Eagle Point Income Co Inc.(EIC) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the year 2024, the company generated a GAAP return on equity of 21% and a total return on common stock of 24.8% assuming reinvested distributions [9] - The company paid cash distributions of $2.40 per share, representing about 15.2% of the average stock price during the year [9] - The NAV as of December 31 stood at $14.99 per share, a 1% increase from September 30 and a 4% increase from the beginning of 2024 [12][30] Business Line Data and Key Metrics Changes - The company received recurring cash flows of $16.1 million or $0.82 per share in the fourth quarter, up from $13.1 million or $0.76 per share in the prior quarter [10] - Net investment income and realized gains were $0.54 per share in the fourth quarter, consistent with the previous quarter [27] - The company issued approximately 2.5 million common shares at a premium to NAV, generating NAV accretion of $0.05 per share during the quarter [13] Market Data and Key Metrics Changes - The S&P UBS leveraged loan index generated a total return of 2.3% for the quarter and 9.1% for 2024, with loans up 70 basis points in January [20] - New CLO issuance reached $59 billion in the fourth quarter, leading to a record $202 billion for the full year [21] - The trailing twelve-month default rate rose slightly to 0.9% as of year-end, still below the historical average of 2.6% [24] Company Strategy and Development Direction - The company continues to deploy significant capital into new CLO investments, which are expected to make their first cash payments in 2025 [11] - The management remains focused on maximizing yields and believes that CLO equity exposure enhances the portfolio's earnings ability [15] - The company is considering increasing its allocation to CLO equity, which is generally less rate-sensitive than CLO double B's [34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's ability to weather economic cycles and generate compelling risk-adjusted returns [34] - The company is actively managing its portfolio in response to changes in short-term rates and is prepared to deploy additional capital into CLO equity [34] - Management expects default risk to remain low for the foreseeable future, given the current economic conditions [25] Other Important Information - The company declared monthly distributions of $0.20 per share through June 2025 [29] - As of January 31, the company had over $30 million of cash and revolver capacity available for investment [31] Q&A Session Questions and Answers Question: How do you see CLO debt liability spreads trending over the next couple of years? - Management indicated that CLO debt tranches have performed well historically and expect spreads to continue to trend tighter over time, despite facing reinvestment risks [39][43] Question: Could you highlight the risks in CFOs compared to CLOs and how high are you willing to go with your allocation to CFO and CLO equity? - Management stated that they target no more than 35% in CLO equity, with a hard minimum of 65% in CLO debt, and emphasized the selective nature of CFO investments [46][50] Question: How do you see the relationship between cash yields and effective yields developing? - Management explained that while cash yields remain attractive, effective yields are lower due to assumptions about recovery rates and market conditions, and they are actively managing liability costs [61][72]