管理層發言
Greetings, and welcome to the Eagle Point Credit Company Inc. Second Quarter 2025 Financial Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Darren Dougherty from Prosek Partners. Thank you. You may begin.
Thank you, Operator, and good morning. Welcome to Eagle Point Credit Company's Earnings Conference Call for the second quarter of 2025. Speaking on the call today are Thomas Majewski, Chief Executive Officer; and Ken 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 second quarter 2025 financial statements and investor presentation with the Securities and Exchange Commission. These are also available on 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 Majewski, Chief Executive Officer of Eagle Point Credit Company. Tom?
Thank you, Darren. Good morning, everyone, and thank you for joining us on the call today. I'd like to start off by sharing the company's earnings for the second quarter. The company generated net investment income less realized losses from investments of $0.16 per share. This consisted of $0.23 of net investment income and was offset by $0.07 of realized losses from investments. The realized losses from investments were principally driven by a reclassification of certain unrealized losses and essentially had no NAV impact. In fact, our NAV as of June 30 was $7.31 a share, which was up 1.1% from the $7.23 NAV as of March 31. For the second quarter, the company generated a non-annualized GAAP total return on equity of 6.3%. Recurring cash flows from our portfolio remained strong. Second quarter recurring cash flows were $85 million or $0.69 per share, and this exceeded our quarterly aggregate common distributions and total expenses by $0.08 per share.
Q2 cash flows were higher than the $80 million or $0.69 per share in the first quarter. The higher recurring cash flows were driven by our proactive refinancing and reset program, outsized first-time CLO equity payments through our opportunistic new issue opportunities, but were slightly hurt by a few basis points of loan spread compression during the quarter. We remained active in portfolio management during the quarter, deploying $86 million into new investments. Importantly, we were able to take advantage of the market dislocation in April and May to acquire CLO equity positions at attractive discounted levels. We expect these investments to contribute to our portfolio's earning power in future quarters. During the quarter, we completed 4 resets and 1 refinancing. The reset and refinancing market, which was quiet during the peak of volatility in April, has since picked up. We have a strong pipeline of additional opportunities that we expect to execute on throughout the remainder of 2025.
We believe our continued refinancing and reset activity will reduce CLO financing costs and ultimately lead to higher CLO equity distributions, resulting in higher net investment income for the company. Our portfolio's weighted average reinvestment period, or WARP, stood at 3.3 years as of June 30, and this was roughly 44% above the market average of 2.3 years. If the dislocation had been more prolonged, the company's portfolio was well positioned to capitalize on the market disruption by purchasing loans at discounted levels within our CLOs. From a new issuance perspective, the arbitrage for new CLO equity investments was less attractive today than it was before the volatility began in April. AAA spreads currently stand around 130 basis points over SOFR, and this is roughly 20 basis points wider than the volatility in March and April. However, we have a few loan accumulation facilities in different stages of formation, and we'll continue to opportunistically invest in new issue CLO equity when the math is attractive.
During the quarter, we utilized our at-the-market program to issue $41 million of common stock at a premium to NAV, and this resulted in accretion of NAV by $0.02 per share during the quarter. We also issued approximately $38 million of our 7% Series AA and AB convertible perpetual preferred stock as part of our continuous offering program. We believe the 7% distribution rate on this perpetual preferred stock represents a very attractive cost of capital for the company, and it provides us with a material advantage over our competitors. Indeed, we are unaware of any other publicly traded entity focused principally on investing in CLO equity that has such an attractive financing program. During the quarter, we also entered into our second strategic CLO collateral manager partnership, establishing a new CLO collateral manager within a long-standing established credit management platform. As with our other strategic relationship, we received a meaningful perpetual top-line revenue share in the CLO business.
We believe the potential value creation through these strategic partnerships will meaningfully enhance shareholder returns over time. Indeed, ECC's share of our first partnership is now valued at over $2 million, and I believe there is room to grow much more. During the second quarter, we paid $0.42 per share in cash distributions to our common stockholders across 3 monthly distributions of $0.14 per share. Earlier today, we declared regular monthly distributions of $0.14 per share for the fourth quarter of 2025. The company's Board of Directors considers numerous factors when setting the monthly distribution level, including cash flow generated from the company's investment portfolio, GAAP earnings, and the company's requirement to distribute substantially all of its taxable income, among other considerations. And finally, I'd like to highlight Eagle Point Income Company, which trades on the New York Stock Exchange under the symbol EIC.
