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 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 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 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/UBS 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. While 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%, and 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. Ann 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 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 whether it was consistent over the market cycle?
Certainly. There is a standard default rate that we have with each cycle evaluation that we include as a constant default rate as a credit loss. Then we also calibrate to the market, which is a little 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 there is 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, you will have the reverse effect, which in April was a very solid month for loans and credit where that variable component of credit loss adjustment is 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. That is very helpful.
That kind of leads into my next question. Could you talk 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 relative to what we experienced in the first quarter. Credit fundamentals across the board and market sentiment, particularly in the software SaaS space, have also improved. Look at April as a rebound from the first-quarter downdraft in valuations. To this extent, 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 for taking my questions this morning.
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: 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, I'm curious to learn more about the preferred stock redemptions that you guys did in Q1 and Q2. Was there any specific driver to redeem those?
So we did a buyback or a full redemption of two baby bonds. Those were redeemed a week or two ago at this point. That was unsecured debt of the company, not preferred stock. The rationale 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 with our targets and 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 PRD and then the ECC series AA and A B, 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 and where it is trading at a discount. We gradually buy it back and retire it. The purpose of that is twofold: one, it helps build cushion to our leverage ratio, and two, we do make a small gain on retirement. So we are opportunistic when we see our debt trading at a discount; we buy it back and retire it.
And to the first question, we have that in the investor deck. The purchase percentages for the first quarter were roughly 75% of purchases in non-CLO investments, with the remaining 25% being in CLO investments.
Yeah. Sure.
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 for loans, 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 the CLOs in general were down. At the same time, loans continue to prepay and repay typically at a 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 go 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. Typically, a loan would come out at about 99.5 issue price. I would wager that the price of loans that came out in the first quarter was probably a little lower than normal, but not a lot lower; the market was probably getting compensated on new loans with a slightly higher spread than on a normal new-issue loan. So when we say prices are down, that is referring to both loans in the portfolio and CLO portfolios in general, as well as the reinvestment option in the secondary market. For new-issue loans, there was probably a small price movement, but not a ton.
And as my follow-up, if I understand correctly, the new deployments have a reflective yield of roughly 18.9 percent. The existing portfolio has an effective yield to CLO equity of 9.3 percent — and that 9.3, I believe, is amortized cost, not at fair value?
Yes. The roughly 9-and-change weighted average effective yield you cite is the yield on the overall portfolio on an amortized cost basis. That includes historical, legacy positions that were on the books. The new CLO equity we were deploying at 20-plus percent — that is reflected in the new-investment yields.
So the 9% number is on an amortized cost basis. The effective yield based on fair value of the portfolio is much higher because the portfolio does have unrealized changes. On the CLO equity portfolio based on fair value, the loss-adjusted effective yield is about a smidge over 26%. One of the complications is that if you take NAV, which reflects unrealized gains and losses, you would use that 26% figure. If you use amortized cost, then you use the lower number, around 9%.
We publish the effective yield on an investment-by-investment basis in our investor presentation, so you can see how different investments are carried. The expected yield on the CLO equity portfolio based on fair value is 26.3% on a loss-adjusted effective yield basis.
Given that disparity, at what point do we start seeing these much higher yields and these new investments start lifting the effective yield in the portfolio and starting to have a cascading effect into earnings and so forth?
One thing to consider is scale: the existing portfolio is large — roughly a billion dollars in assets, maybe a little less — versus new purchases that are in the tens of millions. So from a weighting perspective, they would not have a material effect immediately. Also, the yields on CLO equity vary materially by remaining reinvestment period; longer remaining reinvestment period paper tends to trade at a tighter effective yield than CLO equity with shorter remaining reinvestment periods. Many of the purchases we are making are skewed toward longer remaining reinvestment period paper.
Would it be fair to say that the new investments do not necessarily offer a material yield advantage over the existing portfolio?
That is correct in the near term. The portfolio's composition and weighting mean that new investments, even at higher yields, will take time to materially move the portfolio-level yield.
The new $0.18 quarterly distribution annualized is roughly 17% on the first-quarter NAV. That seems very high and potentially unsustainable given everything you said, or am I looking at something wrong?
Our earnings, specifically our net investment income, is roughly in line with that, perhaps a bit above. We looked at the earnings power of the portfolio and set the distribution at a level below the NII we have had over the last few quarters. Obviously, we cannot predict the future, but we aimed to make it a number that we believed we could sustain for the foreseeable future. Market conditions will be a factor, but our historic earned NII and best estimates for forward NII drove that decision.
Great. That is it for me. Thank you very much.
Thanks, Christopher.
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.