Prepared remarks
Ladies and gentlemen, thank you for your patience. The conference will begin momentarily. Again, thank you for your patience. Greetings, and welcome to the Eagle Point Income Company First Quarter 2026 Financial Results Conference Call. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. At this time, I will turn the conference over to Mr. Darren Daugherty from Prosek Partners. You may now begin.
Thank you, operator, and good morning. Welcome to Eagle Point Income Company's Earnings Conference Call for 2026. Speaking on the call today are Thomas Philip Majewski, chairman and chief executive officer of the company; Daniel Ko, senior principal and portfolio manager for the company's adviser; and Lena Umnova, chief accounting officer for the adviser. 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 SEC. 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, eaglepointincome.com. A replay of this call will also be made available later today. I will now turn the call over to Thomas Philip Majewski, chairman and chief executive officer of Eagle Point Income Company. Tom?
Thank you, Darren, and good morning, everyone. We are glad you are joining us today for Eagle Point Income Company's quarterly earnings call. Despite facing some broader market challenges, EIC had a strong first quarter. During the quarter, we had an increase in our net investment income from the prior quarter and our recurring cash flows covered our distributions and our total company expenses. The CLO market faced challenging conditions in much of 2026, and the company was not immune to these broader dynamics. While CLO fundamentals remained relatively stable, a decline in loan prices, especially in the software sector, and a cautious tone across credit markets due to the ongoing war in Ukraine, weighed on our NAV during the quarter. The software sector was a particular area of focus during the quarter, and investors continued to assess the potential impact of artificial intelligence on certain business models and revenue streams.
Importantly, however, our exposure is principally through broadly syndicated loans, not middle market loans that are commonly found in BDCs. The loans in our CLOs are typically larger, more liquid, institutionally syndicated credits with observable market pricing. While this observable pricing results in more immediate mark-to-market volatility during periods of market stress, it provides clarity to investors as to the valuation of the underlying investments. While that volatility impacted quarterly valuations of many CLOs, we believe it also created opportunities for CLO collateral managers to reinvest proceeds from sales and paydowns into discounted loans with attractive forward return potential. While these factors led to a decline in CLO valuations during the quarter for many securities, we believe the market typically undervalues the reinvestment option embedded in CLOs during times of volatility.
The ability to buy loans at material discounts to par has allowed CLO equity to deliver attractive intermediate and long-term returns many times in the past. In addition, we believe our floating-rate CLO junior debt portfolio will benefit from higher income should we see an upward movement in short-term rates. With an increase in inflation more and more in the outlook by many market participants, it seems the potential for a rise in short-term rates may be more on the table than we thought even just three months ago. During the quarter, we deployed $56 million in new investments across multiple credit asset classes with a weighted average effective yield of 16.0% 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 two refinancings of our CLO equity positions which resulted in weighted average CLO debt cost savings of 48 basis points for those CLOs.
In addition to lowering debt costs, the reset positions extended their reinvestment periods to five years. While CLO junior debt remains central to EIC's strategy, we opportunistically increased our exposure to other credit classes including infrastructure credit, regulatory capital relief transactions, portfolio debt securities, and other structured and private credit investments. Eagle Point's platform has a dedicated team with deep specialized expertise across all of these asset classes, and this is a meaningful platform advantage enabling EIC to access originated investment opportunities, increase portfolio diversification, and generate excess returns above traditional CLO securities. NAV decreased to $11.99 per share as of March 31 from $13.31 per share at year-end. The decrease primarily reflects negative mark-to-market adjustments on the company's CLO debt portfolio driven by wider spreads and weaker risk appetite for CLO junior debt during the quarter.
Our GAAP return on equity was negative 7.2%. That said, we saw a meaningful rebound in April, and indeed EIC's NAV increased to be between $12.48 and $12.58 per share. This is a 4.5% increase at the midpoint of the range. Despite the decline in NAV during the first quarter, our net investment income increased quarter over quarter to $0.36 per share, up from $0.35 per share in 2025. Both of these measures are in excess of the $0.33 per common share in distributions that we paid. Turning to our capital structure: during the first quarter, we launched our 6.00% Series AA and Series AB convertible perpetual preferred stock offering. This provides the company with a source of low-cost, long-duration capital and increases our financial flexibility. We are unaware of any other publicly traded entity that invests primarily in CLO debt with perpetual financing, and we consider this to be a material competitive advantage for our company.