EIC principally invests in junior CLO debt securities. We'll be hosting an investor call for EIC today at 11:30 a.m., and we invite you to join us. Ken will now provide some more details on our financial results. And after his remarks, I'll share some insights on the loan and CLO markets.
Thank you, Tom, and thanks, everyone, for joining our call today. For the second quarter of 2025, the company recorded net investment income less realized losses on investments of $20 million or $0.16 per share. Net investment income for the second quarter was $0.23 per share. Included in the second quarter realized losses from investments was $0.05 per share of realized losses from the reclassification of unrealized losses for 3 CLO equity positions outside of their reinvestment period that have been written down to fair value. Since the fair value of these investments had already been reflected in the company's NAV, this was an accounting reclassification from an unrealized loss with little to no impact on NAV. Excluding the reclassification, second-quarter NII less realized losses on investments would have been $0.21 per share. This compares to NII and realized gains of $0.33 per share in the first quarter of 2025 and NII less realized losses of $0.16 per share in the second quarter of 2024.
Additionally, for the second quarter of 2025, the company recorded losses from forward currency contracts of $0.08 per share, which were substantially offset by unrealized gains on non-U.S. dollar-denominated investments, resulting in little to no impact on NAV. When unrealized gains are included for the second quarter, the company recorded GAAP net income of $58 million or $0.47 per share. This compares to GAAP net losses of $0.84 per share in the first quarter of 2025 and $0.04 per share in the second quarter of 2024. The company's second quarter GAAP net income was comprised of investment income of $48 million and unrealized gains on investments of $55 million, offset by financing costs and operating expenses of $20 million, realized losses from forward currency contracts of $10 million, realized losses on investments of $8 million, distributions and amortization costs on temporary equity of $4 million, and unrealized losses on certain liabilities held at fair value of $3 million.
As a reminder, temporary equity refers to our multiple series of perpetual preferred stock. Additionally, the company recorded other comprehensive income of $2 million for the second quarter. The company's asset coverage ratios as of June 30 for preferred stock and debt, calculated pursuant to Investment Company Act requirements, were 243% and 525%, respectively. These measures are above the statutory requirements of 200% and 300%. Our debt and preferred securities outstanding at quarter end totaled 41% of the company's total assets less current liabilities, above our target range of 27.5% to 37.5% when operating the company under normal market conditions. As of July 31, our pro forma leverage was 40%, but we expect the leverage ratio to revert back to our target range over time. Consistent with our long-range financing strategy for the company, all of our financing remains fixed-rate, and we have no maturities prior to April 2028.
In addition, a significant portion of our preferred stock financing is perpetual with no set maturity date. During the second quarter, we deployed $86 million in gross capital into new investments. As Tom noted, we were particularly active in April and May, taking advantage of market dislocation to acquire CLO equity at attractive levels. So far, in the current quarter through July 31, the company has received recurring cash flows on its investment portfolio of $66 million. We expect additional collections throughout the balance of the quarter. Additionally, management's unaudited estimate of the company's NAV as of July 31 was between $7.44 and $7.54 per share, an increase of 2% from quarter end. I will now hand the call back over to Tom for his market insights and updates.
Thank you, Ken. Let me share some updates on what we're seeing in the loan and CLO markets. The S&P UBS Leveraged Loan Index experienced a relatively brief period of volatility during the second quarter, declining sharply in April following the pullback that we saw in March amid tariff-related pressures. The index recovered in May and June and ended up with a total return of 2.3% for the second quarter. The loan index ended up almost 3% during the first half of the year and continued performing well through July, ending the month up 3.8% for the full year. The recovery in loan prices has been encouraging, but we note that CLO equity has not yet fully participated in this recovery. We view this as a potential tailwind for our portfolio as we move through the second half. During the second quarter, there were 4 leveraged loan defaults. And as of June 30, the trailing 12-month default rate for loans stood at 1.1%.
