Prepared remarks
Ladies and gentlemen, thank you for standing by. Eagle Point Credit Company's call will begin in 2 minutes. Once again, we thank you for standing by. Our call will begin in 2 minutes. Greetings, and welcome to the Eagle Point Credit Company First Quarter 2026 Financial Results Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Darren Daugherty, with Prosek Partners. Thank you. Please begin.
Thank you, operator, and good morning. Welcome to Eagle Point Credit Company's earnings conference call for the first quarter of 2026. Speaking on the call today are Thomas Philip Majewski, Chief Executive Officer, and Kenneth Paul Onorio, Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to remind everyone that 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 such projections. 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 or projection of financial information made during this call is based on the 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. Earlier today, we filed our first quarter 2026 financial statements and investor presentation with the Securities and Exchange Commission. These are also available in the Investor Relations section of the company's website eaglepointcreditcompany.com. A replay of this call will be made available later today. I will now turn the call over to Thomas Philip Majewski, Chief Executive of Eagle Point Credit Company. Tom?
Thanks, Darren. Good morning, everyone. We are glad you are joining us today on Eagle Point Credit Company's quarterly call. I will start by providing some perspectives on the recent quarter. CLO equity faced challenging market conditions in 2026 and the company was not immune to those broader dynamics. While CLO fundamentals remain relatively stable, a decline in loan prices, especially in the software sector, and a cautious tone in the credit markets broadly due to the ongoing war in Iran weighed on our financial performance during the quarter. The software sector was particularly an area of focus during the quarter as investors continued to assess the potential impact of AI on certain business models and revenue streams. Importantly, however, our exposure is principally through broadly syndicated loans, not middle market lending that is commonly found in BDCs. The loans in our CLOs are typically larger, more liquid, institutionally syndicated credits that have observable market pricing, which can result in more immediate mark-to-market volatility during sector-specific pressure. ECC's software exposure at quarter end stood at roughly 10.8%. While there is not one definitive number, many market sources would say BDCs typically have software exposure in the mid-20% range. While the volatility in loan prices impacted our quarterly valuations, we believe it also created opportunities for many of our CLO collateral managers to reinvest paydowns and sale proceeds into discounted loans with attractive forward return potential. While these factors led to a decline in CLO equity valuations during the quarter, we believe the market typically undervalues the reinvestment option embedded in CLOs during times of dislocation. The ability to buy loans at material discounts to par has allowed CLO equity to deliver attractive intermediate- and long-term returns following short-term periods of volatility. During the quarter, we deployed $100 million into new investments at a weighted average effective yield of 18.9% as we took advantage of compelling relative value opportunities created by a particularly uncertain macro environment. Throughout the quarter, we continued to actively manage our CLO portfolio by completing four resets and three refinancings of our CLO equity positions, resulting in weighted average CLO debt cost savings of 43 basis points for those CLOs. In addition to lowering our debt costs, the reset positions extended their reinvestment periods to five years. Our portfolio's weighted average remaining reinvestment period, or WARP, ended the quarter at 3.4 years. This is higher than the market average of 2.8 years and also higher than our year-end level of 3.3 years. This reflects our continued focus on extending the reinvestment optionality in our CLO portfolio. We also continue to broaden ECC's opportunity set across credit. While CLO equity remains central to the company's strategy, as we have mentioned on the prior call, we have selectively increased our exposure to complementary asset classes, including infrastructure credit, regulatory capital relief, portfolio debt securities, and certain other structured and specialty credit investments. These investments are sourced through dedicated teams across the Eagle Point platform and are designed to enhance income, improve diversification, and capture attractive relative value beyond just traditional CLO equity. One recent example of this strategy is a directly originated infrastructure investment that we made in 2025. We were able to successfully realize this investment just four months later, crystallizing an attractive return. This outcome demonstrates our ability to originate and monetize differentiated credit opportunities outside of CLO equity while still maintaining ECC's income-oriented investment focus. As of March 31, CLO equity represented 67% of our portfolio, while other credit asset classes represented 31%. The balance was held in cash. As of March 31, our NAV stood at $4.17 per share, and this represents a decrease of 26.8% from $5.70 per share at year-end. For the first quarter, the company generated a GAAP return on equity of -20.2%. During the quarter, we paid $0.42 per share in cash distributions to our common shareholders. That said, ECC's portfolio rebounded sharply in April. Our NAV increased to between $4.49 and $4.59 per share, a nearly 9% increase at the midpoint. Last week, we declared three monthly distributions of $0.06 per share for the second quarter of 2026. This is in line with our distributions for the second quarter. Our current distribution level is aligned with the company's near-term earnings profile and reflects our focus on maintaining a sustainable distribution over time. Separately, as disclosed in our recent public filings, members of our advisor senior investment team purchased more than 167 thousand shares of the company's common stock during the first quarter, reflecting their confidence in the company's long-term value and our view that the current trading levels do not fully reflect the intrinsic value of our stock. Subsequent to quarter end, we completed the full redemption of our ECCW and ECCX notes. With that, I will turn the call over to Kenneth Paul Onorio to discuss the financial results in more detail.
