Eagle Point Credit Co Inc.(ECC) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the year 2024, the company generated a GAAP return on equity of 10.1% and paid a total of $1.92 per common share in distributions [9] - The total return for holders of common stock was 14.7%, assuming reinvestment of distributions [9] - The company recorded net investment income (NII) less realized losses of $0.12 per share for Q4 2024, compared to $0.23 per share in Q3 2024 [29] - GAAP net income for Q4 2024 was approximately $45 million or $0.41 per share, an increase from $0.04 per share in Q3 2024 [31] Business Line Data and Key Metrics Changes - Recurring cash flows from the portfolio were $82 million, or $0.74 per share, an increase from $68.2 million, or $0.66 per share in Q3 2024 [11] - The company deployed over $223 million in net capital into new investments during Q4 2024 [18] - New CLO equity purchased during Q4 had a weighted average effective yield of 17.8% [19] Market Data and Key Metrics Changes - The S&P UBS Leverage Loan Index generated a total return of 2.3% in Q4 2024 and 9.1% for the full year [37] - The trailing 12-month default rate for leveraged loans stood at 91 basis points, significantly below the long-term average of 2.6% [38] - Approximately 7% of leveraged loans repaid at par during Q4 2024, indicating proactive management by loan issuers [39] Company Strategy and Development Direction - The company is focused on rotating from CLO debt to CLO equity to enhance net investment income [112] - The target leverage ratio was adjusted to 27.5% to 37.5%, up from the previous range of 25% to 35% [16] - The company aims to maintain a long weighted average reinvestment period to drive performance and guard against market volatility [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's positioning for 2025, citing attractive new investments and active resets of CLOs [11] - The company noted that the current market environment is competitive for fixed income instruments, but they believe CLO equity remains an attractive asset class [43] - Management highlighted a robust pipeline of reset and refinancing opportunities for 2025 [25] Other Important Information - The company completed 16 resets during Q4, extending the weighted average remaining reinvestment period to 3.4 years, which is over 50% above the market average [19][26] - The company issued approximately 5.2 million additional common shares at a premium to NAV, generating NAV accretion of about $0.05 per share [20] Q&A Session Summary Question: Inquiry about elevated commission expense - Management clarified that the elevated commission expense was due to commissions paid for the ATM and issuing perpetual preferred stock [52][56] Question: Discussion on CLO issuance and market competition - Management acknowledged the competitive market for CLO issuance and emphasized their robust data management systems to handle the increased volume of information [64][70] Question: Clarification on recurring cash flow dynamics - Management explained that approximately two-thirds of CLOs that did not pay at year-end would pay in the first quarter, with most cash flows expected in the first month of each quarter [92][95] Question: Understanding differences in portfolio yield measures - Management clarified that the difference in yield measures is due to the base used for calculations, with effective yield based on amortized cost and expected yield based on fair value [102][103]