This is well below the long-term average of 2.6% and certainly below most dealer forecasts. We did see one notable default in June with Altice representing approximately 38 basis points of the CLO market defaulting, although the event was largely anticipated by market participants and priced in well before the action. Our portfolio's look-through default exposure as of June 30 stood at 32 basis points, which remains well below the broader market levels. We've also seen an increase in liability management exercises by leveraged loan borrowers. These are essentially out-of-court restructurings where CLOs can be the beneficiaries when working with top-tier collateral managers and with Eagle Point's CLO document expertise. Our portfolio has generally been well-positioned in these situations, and we've actually seen net par build in our holdings of CLO equity over the past year despite the out-of-court restructuring activity.
In many cases, our CLOs have been able to be on the winning side of the restructurings. In terms of new CLO issuance, we saw $51 billion of volume during the second quarter, with most of the activity concentrated in the latter part of the quarter as markets stabilized. This was down slightly from $53 billion in the second quarter of 2024. Reset and refinancing activity for the second quarter was $44 billion and $9 billion, respectively. While the new issue arbitrage appears less attractive today due to AAAs being around 130 basis points over SOFR, there have been a number of attractive opportunities for new issue CLOs that have come our way, and we will continue to evaluate opportunities highly selectively. Our portfolio metrics reflect the strength and resilience of our positioning. As of quarter end, CCC-rated exposures within our CLO equity portfolio were 4.9%, and this is notably lower than the broader market average of 6.5%.
Similarly, only 2.7% of our CLOs were trading below 80, and this compares to 5.1% for the broader market. Finally, our weighted average junior OC cushion stood at around 4.6% at quarter end, again, well better than the market average of about 3.5%. These are important measures that underscore the quality of our CLO equity portfolio. Looking ahead, we have a very positive outlook for our portfolio. The tariff concerns that drove April's volatility have largely subsided. CLO equity still appears to offer upside as it catches up to the broader market recovery, and our extensive pipeline of resets and refinancing should continue to enhance the earnings power of our portfolio. And our long weighted average remaining reinvestment period provides continued optionality to capitalize on future periods of market volatility. We continue to believe that periods like what we experienced in April, while challenging from a short-term mark-to-market perspective, ultimately present opportunities for CLO equity investors with the right positioning and patience.
Indeed, despite the volatility in April, our NAV was up for the quarter, and we also paid substantial cash to our shareholders. Our portfolio's defensive characteristics and long WARP position us well to benefit from these market disruptions in the long term. To summarize the quarter, while net investment income was at the lower end of our expectations due to the factors Ken and I previously discussed, NAV was up nicely, and we see clear catalysts for improvement ahead. We successfully deployed capital at attractive levels during the market dislocation and believe our portfolio continues to maintain superior metrics compared to the broader market. We have significant optionality through our reset and refinancing pipeline to continue enhancing returns as well. We believe our portfolio is well-positioned for continued strong performance as we move through the second half of 2025. We thank you for your time and interest in Eagle Point Credit Company. Ken and I will now open the call to your questions.
分析師問答
Our first question comes from Mickey Schleien with Clear Street.
Nice to speak to you today. Tom, you mentioned that CLO AAA spreads still remain above pre-liberation day levels. And it seems CLO equity prices are being driven more by a risk aversion mentality than by actual deterioration in cash flows. Do you think the market is correct in terms of the risks to cash flows that it seems to be seeing? And what's it going to take to turn this mentality around?
Thank you for the kind words regarding my new role. Looking at our net asset value as of July, it has increased to a midpoint estimate of $7.49, which is an improvement from March. This is encouraging because our portfolio has performed well despite our distributions. We aim for high distributions alongside an increasing NAV, and we have achieved that to some extent. Several factors influence this situation. There is the demand for CLO AAA securities, where compared to the syndicated loan market with many investors able to purchase large amounts, we have a smaller group in the CLO market. Changes in participation from a few key players, like Japanese or U.S. banks, can significantly affect demand. Additionally, the spreads on loans and CLO debt can behave differently, especially if loan spreads tighten without a corresponding tightening in CLO debt spreads. Also, the yields that CLO equity investors are applying play a crucial role.
