Prepared remarks
Good day. You are currently holding for the Eagle Point Credit Company call. We will be underway in approximately 2 minutes, and we thank you for your patience. Please continue to stand by. Greetings, and welcome to the Eagle Point Credit Company Second Quarter 2026 Financial Results Call. At this time, participants are in a listen-only mode. A Q&A session will follow the formal presentation. If anyone should require operator assistance, please press *. As a reminder, it is my pleasure to introduce Darren Daugherty with Prosek Partners. Please go ahead, sir.
Thank you, operator, and good morning. Welcome to Eagle Point Credit Company's earnings conference call for the second quarter of 2026. Speaking on the call today are Thomas Philip Majewski, Chief Executive Officer, and Ken Inorio, 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 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 second 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 also be made available later today. I will now turn the call over to Thomas Philip Majewski, Chief Executive Officer of Eagle Point Credit Company.
Thanks, Darren, and good morning, everyone. We appreciate your joining the Eagle Point earnings call this morning. I will start by providing some perspectives on the recent quarter. Let me begin with the headline results. Our net asset value for the quarter ended at $4.51 per share, and that is an increase of 8% from $4.17 at March 31. We generated a GAAP return on common equity of 12.7% for the second quarter. During the quarter, we paid an aggregate of $0.18 per share in cash distributions to our common shareholders. The recovery in NAV was driven by a meaningful rebound in loan prices and CLO equity valuations following the volatility we experienced in the first quarter. Uncertainty surrounding the potential impact of artificial intelligence on software borrowers, together with geopolitical developments, had weighed on leveraged loan prices and CLO equity valuations earlier in the year. As market sentiment improved during the second quarter, valuations recovered meaningfully while underlying credit fundamentals remained resilient throughout the period. This supports our view that much of the first quarter decline reflected market-driven pricing pressure rather than a broad deterioration in credit. Software remained an area of focus during the quarter as investors continue to assess the long-term impact of AI across different business models. While AI will invariably create both winners and losers over time, many software businesses continue to benefit from recurring contracted revenue, sticky customer relationships, and mission-critical products. We believe the market reaction earlier in the year was overstated relative to what we expect the actual impact on the broader software sector to ultimately be. The volatility earlier this year also improved the reinvestment optionality available within our CLOs. Lower loan prices enabled CLO collateral managers to purchase performing credits at discounted prices while reduced repricing activity in the loan market helped preserve and, in some cases, modestly improve loan spreads. These dynamics support par building and spread enhancement within our CLO portfolios, which can contribute to stronger CLO equity cash flows and valuations over time. Throughout the quarter, we continued to actively manage our CLO portfolio by completing eight resets and seven refinancings of our CLO equity position. This resulted in a weighted average CLO debt cost savings of 22 basis points for those CLOs. Each reset also extended the applicable CLOs' reinvestment period to five years. These actions help mitigate some of the headwinds CLO equity faced earlier in the year and should support improved earnings and cash flows over time. Our portfolio's weighted average remaining reinvestment period at the end of the quarter stood at 3.4 years, unchanged from March 31 and 15% longer than the market average. This longer reinvestment period provides greater protection against loan price volatility and positions our CLOs to capitalize on discounted loan prices and relative value trading opportunities when they arise. We also continue to see a meaningful pipeline of potential refinancing and reset opportunities. During the quarter, we deployed $111 million into new investments at a weighted average effective yield of 24.6%. We allocated capital across CLO equity and certain other differentiated credit opportunities where we believe we identified very attractive risk-adjusted returns. We also repositioned the portfolio by rotating capital away from a certain group of underperforming CLO collateral managers. While this resulted in realized losses, those losses had largely been reflected as unrealized losses in prior periods, resulting in minimal incremental impact on our NAV during the second quarter. Importantly, the repositioning allowed us to redeploy capital towards our core group of CLO collateral managers and selectively expand our exposure to other attractive credit investments sourced by Eagle Point. Additionally, we reached an important milestone in our new strategic partnership with Muzinich in Europe through the successful pricing of its inaugural European CLO. ECC benefits from the partnership through both its CLO equity investments and the value of the perpetual revenue sharing as additional CLOs are issued by the platform over time. Given Muzinich's established presence in Europe, we believe this platform is well positioned for sustained growth, similar to our strategic partnership with Muzinich in the United States, which continues to scale. Beyond our core CLO equity investments, we continue to selectively allocate capital to infrastructure credit, portfolio debt securities, regulatory capital relief transactions, asset-backed securities, and other opportunistic private credit investments. These opportunities are sourced through dedicated teams with specialized expertise and origination capabilities across the broader Eagle Point platform, allowing us to access differentiated opportunities that complement our core CLO equity strategy. As of June 30, non-CLO investments represented 38% of our portfolio, up from 32% at March 31. This provides differentiated sources of income and additional diversification across multiple types of assets. One recent example is our investment in SOI Tickets, a specialty finance transaction which was secured by World Cup tickets that the Eagle Point team originated. Following a seven-month holding period, the investment generated a 1.2x multiple on our invested capital when it was realized in June. We believe Eagle Point's ability to originate attractive investment opportunities complements ECC's core CLO equity strategy and enhances long-term shareholder value. With that, I will turn the call over to Ken to discuss financial results in more detail.
