Eagle Point Income Co Inc.(EIC) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported recurring cash flows of $13.1 million or $0.76 per share, a decrease from $12.4 million or $0.87 per share in the prior quarter [8] - Net investment income and realized gains were $0.57 per share during the quarter, compared to $0.44 per share in the second quarter of 2024 and $0.38 per share in the third quarter of 2023 [20] - The NAV as of September 30 was $14.90 per share, a 2% decrease from $15.24 per share at the end of June [10][23] Business Line Data and Key Metrics Changes - The company deployed approximately $90 million of net capital into new investments during the third quarter, with a weighted average effective yield of 12% on new CLO purchases [15] - The company paid three monthly common distributions of $0.20 per share during the third quarter and has declared the same monthly distributions through March 2025 [10][22] Market Data and Key Metrics Changes - The Credit Suisse Leverage Loan Index generated a total return of 2.1% for the quarter and 6.6% year-to-date through September 30, with loans up 7.5% year-to-date as of October 31 [14] - There was $40 billion of new CLO issuance in the third quarter of 2024, with $142 billion for the first nine months of 2024, on pace to break the previous record of $187 billion set in 2021 [16] Company Strategy and Development Direction - The company continues to focus on maximizing shareholder returns through active portfolio management and investment in high-yielding CLO debt and equity [7][13] - The management believes that CLO BBs are resilient and positioned to succeed in various economic environments, emphasizing the structural protections and underlying collateral [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's ability to generate compelling risk-adjusted returns despite recent Federal Reserve rate cuts [26] - The company expects low default risk to persist, with only three leveraged loan defaults in the third quarter and a trailing 12-month default rate of 80 basis points [18] Other Important Information - The company recorded GAAP net income of $1 million or $0.06 per share, with total investment income of $12.5 million and net realized gains of $1.3 million [20][21] - As of October month-end, the company had over $21 million of cash and revolver capacity available for investment management [24] Q&A Session Summary Question: Insights on the BB market and acquisitions - Management noted that CLO BB prices have held well despite Fed rate cuts, with a significant difference in spreads between new issues and resets [29][30] Question: Primary vs. secondary market dynamics - Management indicated that convexity in CLO BBs has largely disappeared as most have rallied back to par, with opportunities still available in both primary and secondary markets [31][32] Question: Contribution of discounted assets in the portfolio - Management acknowledged the benefits of realizing convexity sooner and indicated that a large portion of the portfolio consists of purchases made at discounts, with potential for future gains [34] Question: Yield requirements and comparisons with other vehicles - Management highlighted that the distribution rate currently pencils out to a high 14% yield, which is considered attractive compared to private credit and BDCs [38][42] Question: Growth potential in the CLO BB market - Management emphasized the significant growth potential in the CLO BB market, which is only about 4% of the total CLO market, indicating ample opportunity for expansion [45][48]