Historically, these factors fluctuate over time but rarely do all three work favorably at once. Usually, there's a period of 9 to 12 months where they may be out of sync. Currently, our NAV is up by 2.5% for July, net of distributions, suggesting a return on equity in the 5% range for the month. We observe that CLO equity and debt often lag behind the stock and corporate debt markets respectively. While we've seen a recovery in recent months, July is showing a significant rebound relative to March. Although we appreciate increases in NAV, our primary focus remains on the cash generation from our portfolio. Over time, we have seen an upward trend in cash flow on a per-share basis, which has grown significantly overall. Our recurring cash flows consistently cover all distributions and expenses, indicating we are on the right track. While it would be nice to see valuations increase, our main goal is to generate cash flow, and our portfolio demonstrates reliable cash flow over an extended period.
It sounds to me like you're of the view that perhaps we've turned the corner and this risk-off mentality may revert, which would be great. Just one sort of housekeeping question, maybe for Ken. What drove the realized losses this quarter?
Sure. So a couple of components. There were $0.02 from trading realized losses. There were $0.05 in writing off 3 CLO equity positions that were past their reinvestment period and no longer generating any cash flow or income. That was a reclassification that we mentioned in our prepared remarks. And then reported separately was $0.08 on currency hedges on forward contracts, which were, again, offset by unrealized gains in the investment portfolio. So net-net, there were effectively $0.02 that was driven by trading, and the rest were portfolio dynamics.
Those trades were essentially relative value trades. We sold something here because we preferred something else. We wouldn't incur a significant loss to do that, but a loss of $0.02 is not a major concern for us. We highlighted the currency aspects for the first time this quarter since we have some European investments. These are generally managed with 90-day rolling currency hedges which can create realized gains and losses. However, if managed correctly, those should be balanced out by unrealized gains or losses in the underlying investments. Therefore, we believe it's reasonable to present these separately. Overall, the main figure to note was the $0.02 in realized losses, which were incurred to invest in more favorable options.
Our next question comes from the line of Randy Binner with B. Riley Securities.
I have a few questions. It was a good quarter. Regarding the European investments, I noticed that the foreign exchange impact seemed more pronounced this quarter compared to previous ones. Is there better relative value in Europe? Also, does that represent a significant portion of your activities? I'm interested in those two points.
We have seen some increased opportunities in Europe over the past couple of quarters. Looking historically, the equity percentage of European CLOs has gradually increased. While it's not a major driver for our program, we find some appealing opportunities that encourage us to engage more in that market. We are working to mitigate foreign exchange risks, which is a common practice across several of our funds. Though I don't anticipate the portfolio becoming predominantly European, there is a possibility for a slight increase depending on available opportunities. We believe that earlier CLOs might not have performed as well, but many of the newer CLOs appear to be doing quite well, and we will selectively incorporate them into our portfolio.
Okay. But is it less than 5% of the portfolio, just the total size was?
I'm going to say between 5% and 10% without having the number right off the top of my head.
I'm looking for some general guidance on this. Regarding the all-in yield, it appears to be decreasing compared to the levels we observed in the latter half of last year and the first quarter. So from an all-in yield standpoint, particularly if the Fed reduces rates, should we anticipate it to remain around the level we saw this quarter, possibly flat or declining? Is that the correct way to approach modeling the top-line net interest income?
Yes. If you look at the weighted average expected yield of the portfolio, it's not in a favorable position. Over the past eight quarters, it has decreased more than anticipated. Most of our operations involve floating rates, and while we are more active in credit compared to the average, interest rates have minimal impact on us because the majority of our cash flow is generated from the difference between loan spreads and CLO debt. Historically, when rates increased from 0% to 5%, the yield didn't dramatically improve and, likewise, a decrease in rates isn't expected to significantly lower cash flows either. The effective yield has declined mainly due to a significant compression of spreads we’ve seen in the last six to nine months. In our investor presentations, we display a comprehensive view of our CLOs, including spreads and cash flows. The weighted average spread on the CLO loans has decreased by about 50 basis points, although defaults remain low, and many of our CLOs have actually increased their par value.