Thank you, Tom, and thanks, everyone, for joining us today. During the second quarter, the company generated net investment income, or NII, of $0.17 per share. NII less realized losses from investments was negative $0.62 per share. This compares to NII less realized losses from investments of $0.14 per share in the first quarter of 2026 and NII less realized losses from investments of $0.16 per share in the second quarter of 2025. Including unrealized gains, the company recorded GAAP net income of $70 million, or $0.53 per share. This compares to a GAAP net loss of $1.12 per share in the previous quarter and GAAP net income of $0.47 per share in the second quarter of 2025. Recurring cash flows from the company's investments totaled $62 million, or $0.47 per share, during the quarter, exceeding the company's common distributions and total expenses by $0.14 per share. We paid three monthly common stock distributions of $0.06 per share during the quarter and declared monthly common stock distributions of $0.06 per share for the remainder of 2026. We believe the current distribution level is appropriately aligned with the company's earnings and will support maintaining a sustainable distribution over time. Turning to our capital structure, we completed the full redemption of our ECCW and ECCX notes. These redemptions reduce our outstanding leverage and further extended the duration of our capital structure. We currently have no financing maturing before January 2029. All of our debt and preferred stock financing is fixed rate, and a significant portion of our preferred stock financing is perpetual with no set maturity date. We believe this long-duration capital structure provides important stability and 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 material competitive advantage for the company. As of June month-end, the company had debt and preferred equity securities equal to 47% of total assets less current liabilities, above our target range of 27.5% to 37.5% within which we expect to operate under normal market conditions. We intend to return leverage to within our target range over time. Looking at our portfolio activity during the month of July, we collected $31 million in recurring cash flows and expect additional collections during the remainder of the quarter. Management's unaudited estimate of NAV as of July month-end was between $4.33 and $4.43 per share, the midpoint being a 3% decrease from quarter end. With that, I will turn it back to Tom.
Thanks, Ken. I would now like to share some additional thoughts on the loan and CLO markets as well as share some color on how we are positioning the portfolio. During the second quarter, new CLO issuance totaled $33 billion. Reset activity for the quarter totaled $55 billion and refinancing activity totaled $39 billion. This activity created opportunities for CLO equity investors like ourselves to reduce liability costs and through resets extend the reinvestment periods when market conditions proved attractive. The S&P/UBS Leveraged Loan Index rose 1.9% in the second quarter and returned an additional 80 basis points in July. Average corporate revenue and EBITDA growth remained positive during the quarter, supporting overall credit fundamentals across the broadly syndicated loan market, despite continued dispersion in certain sectors and among certain issuers. The trailing 12-month loan default rate ended the quarter at 1%, which compares to 1.4% as of March 31, and remains well below its long-term average of 2.5%. ECC's look-through default exposure remains low at 14 basis points, significantly below the broader market average. We believe this reflects both the quality of our underlying loan holdings and our active portfolio management and disciplined investment approach. Loan prices recovered during the second quarter, although the improvement remained uneven across individual credits and was more pronounced outside software. Importantly, the proportion of loans trading above par did not return to levels typically associated with broad-based market repricing. We believe one of the most significant headwinds facing CLO equity over the last 18 months—loan spread compression—has largely abated for now. Indeed, the weighted average spread of our CLOs' loan portfolios was flat during the quarter. The June look-through portfolio had a weighted average loan collateral market price of 95.99, providing opportunities for par building as performing discount loans repay or refinance at par. Turning to portfolio positioning, our CLO portfolio metrics continue to compare favorably to the broader market. As of quarter end, CCC-rated exposures in our portfolio were 3.8%, which is better than the market average of 4.6%. Our weighted average junior overcollateralization cushion stood at 4.4%, also better than the market average, which was 3.8%. These metrics reflect our disciplined investment approach and focus on higher-quality CLO collateral managers and help position the portfolio to navigate periods of adverse market conditions. As I mentioned earlier, we have continued to selectively allocate capital beyond our core CLO equity investments to differentiated opportunities sourced and originated across the broader Eagle Point platform. We believe this diversification, together with our core CLO equity strategy, positions the portfolio well to generate attractive risk-adjusted returns. Looking ahead, we remain constructive on the long-term outlook for CLO equity and the broader opportunity set across the Eagle Point platform. We remain focused on completing resets and refinancings where market conditions permit, deploying capital into attractive investments and continuing to expand our strategic partnerships and other private credit investment opportunities. We believe our disciplined portfolio management, active capital allocation, and access to differentiated opportunities across our advisor's platform position us well to create long-term value for our shareholders. We thank you for your time and interest in Eagle Point Credit. Thank you.
