Prepared remarks
Good day. You are currently holding for the Eagle Point Credit Company call. We will be underway in approximately two 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 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 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 five 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. Eagle Point Credit Company 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 for us 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 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 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 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 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.
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 is from Gaurav Mehta with Alliance Global Partners.
Thank you. Good morning. I 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. That's a very good question. The lag in loan spread compression flowing through CLOs always takes a little while. Some repricings that were agreed earlier in the year, before volatility hit, then rolled through portfolios in the second quarter. The spread on the underlying loan portfolio was roughly flat quarter over quarter, and in some cases we are seeing loans move wider in spread. In the software sector in particular, one trend we are seeing is amendments and extensions. In certain instances, loan spreads are being 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. When demand outstrips supply, loans get bid up to par or higher and issuers reprice tighter. With most loans trading at discounts to par, that dynamic has slowed. In addition, the CLO issuance machine has slowed down. Quarter-over-quarter issuance volume from Q1 to Q2 of new-issue CLOs declined by a nontrivial amount—judgmentally around 20 to 25%—showing that the new-issue CLO arbitrage remains challenged. That reduces demand for loans and helps keep prices lower. You can never declare a victory definitively, since markets can change quickly, but current rate uncertainty, geopolitical uncertainty, and a more challenged new-issue CLO arbitrage all point to muted spread compression and, in some cases, potential for spreads to widen a bit, which we are seeing on some loans. In short, it's primarily supply-and-demand driven, and we think the environment now is more supportive of stable or slightly widening spreads versus continued compression.
Thanks for those details. As a follow-up, regarding the non-CLO investments you made in the quarter, what is the yield on those non-CLO investments compared to the CLO investments that you are making? In the prepared remarks, you mentioned non-CLOs are 38% of the portfolio versus 32% in March. Is there a target for that exposure?
The expected yields for new investments are roughly in the low twenties for both non-CLO and CLO equity investments. The bulk of the CLO purchases were either secondary or reset injections. 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 where we can accept some illiquidity. For a long time, CLO equity was our primary source of that opportunity. More recently, the CLO market has been challenged—some dealer research showed the CLO market was down double digits last year and in parts of 2026—so we have been adding other investments to ECC. We are in the high 30s for non-CLO exposure today, but we do not have a fixed target. It could go up or down depending on where we find attractive opportunities. The rationale is maximizing returns. The strategy is working, and importantly, these investments are things we do across the Eagle Point complex. We do not put unique originated investments only in ECC. The SOI Tickets investment is an example, and we have other term loans, equity positions, and specialty investments generating attractive returns. So no specific percentage target; it is about finding good investments that deliver strong returns.
Our next question is from 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 second quarter 2026, and then year-to-date it is up to about $125 million. Are you seeing more favorable market conditions or just generally more capital to deploy?
It is a combination of both. We aim to keep the company relatively fully invested, and with a portfolio of this size and complexity there is always some cash floating around. Deployments are driven by a goal to be close to fully invested at all times. Sale proceeds also free up capital—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 capital to reinvest. Looking across the complex, of the $71 million invested that period, about $44 million went into CLOs and related investments, and about $27 million into other investments—roughly $10 million into infrastructure credit and about $10 million into specialty finance, similar to the SOI Tickets example.
Okay, great. On the infrastructure credit sleeve: over the past three quarters it seems infrastructure credit has picked up meaningfully—at year-end it was $31 million and at March 2026 it was about $112 million. Could you provide more color on that sleeve and what you are seeing within it?
What we're seeing is that some of the line items in the portfolio represent some of the best risk-adjusted returns among the investment opportunities we're sourcing. These are not simple project finance loans at low single digits; these are more complex, transformative financings where our capital can be catalytic. We have a dedicated origination team—several professionals focused on sourcing and executing these opportunities, and the investments go into funds across the Eagle Point complex. Many have been among our better investments in the last year.
If I could sneak in another one on infrastructure credit: can you talk about the types of infrastructure? Are these mostly digital infrastructure or more traditional infrastructure? Trying to understand the mix.
It's a broad basket, not any one particular sector. There is some digital infrastructure—one or two investments there. We also invested in Celgard, which makes battery separators required for EV batteries and other batteries; those deals have multiyear offtake contracts and we were able to make senior secured credit investments with equity kickers. Across the firm, we've been involved in recycling facilities and in a hydroelectric facility acquisition we executed in the third quarter. So we are sector agnostic across electric generation, battery storage, and other infrastructure types. The infrastructure origination team has deep experience—its leader has over 35 years in infrastructure and project finance—and we are very pleased with the pipeline and results.
Okay, great. Thank you so much for taking the questions this morning.
Our next question is from Erik Zwick with Lucid Capital Markets.
Thanks. Good morning, everyone. Tom, you mentioned rotating capital away from some underperforming managers. Can you provide more color into what particular metrics or behaviors caused you to conclude they were underperforming?
The issues were generally related to poor credit selection and portfolio management actions that damaged par—buying bad credits or selling assets in a way that destroyed value. Many times this is measured by par burn—buying something at par and selling at a discount without a replacement asset—or the market value of the portfolio declining faster than peers due to credit misses. During stressed periods we've seen persistent underperformance from some managers, and when we observe persistent underperformance, personnel changes, or other issues, we're willing to exit those positions. We have hired a full-time quant for our CLO equity investing team to improve our ability to identify underperformance earlier and to act more quickly, both to exit underperforming names and to add names that rebound.
That was helpful. My follow-up is on leverage: Ken mentioned current leverage is above the target range and you intend to return to the range over time. Is there a timeframe expectation for getting there, and what is the path or strategy for achieving it?
It's a combination of factors. Positive NAV performance over time would reduce the leverage ratio naturally. We do not have an explicit internal deadline, but a couple of positive NAV quarters can move the needle significantly. We also have other levers to deploy.
We also have a few investments in the portfolio that could potentially crystallize attractive multiples on invested capital, which would help reduce leverage. Some of these investments have stated coupons and short tenors where early payoffs would convert to realized gains. Additionally, where appropriate, we've been opportunistically repurchasing some of our preferred securities that trade at a discount, which can effectively reduce indebtedness. These are among the paths available to return leverage to within our target range.
So, Eric, it is really a combination of NAV appreciation, realizing value from certain investments, and opportunistic capital structure actions. We know the levers and are pulling them at appropriate paces. For clarity, GAAP return was up 12.7% for the quarter and NAV increased 8%. We cannot extrapolate that forward, but a few constructive quarters would help materially.
That makes sense. I appreciate the commentary on the levers you can control. That's 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 us. I also share the Eagle Point Income Company call is scheduled for 11:30 this morning and 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.