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Eagle Point Credit Co Inc.(ECC) - 2025 Q1 - Earnings Call Transcript
ECCEagle Point Credit Co Inc.(ECC)2025-05-28 15:00

Financial Data and Key Metrics Changes - The company generated net investment income and realized capital gains of 0.33pershareforQ12025,consistingof0.33 per share for Q1 2025, consisting of 0.28 of net investment income and 0.05ofrealizedcapitalgains,comparedto0.05 of realized capital gains, compared to 0.12 per share in Q4 2024 [6][15] - The company's NAV as of March 31 was 7.23pershare,a13.77.23 per share, a 13.7% decrease from 8.38 per share at year-end [6][7] - The first quarter GAAP net loss was 97.5million,withtotalinvestmentincomeof97.5 million, with total investment income of 52.3 million and realized capital gains of 5.3million[15]BusinessLineDataandKeyMetricsChanges−ThecompanypricedthreenewCLOequityinvestmentsandresetninepositionsinitsportfolio,lengtheningreinvestmentperiodstofiveyears[4][5]−SalesandpaydownsofCLOdebtintheportfoliototaled5.3 million [15] Business Line Data and Key Metrics Changes - The company priced three new CLO equity investments and reset nine positions in its portfolio, lengthening reinvestment periods to five years [4][5] - Sales and paydowns of CLO debt in the portfolio totaled 48.5 million during the first quarter, generating 0.05pershareofrealizedgains[9]−Approximately180.05 per share of realized gains [9] - Approximately 18% of the CLO equity portfolio based on fair value are new investments or recently reset CLOs, scheduled to make their initial payments in subsequent quarters [11] Market Data and Key Metrics Changes - The S&P UBS Leveraged Loan Index generated a total return of 0.6% during Q1 2025, with a trailing twelve-month default rate of 82 basis points, well below the long-term average of 2.6% [18][19] - The weighted average spread of the CLO's underlying loan portfolios stood at 3.36% as of March 31, down from 3.49% at year-end [20] - The total issuance volume for CLOs reached 153 billion during Q1 2025, significantly above the 88billionfromQ12024[23]CompanyStrategyandDevelopmentDirection−ThecompanyhascompleteditsplannedportfoliorotationfromCLOdebtintoCLOequityandotherinvestmentspriortotherecentmarketvolatility[9]−Thefocusremainsonenhancingnetinvestmentincomeandcashflowthroughproactiveinvestmentstrategies,includingresettingandrefinancingCLOs[28]−Thecompanymaintainsa10088 billion from Q1 2024 [23] Company Strategy and Development Direction - The company has completed its planned portfolio rotation from CLO debt into CLO equity and other investments prior to the recent market volatility [9] - The focus remains on enhancing net investment income and cash flow through proactive investment strategies, including resetting and refinancing CLOs [28] - The company maintains a 100% fixed-rate financing structure with no maturities prior to 2028, providing protection against future interest rate rises [25] Management's Comments on Operating Environment and Future Outlook - Management views the recent market price fluctuations as short-term and not indicative of fundamental issues within the portfolio [7][28] - The company believes that current discounted reinvestment opportunities will translate into good returns in the medium term, similar to past periods of volatility [9][28] - Management remains optimistic about the stability of cash flows from CLO equity, despite recent market challenges [32][41] Other Important Information - The company utilized its at-the-market program to issue 66 million of common stock at a premium to NAV, resulting in NAV accretion of 0.02pershare[12]−ThecompanydeclaredcommonregularmonthlydistributionsforQ32025of0.02 per share [12] - The company declared common regular monthly distributions for Q3 2025 of 0.14 per share [13] Q&A Session Summary Question: What will it take for the market to recognize the stability of CLO cash flows? - Management noted that cash flows from CLO equity have historically been stable, even during market downturns, and emphasized the importance of cash generation [31][32] Question: Will the pace of resets and refinancings continue? - Management indicated that while the pace may slow compared to Q1, they expect single to double-digit resets per quarter under current market conditions [45][46] Question: What accounts for the difference between gross and net capital deployed? - The difference is attributed to the significant rotation of CLO debt into CLO equity, which reduces the overall net capital figure [50][51] Question: Why was the pace of deployment slower in April? - Management explained that market volatility led to a slowdown in CLO equity trading, affecting deployment rates, but they expect activity to pick up as the market stabilizes [56][58] Question: How does the company handle loan loss reserves compared to banks? - Management clarified that while they do not create reserves like banks, their effective yields account for future losses, and they focus on cash generation for distributions [86][88]