Thank you, Tom, and thanks, everyone, for joining us today. For the first quarter of 2026, the company recorded net investment income less realized losses from investments of $19 million or $0.14 per share. This compares to net investment income less realized losses from investments of -$0.26 per share in the prior quarter and net investment income and realized gains from investments of $0.33 per share in the first quarter of 2025. Including unrealized losses, the company recorded a first quarter GAAP net loss of $148 million or $1.12 per share. This compares to a GAAP net loss of $0.84 per share in both the previous quarter and the first quarter of 2025. Recurring cash flows for the first quarter were $62 million or $0.47 per share. This was $0.11 per share shy of our aggregate common distribution and total expenses for the quarter. A reminder that all of our financing remains at a fixed rate and we have long-duration capital with no maturities prior to January 2029. In addition, a significant portion of our preferred stock financing is perpetual with no set maturity date, providing additional flexibility to support our investment strategy. We are unaware of any other publicly traded entity that invests primarily in CLO equity with perpetual financing and consider this to be a significant competitive advantage for the company. As of April 30, pro forma for April performance and the redemption of ECCX and ECCW, our leverage was 47% based on the midpoint of management's unaudited estimated range of the company's April NAV. Over time, we plan to bring the company's leverage ratio back to our target range of 27.5% to 37.5% when generally operating the company under normal market conditions. Through April 30, we have collected $51 million in recurring cash flows and expect additional collections during the remainder of the quarter. Management's unaudited estimate of NAV as of April month-end was between $4.49 and $4.59 per share, the midpoint being a 9% increase from quarter end.
With that, I will turn the call back to me. Thanks, Kenneth Paul Onorio. I would now like to share some additional thoughts on the loan and CLO markets as well as how we are positioning the portfolio. During the first quarter, new CLO issuance totaled $47 billion while reset and refinancing activity remained strong at $32 billion and $24 billion respectively, despite the volatility in the markets. The S&P/LSTA Leveraged Loan Index fell 50 basis points in the first quarter, but in April it rebounded by 1.2%, bringing the total return positive for the year. Corporate revenue and EBITDA growth remained positive during the first quarter, supporting overall credit fundamentals across the broadly syndicated loan market despite the decline in loan prices. The trailing 12-month default rate ended the first quarter at 1.4%, modestly higher than year-end levels; it still remains well below the long-term average of 2.5%. ECC's look-through default rate remains low at 32 basis points, significantly below the broader market average, and we believe this reflects both the quality of our underlying loan holdings and our dedication to a robust collateral manager selection process. While lower loan prices may have impacted CLO valuations in the near term, they have also created attractive reinvestment opportunities for our CLOs. The percentage of loans trading above par has declined meaningfully, creating the potential for price appreciation across the broader loan market in quarters ahead. At the same time, repricing activity has slowed considerably, resulting in wider spreads on new loans and improving the forward return outlook. This is an important shift, as repricing activity led to spread compression, which was a key headwind to the CLO equity market in 2025. Turning to our portfolio positioning, our CLO equity portfolio metrics continue to compare favorably to the broader market. As of quarter end, CCC-rated exposures in our portfolio were 4.1%, which is lower than the market average of 4.9%. Our weighted average junior overcollateralization ratio stood at 4.4%, roughly 10% above the market average of 4%. These metrics reflect our disciplined approach and focus on higher-quality collateral managers and help position the portfolio to navigate periods of challenging market conditions. Beyond CLO equity, we continue to see compelling opportunities in credit investments that offer strong structural protections, contractual or asset-based cash flows, and attractive risk-adjusted return potential. These investments are not intended to entirely replace CLO equity, but rather to complement it in our portfolio by adding differentiated sources of income and return. Looking ahead, we believe the current environment is considerably more attractive than the headlines of the first quarter would suggest. Lower loan prices reduced loan repricing activity, and continued market dispersion have improved the opportunity set for new capital deployment. At the same time, April's NAV recovery reinforces our view that the first quarter decline was largely driven by short-term mark-to-market pressure rather than fundamental deterioration in the long-term earning power of our portfolio. We remain focused on allocating capital to the best relative value opportunities across CLO equity and complementary credit investments. Our goal is to produce durable, attractive, long-term returns for our shareholders, focused on income-oriented investments and supported by a stable or growing NAV over time. Thank you for your time and interest in Eagle Point Credit Company. Kenneth and I will now open the call to your questions. Operator?