Questions and answers
We will now be conducting a Q&A session. If you would like to ask a question, please press 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we pull for questions. Our first question will be from Gaurav Mehta with Alliance Global Partners.
Thank you. Good morning. Wanted to go back to your comments around loan spread compression abating in the quarter. Can you provide some color on what is driving that? And, given that, do you expect the loan spread abatement to be sustainable and maybe improve going forward?
Good morning. A very good question. The lag in loan spread compression flowing through CLOs always takes a little while. Even in the first quarter, there were some repricings that then manifested themselves later. The repricing was agreed in the first quarter before things got choppy, then it rolled through portfolios in the second quarter. The spread on the underlying loan portfolio is roughly flat quarter over quarter, and we are seeing some loans actually move up in spread. In the software sector in particular, one of the trends we are seeing is amendments and extensions, and in certain instances loan spreads are actually getting reset wider in exchange for additional maturity time. What drives loan spread compression is strong demand for loans not met by sufficient supply of new loans. From there, loans get bid up to par or better, and issuers reprice their debt tighter. With most loans trading at discounts to par, that trend has certainly slowed. In addition, CLO issuance has slowed: quarter-over-quarter new issue CLO volume from Q1 to Q2 declined by a nontrivial amount, judgmentally around 20 to 25%, indicating the new-issue CLO arbitrage remains challenged. That reduces demand for loans and therefore keeps prices lower. You can never declare a victory definitively on these things—a bull market could resume tomorrow—but current rate uncertainty, geopolitical uncertainty, and a challenged new-issue CLO arbitrage support muted spread compression and even potential for spreads to widen slightly, which we are seeing on some loans. In short, it is supply and demand driven, and we believe current conditions are more supportive of stable or modestly wider spreads rather than further compression.
Thanks for those details. As a follow-up, on the non-CLO investments you made in the quarter, what is the yield on those non-CLO investments compared to the CLO investments you are making? In the prepared remarks, you mentioned you are at 38% for non-CLO compared to 32% in March. Is there a target number for that exposure?
The yield of non-CLO investments going in the ground is roughly in the low twenties, similar to the expected yield for CLO equity, also in the low twenties. The bulk of the CLO purchases were either secondary or reset injections, getting secondary exposure in the market. When we look at the non-CLO bucket, our primary objective is to deliver attractive, ideally double-digit returns for investors using credit investments with some complexity and where we can accept some illiquidity. For a long time, CLO equity was where we believed that opportunity was best. More recently, and market-wide, the CLO market has been challenging—some dealer research suggested the CLO market was down double digits in 2025, and one report suggested double-digit declines in the first half of 2026. While we are navigating that, we began adding other investments into ECC at the beginning of the year, and we are now in the high 30s for non-CLO exposure. We do not have a set target for where to get to; it could go up or down. Our focus is maximizing returns by getting good investments that will deliver strong returns. We shared the SOI Tickets investment. In addition to that specific World Cup facility, we also have a regular term loan to the company, equity in the company, and other attractive investments generating attractive returns. Importantly, these are investments we hold across the Eagle Point complex; ECC benefits from access to a broader investment suite than just CLO equity. The short answer is we do not have a specific target number; the rationale is maximizing returns and using differentiated opportunities across the complex.
And next, we will move to Timothy D'Agostino with B. Riley Securities.
Yes. Thanks for taking the question. Good morning. Regarding gross capital deployed into new investments, the release mentioned about $111 million in 2Q 2026, and then for 3/2026 to date it is up to about $125 million.