Subsequent to quarter end, we completed the full redemption of our 8.00% Series C term preferred stock which had been our highest cost debt financing. These actions reflect our continued focus on lowering our cost of capital and lengthening our maturity profile, all with the goal of enhancing our long-term earning power. During the quarter, we repurchased almost 390 thousand shares of our common stock at an average discount to NAV of 19.3%, which resulted in NAV accretion of $0.04 per share. And since June 2025, when the board initially announced the share repurchase authorization, through March 31 we have repurchased a total of $50 million of common stock at an average discount of 13.0% to NAV, resulting in NAV accretion of $0.26 per share. We plan to selectively continue our common share buybacks as market opportunities present themselves. We believe the actions we have taken during the quarter together with our current portfolio positioning leave us well situated for the quarters ahead. I will now turn the call over to Senior Principal and Portfolio Manager, Daniel Ko, for an update on the market.
Thanks, Tom. I will provide a brief update on the loan and CLO markets. In the first quarter, the S&P UBS Leveraged Loan Index fell by 0.5% but rebounded by 1.2% during the month of April. Despite this mixed performance in loan returns, underlying loan borrower fundamentals have remained stable, as corporate revenue and EBITDA growth remain positive, supporting overall credit performance across the broadly syndicated loan market. The trailing 12-month default rate ended the period at 1.4%, modestly higher than year-end levels but well below the long-term average of 2.5%. While lower loan prices have pressured CLO valuations in the near term, they are also creating a more attractive reinvestment environment. With many loans trading below par and repricing activity slowing in the first quarter, we saw greater potential for par build, wider spreads on new investments, and improved forward returns.
For junior CLO debt securities, we believe this rate environment is constructive. With intermediate and long-term rates increasing, we expect short-term rates, including SOFR, which CLO debt floats off of, to follow. Indeed, the market is pricing in potential Fed rate hikes in the next year. With the potential for higher short-term rates, junior CLO debt investments continue to offer attractive floating-rate income potential which we would expect to support higher income on the portfolio in the future. In addition, periods of market volatility can create opportunities to purchase CLO debt at discounts, providing the potential for pull-to-par as markets normalize. We believe that the combination of income generation, structural protection, and potential convexity makes junior CLO debt particularly compelling in the current environment. In terms of CLO new issuance, we saw $47 billion of volume during the quarter, down slightly from $55 billion in 2025.
Reset activity for the first quarter was $32 billion, down from $54 billion last quarter, while refinancing activity was $24 billion, up from $20 billion last quarter. With the broader markets normalizing into the second quarter, we expect CLO volumes to remain robust going forward. With that, I will hand it over to our adviser's Chief Accounting Officer, Lena Umnova, to walk through our financial results.
Thank you, Daniel. During the first quarter, the company generated net investment income, or NII, of $0.36 per share, and NII less realized losses of $0.34 per share. This compares to NII less realized losses of $0.03 per share last quarter and NII and realized gains of $0.44 per share for 2025. Including unrealized portfolio losses, GAAP net loss was $22 million, or $0.95 per share, for 2026. This compares to GAAP net loss of $0.60 per share last quarter and a GAAP net loss of $0.46 per share for 2025. Recurring cash flows from the company's investment portfolio totaled $40 million, or $0.62 per share, during the quarter, and exceeded the company's common stock distributions and expenses. During the quarter, we paid three monthly common stock distributions of $0.11 per share, and last week we declared three monthly common stock distributions of $0.11 per share for 2026. As of March month-end, the company had outstanding preferred equity securities equal to 34% of total assets less current liabilities, which is within our target range of 25% to 35% where we expect to operate the company under normal market conditions.
Looking at our portfolio activity during the month of April, the company received recurring cash flows on its investment portfolio of $11 million. Note that some of the company's investments are still expected to make payments later in the quarter. As of March month-end, net of pending investment transactions and settlements, the company had $15 million of cash and revolver capacity available for investment and other purposes. Management's unaudited estimate of the company's NAV as of April month-end was between $12.48 and $12.58 per share. At the midpoint, this was an increase of 4.5% from March month-end. I will now turn the call back over to Tom to provide closing remarks before we take your questions.
Thanks, Lena. In our view, the combination of lower loan prices, reduced loan repricing activity, and the potential for higher short-term rates is improving the outlook for our earnings power. Combined with our disciplined capital allocation and access to the full Eagle Point origination platform, we believe we are well positioned to translate this environment into stronger results for shareholders over time. We appreciate your continued support, and thank you for your time and interest in Eagle Point Income Company. Lena, Daniel, and I will now open the call to your questions. Operator?
Questions and answers
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. Before pressing the star keys, please be sure your phone is not on mute. One moment, please, while we pull for questions. And our first question comes from the line of Erik Zwick with Ladenburg Thalmann. Please proceed.