However, the reduced loan spreads have somewhat impacted recurring cash flows. We have taken steps to mitigate this through numerous resets and refinancings of CLOs. Despite some CLOs being below market spreads, we are focusing on reducing costs wherever feasible. The decline in our weighted average effective yield is primarily due to spread compression over the years. While it feels like we might be nearing a bottom, the loan market is influential, and significant shifts can occur quickly. We aren't predicting a bottom but are committed to acquiring the top CLOs and minimizing costs to extend our runway.
Our next question comes from Erik Zwick with Lucid Capital Markets.
I wanted to first just start on an announcement in the press release and your prepared remarks about forming the second CLO collateral manager partnership, and just if this is something that was in the works for a while and kind of how that came about, and maybe you could just expand on the opportunity and potential financial benefit.
This is the second CLO collateral manager partnership we've initiated. We are committing between $100 million to $200 million to fund the initial CLOs for a firm. After a successful first venture, we aim to replicate that success. Notably, we aren't taking on any operating expenses, as the firm manages salaries and other costs. Our role is to provide CLO equity capital and guidance throughout the issuance process, and I believe we excel in this area. In our first partnership, the firm issued six CLOs and has already reset two of them. We have fully invested our committed capital, and they are now raising funds from third parties, which is a positive sign. Our funds, including ECC, are benefiting from fees charged to other CLO investors. Although we might initially have to accept less favorable CLOs, we view this as a long-term strategy. In our first venture, we faced a high spread on AAAs when we entered the market, but once the CLOs hit their reset dates, there was a significant drop in pricing.
While the initial years were challenging, the portfolio is now thriving, and the firm has received awards like CLO Debt Manager of the Year. We are applying the same approach in this second venture, supporting them for success from the beginning. Currently, the market conditions are tighter compared to when we set up the first collateral manager, reducing the pricing differential significantly. We believe we are in a better position this time around. Additionally, we are observing external partnerships and their financial growth, particularly with one that has seen significant NAV increases. However, we are taking a different route without owning an RIA and instead focusing on revenue sharing, which limits our operational risks. We are optimistic about this venture's potential growth moving forward. It has been in development for a while, and while we are exploring other opportunities, we are choosing to be selective. Our goal is to create top-tier CLO collateral managers that handle substantial assets, and we believe we can achieve this by investing strategically and reaping the rewards.
And just the second and kind of last question for me. You mentioned the attractiveness of the preferred issuance that you've been doing kind of around 7% or so. And another way to fund new investments is just as existing portfolio repays, and I'm looking at Slide 20 in your deck now and year-to-date, annual repayment rate has been down a little bit relative to last year and still kind of below that longer-term average you showed there. I guess, how sensitive are those repayments to lower rates? And if we assume that the forward SOFR curve is correct, would you expect to see that repayment rate particularly potentially tick up over the next kind of 6 to 12 months if we see some reductions in SOFR?
It's important to note that all the loans are floating rate, which means if rates decline, the interest on these loans will also decrease automatically. Thus, interest rates are not the primary factor affecting repayments; instead, it's the overall sentiment regarding spreads that plays a major role. Looking back at significantly high periods like 2013, 2017, and 2021, these years were generally bullish. The majority of repayments or prepayments are driven by two factors: companies repricing their loans tighter, which is influenced by spreads rather than interest rates. If you examine our weighted average loan spread over time, you'll notice it typically decreases shortly after these periods of high repayments, indicating that the opportunity to reprice tighter is what drives this trend. Generally, when debt markets are strong, there tends to be an increase in M&A activity, and loans are usually repaid during such events.
While some companies have flexible capital structures, most will need to settle their debts. The numbers from 2022 and 2023 are particularly interesting because they suggest that there wasn't much compression in loan spreads during that time. We did observe a shift in 2024, reflected in the 27.9% figure we experienced. Ultimately, it’s the prevailing sentiment around loans, whether bullish or bearish, that influences this. Higher bullish sentiment will lead to increased prepayments, whereas rates will not significantly impact this trend.
And so kind of maybe switching gears a little bit, but similar thought process. If SOFR comes down, the assets reprice automatically. You still have some existing opportunity for resets and refis. That typically lags, right? Because the assets are going to reprice automatically, but it takes a little while for you in the controlling equity portion to work through the liability side. So is that correct that there's like a lag there?
