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 now 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. And 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 ultimately to 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 8 resets and 7 refinancings of our CLO equity positions. 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 5 years. These actions help mitigate some of the headwinds CLO equity had 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, providing differentiated sources of income and additional diversification across multiple asset types. 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 back 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 -$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%, better than the market average of 4.6%. Our weighted average junior overcollateralization cushion stood at 4.4%, also better than the market average of 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 adviser'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 maybe 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. So even in the first quarter, there were some repricings that then manifested themselves later. The repricing was agreed, let's say, in the first quarter before things got choppy, then it rolled through the portfolio in the second quarter. The spread on the underlying loan portfolio is roughly flat quarter over quarter. And, frankly, 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. As part of that, in certain instances, loan spreads are actually getting reset wider in exchange for some degree of additional maturity time. What drives loan spread compression is strong demand for loans not met by sufficient supply of new loans. When that happens, loans get bid up to par or above, and companies may reprice their debt tighter. With most loans trading at discounts to par, that certainly has slowed. In addition, the CLO issuance machine has slowed down; quarter-over-quarter issuance volume from Q1 to Q2 of new-issue CLOs was down by a nontrivial amount. Judgmentally, around 20-25%, showing that the new-issue CLO arbitrage remains challenged, which reduces the demand for loans and therefore keeps prices lower. You can never declare a victory on these things: a bull market could take over tomorrow. Oddly, spread compression is caused by bullish demand for loans, not the opposite. But where we sit today, a little bit of rate uncertainty, some geopolitical uncertainty, and a more challenged new-issue CLO arbitrage all argue for muted spread compression and potentially even for spreads to widen a little bit, which we are seeing on some loans. But, in short, it is supply-and-demand driven, and we believe we are in a better situation now.
Thanks for those details. As a follow-up, I wanted to ask you about the non-CLO investments you made in the quarter. What is the yield on the non-CLO investments as compared to the CLO investments that you are making? I think in the prepared remarks you also 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, and we see similarly low-twenties expected yields for CLO equity. The bulk of the CLO purchases were either secondary or reset injections. When we look at the non-CLO bucket, our number one 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 best opportunity was. More recently, and this is market-wide, the CLO market has been down materially in some periods, so while we are trying our best to navigate, it has been a difficult market for CLO equity due to demand exceeding supply and significant spread compression. As we have looked to add other investments into ECC, which we started highlighting at the beginning of the year, we are now in the high 30s for non-CLO exposure. We do not have a set target for where to get to with that exposure; it could go up or down. Our focus is on getting good investments that will deliver very strong returns. We shared the SOI Tickets investment earlier. In addition to that World Cup facility, we have a regular term loan to the company, some equity, and other very attractive investments, some of which have gone full cycle and generated strong returns. Importantly, these are investments we hold across the Eagle Point complex. One advantage of having Eagle Point Credit as the adviser to ECC is broader access to a much bigger investment suite than just CLO equity. So, in short, I do not have a specific target number to give you; the rationale is maximizing returns, the strategy is working, and these are investments we are doing across the complex and not unique to this vehicle.
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, in the release it was mentioned about $111 million in 2Q 2026. And then for 03/2026 to date, it is up to about $125 million.
So I was just wondering, are you seeing more favorable market conditions or just generally more capital to deploy? It's a combination of both, frankly. We try to keep the company relatively fully invested. There is always some cash floating around in a portfolio of this size and complexity. What drives deployment is a goal to ideally be close to fully invested at all times. More capital being deployed is sometimes driven by sale proceeds. Mindful, we did rotate out of some CLO equity positions; we 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 into other investments. As I look across the complex, of the $71 million invested during the period it looks like about $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 things like SOI Tickets.
Okay. Great. Then just on the infrastructure credit, understanding you are diversifying the portfolio a bit, but over the past three quarters it seems infrastructure credit has been the sleeve that has picked up meaningfully. It looks like at year-end it was $31 million, and at 03/2026 it was about $112 million. Just trying to understand what you are seeing within that sleeve. Is there any other color or commentary to provide on that sleeve?