Thank you. Good morning, again. Wanted to start with a question on software. You mentioned it in your comments, and it has obviously been very topical of late in the leveraged loan market. Looking at, I think, Slide 22 where you show the concentration of different industries in the portfolio, technology and software appears to be, I guess, double at least the next largest, which is 12% to 12.5%. So curious what your thoughts are. Bigger picture question: do you think the impact is likely to result in changes to volume in leveraged loan issuance, such as fewer IPOs in software, or do you think it leads to increased defaults and credit quality issues? And maybe more importantly, how are you thinking about this and your desired target for exposure to software in the portfolio?
So a lot of questions packed into one there. Overall, indeed, you can see software and services is the largest category by a factor of more than two compared to the second place. One of the first things we think about broadly is not all software companies are created equally. At a high level, there are statistics that many large, established companies still use legacy systems. The risks are more pronounced in some sectors of software than others. An example, an airline reservation system would be something so critical not to be outsourced or discontinued anytime soon. At Eagle Point, our internal books and records and the official custodian records indicate those sorts of critical systems are a long way from being replaced. At the same time, some noncritical software tools, like internal vacation tracking systems, could be replaced or made less expensive. So broadly, the criticality of a tool is an important factor in its vulnerability to disruption.
Second, I will make an analogy back to e-commerce and Amazon's IPO, which I think was around 1997 to 1999 depending on how you define it. One of the discussions then was about the end of retail as we know it. Indeed, Amazon has significantly changed retail, but there are still plenty of physical stores. I saw a stat recently that retail had the highest occupancy rate in the CMBS market, so vacancy is low. While predictions of doom are common in the credit market, in my experience they are often overstated. That said, there are risks, and there are software loans in the syndicated market trading in the 50s, perhaps some even lower at this point. That is the exception, not the majority, but it is greater than zero. When we look at our portfolios, we are not buying or selling specific loans in any CLOs; the collateral managers are the ones doing that. The software industry is an area of significant focus for us, both in our monitoring and ongoing diligence of existing investments in the ground, including decisions potentially to sell investments, and as an important part of our decision when selecting a new security to invest in.
So we do not have a fixed target software exposure. All else equal, I would seek to lower it. That said, due to activity in the underlying portfolios, it is possible it goes the other way as well. Overall, I suspect that trend will be downward, but I underscore the pace of transition. While it is probably faster this time than it was with e-commerce nearly 30 years ago, we are not in an immediate situation. There are a small number of watch names, and many companies have a fair bit of runway. It is something we are actively watching. We are in dialogue with our collateral managers, and it is impacting our investment decisions, but it is by no means the only factor we consider when deciding to buy, sell, or hold a security.
Thanks, Tom. I appreciate the insight on that topic. Last question for me, and then I will step aside. Given especially the update for the April NAV and that the stock continues to trade at a discount to NAV, is it fair to say that the share repurchases still remain attractive from your viewpoint and likely to continue in the near term?
We have continued to use the program, although I will say it has not been as aggressive as in the past. One of the things we balance is the potency of the buybacks in terms of NAV accretion. I think we have built up about $0.24 of NAV through discounted buybacks. The flip side is we also balance liquidity in the stock and the actual potency of our buying to the stock price. So it is something we continue to monitor and tweak. The program remains open and active, and we do have open capacity on it. I will say we love buying our stock when it's cheap, we like volume in our stock, and we like to use our powder when we can really move the stock price. So it is a combination of all of those factors that may inform our decision each day. I would not say right now we are aggressively buying back stock, but the program is open and active.
Thank you for the update.
The next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed.
Daniel, actually for anyone, the 12-month default rate was 1.4% and part of my notes is 1.2% last quarter. Was software the reason for that change?
Yeah. Some of it was. We have not seen software names default in a concentrated way. It was not necessarily one specific sector. Many of the software names are still trading above 90, about 75% as a rough measure, so there is actually decent potential for par building. A lot of the CLO collateral managers were selling software last year in 2025 because they were getting ahead of the AI disruption risk, so this is not new to the CLO market. With lower concentrations than private credit and the ability to trade loans, managers can make relative value swaps. There certainly may be defaults in some software names that could lead to higher defaults in the future, but getting ahead of it and trading around it has kept default rates relatively low in the broadly syndicated loan market.
So you are not really seeing higher nonaccruals or any fund per se; this is more of a market dynamic. On a follow-up, some of the BDCs I cover have started seeing increased credit stress in health care. Have you guys seen anything like that?
Not significantly, unless it is somehow related to AI or if it is a software company categorized within health care that has a risk of being disrupted by AI. Otherwise, no, we have not seen that.
Okay. That is it for me. Thank you.
There are no further questions at this time. And I would like to turn the call back over to Thomas Majewski for closing remarks.
Great. Thank you very much, everyone, for joining today. Lena, Daniel, and I appreciate your interest in Eagle Point Income Company. If you have any further questions, we will be in the office later today and be happy to speak. Thank you very much.
This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.