 actually counts as 100. It's a special designation collateral managers have to make, and it's something we work hard to bake. Not all CLOs have that mechanic. We work hard to make sure most of our CLOs have that. So while that won't make or break a CLO, it's a nice helpful little tool to have in the arsenal.

Our next question comes from Cullen Johnson with B. Riley.

I've got one quick one here on the value of the unsecured notes. So it looks like for the purpose of calculating the asset coverage ratios within the consolidated financial statements, the value is $94 million of the unsecured notes? But then looking at the balance sheet, it looks like it's at $82.8 million. And I think most of these are as of 3/31. So just hoping you could help me reconcile the 2 numbers.

Sure. It's Ken here. So for the notes, what we're doing is we are -- on the balance sheet, obviously, we're taking our X notes at fair value because we elected to do the fair value option of accounting. So that number will be variable quarter-to-quarter based on current market conditions, and they were obviously down from what they were in the previous quarter. For the asset coverage ratio, we're taking a more conservative and consistent approach, what are other debt securities where we're using the par value to determine the asset coverage, which would set a higher standard in this case of comparing to on a market value basis.

We have reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to Thomas Majewski for closing comments.

Great. Thank you very much, everyone. I appreciate all the thoughtful questions. Obviously, some very challenging times and a little bit of uncertain outlook for the economy and credit markets broadly as we look across our portfolio and the way the company is structured. Hopefully, the themes you've heard from us are consistent with themes you've heard from us over the years. Our balance sheet with that ECC is set up in a way we would want it to be in these difficult days. And we have ample cash on our balance sheet. And while these are difficult times, we have cash to be able to use to buy securities when others need to sell. So we would seek to be -- we will continue to seek to be on the offense very selectively, using our capital very prudently in what is certainly going to be a challenging market over the coming weeks and months. We appreciate everyone's time today. We are running late because of the EIC call, which begins at 11:30. We do hope people can join in there as well for some perspectives on the BB call -- BB market, and we'd welcome continuing dialogue with anyone who would like. Thank you very much for your time and interest. I hope everyone is safe as well, and we look forward to talking again soon. Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.