I was just wondering, are you seeing more favorable market conditions or generally more capital to deploy? It's a combination of both. We try to keep the company relatively fully invested; there is always some cash floating around in a portfolio of this size and complexity. Our goal is to be close to fully invested at all times. Additional deployment is sometimes driven by sale proceeds: we rotated out of some CLO equity positions and sold over $100 million of CLO equity on a market value basis during the quarter, which freed up capital to reinvest into other CLOs and a range of other investments. Of the $71 million invested during the quarter, approximately $44 million went into CLOs and related investments and about $27 million into other investments—about $10 million into infrastructure credit and about $10 million into specialty finance, similar to transactions like SOI Tickets.
Okay, great. On the infrastructure credit sleeve, over the past three quarters it seems like infrastructure credit has picked up meaningfully. At year-end it was $31 million, and at 02/2026 it was about $112 million. What are you seeing within that sleeve? Are you more focused on infrastructure credit, and can you provide more color?
What we are seeing is that some line items in the portfolio are among the best risk-adjusted returns across our investment opportunities. These are not simple project finance loans at low single digits; they are more interesting credits where our capital can be transformative. We have a dedicated team—at least five people, with another joining shortly—focused on originating these investments. They are placed across multiple funds in the complex and have been some of the best investments we've made in the last year.
If I could sneak in another one on infrastructure credit: what type of infrastructure? Is it mostly digital infrastructure or more traditional infrastructure? I'd like context on the types of assets.
It is a broad basket, not any one particular sector. There is some digital infrastructure—one or two investments in that space. We invested in Celgard, a company that makes battery separators required for EV batteries and other batteries; those transactions include multi-year offtake contracts and allowed us to make senior secured credit investments with equity kickers. Across the firm, we've been involved in a recycling facility and recently purchased something in a hydroelectric facility in the third quarter. We are sector-agnostic: electric generation, battery storage, and other types. The leader of the team has over 35 years of infrastructure and project finance experience, coming from a very large firm with a deep bench. We have been very happy with those investments and remain broadly focused across many types of infrastructure.
And next, we will hear from Erik Zwick with Lucid Capital Markets.
Thanks. Good morning, everyone. Tom, you mentioned that you rotated capital away from some underperforming managers. Could you provide more color on the specific metrics where they were underperforming and not meeting standards?
Underperformance was driven by buying poor credits and, in some cases, selling assets in a way that destroyed value. Metrics include par burn—where managers buy at par and then sell at a discount without adequate replacement assets—and market value declines that are quicker than average due to credit misses. Over time, some collateral managers outperformed and some missed for different reasons. While we are generally very long-term in our relationships with collateral managers, persistent underperformance, personnel changes, or other issues justify exiting positions. We have hired a full-time quant on our CLO equity investing team to help detect early signals and allow us to exit names sooner and add names more promptly when appropriate. We also maintain a watch list of names to add after diligence. The CLO market has been tough; while some CLOs were down 30% total return in prior periods, others were flattish, so the dispersion has been wide. Exiting persistently underperforming managers is part of our management response.
I appreciate the detail. That was going to be my follow-up regarding how underperformance affects ongoing relationships with managers. Thank you for the complete answer. Just another topic: Ken mentioned leverage running above the target range and plans to return to that range over time. Can you frame a time frame or the path for getting there?
It is a combination of factors available to us. One path is positive NAV performance over the next few quarters, which would help, though we cannot extrapolate based on one quarter. Other levers include crystallizing gains from certain investments that may generate multiples on invested capital and opportunistically repurchasing company debt or preferreds trading at a discount. We have not set an internal deadline but are steering the company back to the middle of the target leverage range and are pulling the various levers at different paces.
We have a couple of investments in the portfolio that we believe have the potential to crystallize attractive multiples on invested capital. Some of the investments we make, away from CLOs, have nice stated coupons and, if paid off early, could produce higher returns than the rate at which we are currently accruing. We also have the ability to repurchase certain preferreds trading at a discount, which can provide forgiveness of indebtedness. It will be a combination of these approaches rather than one silver bullet.
That all makes sense. I realize NAV working against you for a while, but hopefully it can go back in your favor and drive a lot of it. I appreciate the commentary on the levers in your control. That is all I have today.
There are no further questions at this time. I would like to turn the floor back to Thomas Philip Majewski for closing remarks.
Great. Thank you very much, everyone. We appreciate you joining the call today and for your questions. Ken and I will be in the office throughout the day today, and if anyone has follow-up questions, please feel free to reach out to us. I also share the Eagle Point Income Company call as scheduled for 11:30 this morning. We invite you to join for that as well. Thank you very much.
Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.