What we are seeing is some of the best risk-adjusted returns among the investment opportunities we are evaluating. These are not simple project finance loans at low single-digit yields; they are typically more interesting, higher-return loans where our capital can be transformative. We have at least a five-person dedicated team, with another person joining shortly, focused on originating these investments across a number of funds in the Eagle Point complex. Many have been among the best investments we've made in the last year.
Okay. If I could sneak in another one on infrastructure credit: could you talk to what type of infrastructure — is it mostly digital infrastructure or more traditional infrastructure? I'm trying to understand the context of this infrastructure exposure.
It is a broad market basket, not any one particular sector. There is some digital infrastructure and one or two investments in that space. For example, we invested in Celgard, a company that makes battery separators required for EV batteries and other batteries; they have multi-year offtake contracts. We are able to make senior secured credit investments as well as get equity kickers as part of those loans. Across the firm, we have been involved in a recycling facility and recently purchased something in a hydroelectric facility which closed in the third quarter. I don't know if ECC participated in every investment, but the basket includes electric generation, battery storage facilities, and more. We are sector agnostic within infrastructure. The leader of the team has well over 35 years' experience in infrastructure and project finance and previously was at a very large firm with a deep bench of experience. We have been very happy with those investments and are not limiting ourselves to any single type of infrastructure.
And as a reminder, it is star 1 if you would like to ask a question. We will next hear from Erik Zwick with Lucid Capital Markets.
Thanks. Good morning, everyone. Tom, you mentioned in your comments earlier that you rotated capital away from some underperforming managers. Curious if you could provide a little more color on what particular metrics or behaviors indicated underperformance and where they fell short.
Buying bad credits or burning par through selling assets indiscriminately — in other words, destroying value within the portfolio. It's typically measured on a par-burn basis, a decline in the par of the portfolio, which means buying something at par and later selling at a discount without a replacement asset. Or the market value of the portfolio declining very quickly, faster than the average, with credit misses. Over time, and in this cycle more pronouncedly, some collateral managers have significantly underperformed while others have outperformed. We always try to learn from these outcomes. While we are generally very long-term in our relationships with collateral managers, persistent underperformance, changes in personnel, or other material issues make it sensible to exit particular names. We have added a full-time quant dedicated to our CLO equity investing team at the beginning of the year to help identify early signals so we can exit names sooner and get into names quicker that have rebounded. We maintain both negative and positive watch lists and use qualitative and quantitative diligence to make decisions. Ultimately, it's been a tough market for CLO equity — some parts were down substantially while others were flattish — and decay can continue. We are proactive in managing those positions.
I appreciate the detail there; that covers my follow-up on manager performance. Ken, you mentioned current leverage running above the target range and plans to return to that range over time. Could you frame that a little more in terms of expected timing and the path or strategy for achieving that target range?
It's a combination of factors available to us. While we cannot simply extrapolate, positive NAV movement over a few quarters would help materially. We also have several other levers: we have investments in the portfolio that we believe have the potential to crystallize attractive multiples on invested capital; some of these investments, if paid off early, could yield higher returns than currently accruing. Additionally, we have the ability to slowly buy back certain debt or preferred securities trading at a discount, which provides effective forgiveness of indebtedness. We have not set a strict internal deadline, but we want to steer the company back to the middle of our target leverage range and are actively pulling on the various levers at different paces.
We have a couple of investments in the portfolio that we believe have the possibility to crystallize attractive multiples on invested capital. No outcome is guaranteed, but some investments have a nice stated coupon and the potential for higher returns if paid off early. We have also been able to buy back a little of the ECCC preferreds, which are due in 2031, at a discount, which helps a bit in reducing leverage. So the strategy is really a combination of portfolio appreciation, realizations on certain investments, and opportunistic capital-structure actions.
To summarize, it's a combination of NAV improvements, realizations on certain non-CLO investments, and opportunistic repurchases of discounted financing that will get us back to the target range. We know the levers and are actively managing them.
That makes sense. I realize NAV has been working against you, but it could move in your favor and drive a lot of it. I appreciate the commentary on levers in your control. That's all I have today.
Thank you, Erik. 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 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.