Questions and answers
Thank you. If you would like to ask a question, please press * on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Erik Zwick with Lucid Capital Markets. Please proceed with your question.
Hello. Good morning. I wanted to start with a question. In the press release, you mentioned that the weighted average yield on new investments includes a provision for future credit losses. Given the magnitude of geopolitical and macroeconomic uncertainty today, could you talk a little bit about what level of credit losses you provisioned for today and whether that is unchanged from what you have typically done in the past or has been pretty consistent over the market cycle?
Yes. This is Kenneth Paul Onorio. We use a standard default rate in our cycle evaluation that we include as a constant default rate for credit loss. Then we also calibrate to the market, which is more fluid and reflective of current economics and the current standing of the market for credit and CLO equity. So there is a portion that is standard and a component that is variable to market conditions. If you wind back to February and also to November, those were significantly volatile months with significant impact to credit, which we reflected in our valuations. As that dynamic improves, as the market improves, you will see the reverse effect, which in April was a very solid month for loans and credit where that variable component of the credit loss adjustment was considered in a positive way. So the way to look at it is: a standard default rate, no matter what quarter or what market dynamic is in play, and a variable component based on the current market environment which we update on a month-to-month basis.
Thanks, Kenneth Paul Onorio. That is very helpful.
And that kind of leads into my next question a little bit. I am curious if you could talk just a little bit about what factors specifically drove the increase in NAV in April, whether it was spreads or market liquidity or some other factors, and are you seeing a continuation of that through May at this point?
Sure. I would say we saw a broad rebound from what we experienced in the first quarter. Credit fundamentals across the board and market sentiment, particularly in the software SaaS space, have improved. So I would really look at April as a rebound from the first quarter down-draft in valuations and a normalization. As for where we stand today, we do see a continuation of strong performance in loans and in our CLO equity portfolio as well as our non-CLO portfolio.
Thank you.
Our next question comes from the line of Gaurav Mehta with Alliance Global Partners.
Yeah, thank you. Good morning. I wanted to ask you on the new investments that you made in January. How much of that was in non-CLO versus CLO equity?
Sure. I have to look that up. Hang on one second. Hold on. If you have another question, you could ask while I go to the tape here.
Okay. As a follow-up on the balance sheet, just curious to learn more about the preferred stock redemptions that you guys did in 1Q and 2Q. Was there any specific driver to redeem those securities?
So we did a buyback or a full redemption of two baby bonds. Those were redeemed a week or two ago at this point. Those were unsecured debt of the company, not preferred stock, but they look and feel similar. The rationale on that was getting the company back towards its target leverage ratio. We target over the long term to run the company at a certain leverage. We are still above that right now, but we have been proactive in retiring debt to get the leverage back in line. One of the benefits is pushing out our nearest maturity. Previously, I think we had some 2027 paper outstanding. Now our nearest maturity is 2029. An increasing portion of our liabilities, whether debt or preferred, is now perpetual in nature both through ECC series preferred issuances, which we like from a stability perspective. We also have ECCC, which is preferred stock outstanding and that does trade at a little bit of a discount to par.
Yes, and we do buy that sometimes in the open market.
So we are active buyers of our debt where it makes sense, where it is trading at a discount. We have been gradual about it. The purpose is twofold. One, it helps build cushion to our leverage ratio. In addition to that, we do realize a gain on retirement, so it is a way to opportunistically generate some upside. We are opportunistic when we see our debt trading at a discount, and we buy it back and retire it.
And then to your first question, we have that in the investor deck on the relevant page. This is an internal report I will share. The purchase percentages for the first quarter were roughly 75% of purchases in non-CLO investments with the remaining 25% being in CLO investments. So the split was weighted towards non-CLOs.
Okay. Thank you. That is all I had.
Thank you. Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed with your question.
Hey, Tom. When you mentioned the lower loan prices, as a clarification, are those for loans already in the CLO or for loans being bought from the banks or the CLO?
A little of everything. Broadly, through the first quarter the loan market was down — not every single loan, but the vast majority were. So both the loans in CLOs in general were down. At the same time, loans continue to prepay and repay typically at double-digit percentage per annum, such that there is always money coming back into the system at par within a CLO. When loans are at a discount, collateral managers can buy those loans instead of paying par; they can buy them at $0.97 or $0.98 on the dollar or whatever the price may be. There has been a relatively limited supply of new issue loans — not none, but not a ton. New issue loans would typically come out at around 99.5 issue price historically; I would wager that loans that came out in the first quarter were probably a bit lower than normal, but not dramatically lower. So when we say prices are down, that is referring to both loans in portfolio CLOs in general and the reinvestment option in the secondary market. For new issue loans, probably a small price movement but not a substantial one.
And as my follow-up, if I understand correctly, the new deployments have a reflective yield of roughly 18.9%. The existing portfolio has an effective yield to CLO equity of 9.3%. That 9.3, I believe, is at amortized cost, not at fair value?
Yes. The roughly 9% weighted average effective yield number is on an amortized cost basis and includes historical and legacy positions that were on the books. The new CLO equity we were deploying was in the 20-plus percent range based on their effective yields at purchase. Let me pull the other number for you. One second. The expected yield on the CLO equity portfolio based on fair value is around 26.3% on a loss-adjusted effective yield basis.
So to clarify, the 9% number you referenced is on an amortized cost basis. On a fair value basis, the effective yield on the CLO equity portfolio is significantly higher — in the mid-20% range — because NAV reflects unrealized gains and losses. Also, many of the investments we are buying now are skewed toward those with longer remaining reinvestment periods, and those typically trade at a tighter effective yield than CLO equity with shorter remaining reinvestment periods. So there is dispersion in yields depending on remaining reinvestment period and other structural factors.
Given that disparity, at what point do we start seeing these much higher yields on new investments begin lifting the effective yield in the portfolio and having a cascading effect into earnings?
A couple of points. First, the existing portfolio base is large relative to the pace of new purchases, so incremental buys in the tens of millions are unlikely to materially change the weighted average yield across a multi-billion dollar portfolio in the short term. Second, while new purchases may have high yields, weighting, timing, and the mix between longer reinvestment period paper and shorter paper all influence how quickly those yields flow through to reported metrics. Over time, as we deploy more capital at higher yields and as mark-to-market dynamics normalize, you will see improvement, but it will be gradual and dependent on deployment pace and market moves.
The dividend — the new $0.18 quarterly dividend annualized is roughly 17% on the first quarter NAV. That seems awfully high and potentially unsustainable given everything you said. Am I missing something?
Our earnings, roughly our NII, have been in line with or slightly above that distribution level over the recent quarters. When we set the distribution rate, we looked at the earnings power of the portfolio and set a number that we believed we could sustain for the foreseeable future. Obviously, market conditions will be a factor, and we cannot precisely predict the future, but the distribution was set below the NII we have had over recent quarters and was determined with sustainability in mind.
Yes. That is correct. We made a significant change to the distribution rate several months ago, and we looked at historical earned NII as a key factor in setting that rate. We believe the distribution is sustainable given our view of forward NII, but market conditions remain a factor.
Great. That is it for me. Thank you very much.
Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I will turn the floor back to Mr. Majewski for any final comments.
Great. Thank you very much. We appreciate everyone's time and interest in Eagle Point Credit Company. Kenneth Paul Onorio and I will be available later today if anyone has any other follow-up questions. Thank you.
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.