The assets and liabilities of a CLO, with a few exceptions like some fixed-rate bonds, are generally all floating rates. This means that as rates fluctuate, they tend to adjust automatically between the two. Loans reset at random times, while CLOs reset quarterly. There is some variability, but it's not significant. The movement based on rates mainly offsets each other. However, if there were a notable decrease in spreads, CLO AAAs would be affected, but it takes time to process all of them. We have a dedicated team focused on this. Prepayments will influence loan spread compression, which will necessitate more refinancings and resets.
Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann.
As a follow-up to the reply that you gave to Mickey's question, talking about how, following Liberation Day, the sentiment seems to be eased off in terms of the risk. Going forward, should we expect, given energy costs seem to be coming down, that cash coverage of loans will go up, and possibly what would this mean for the effective yields for CLO equity?
Good question. Cash coverage on loans does not directly impact CLO equity cash flows. For instance, the President aims for oil prices to be around $50 a barrel. This is beneficial for consumers like drivers or airlines, as many companies face fuel costs that can affect their operational expenses. Lower energy costs, while helpful for free cash flow across numerous companies, do not automatically translate into increased cash for our CLO. Companies are still bound to pay the specified interest rate on their loans, which will vary with LIBOR. While it may reduce the risk of default and decrease expenses, these changes in energy costs won't directly lead to an uptick in CLO cash flow. The significant factors likely influencing an increase in recurring cash flow in our portfolio include limited spread compression, which has noticeably slowed, and our capacity to reset and refinance to reduce costs. Selective new issue investments present great opportunities, but aligning all necessary conditions is challenging. We aim to pursue as many of those as possible. Improving the cash flow capability of the CLOs through minimal spread compression and cost reduction will primarily drive an increase in our recurring cash flow.
Our next question comes from the line of Shalabh Barish with Vincent Cap Advisors.
I had a couple of questions. First, can you provide any insight into what caused the recent significant sell-off in the CLO equity closing funds?
The main reason for the recent sell-off is that there are more sellers than buyers. Shalabh pointed out that ECC and many CLO equity-oriented funds have experienced notable declines in their share prices over the last few months, which I believe are largely unjustified. Various factors might be influencing this, including fears of tariff-related increases in defaults. I monitor the inquiries we receive in Investor Relations, and while some people are asking about defaults and war, I can't recall anyone asking specifically about spread compression. If I could magically change one thing, I would elevate loan spreads back to where they were nine months ago, and that would have us celebrating here. The current geopolitical tensions and economic uncertainties from changing tariff policies do create a sense of hesitation. If we were part of the capital allocation Board for a major industrial company, we might consider delaying new plant construction.
The economic landscape is uncertain, and while concerns are valid, historical patterns show that underestimating lower investment-grade American companies, often backed by solid sponsors, has generally been a poor approach over time. The UBS S&P/ UBS loan Index shows that below investment-grade assets have delivered positive total returns for 20 out of the last 33 years. Despite potential future challenges, most of the negative returns were minimal, mainly in 2008. Companies have more options to navigate financial difficulties than real estate does. While there have been defaults, historically, going against this segment of American companies has not been wise. It’s true that people are currently cautious about capital allocation, which could affect the economy, but I don’t see any companies completely giving up. There might be a perception that some should exit due to concerns about high leverage to loans, but I can't confirm how much short interest exists, although I do notice some of that sentiment. Overall, the situation is looking more positive at the moment.
What was interesting over the recent sell-off is that CLO ETFs, even the ones investing in mezzanine debt, didn't see much of a drawdown, whereas closed-end funds investing in equity or debt saw a significant drawdown. So I wonder if there are concerns about underlying capital structure.
Yes. For quite some time, many closed-end funds, including ours, have been at a premium to net asset value for the last decade. Currently, we are at a slight discount to net asset value, but it is narrowing. Net asset values declined through the second quarter, which was not unique to our fund; all the CLO equity vehicles I monitor experienced similar declines. With a decline in net asset value and a shift from premium to discount, it creates a challenging situation. However, feedback from shareholders indicates they value the high current income from these portfolios, as the recurring cash flows cover distributions and expenses. This is the formula investors seek, and they tend to reward it. I believe the stock is undervalued at this moment, a sentiment echoed by many CEOs, but I genuinely think that the cash generated by our portfolio and our ability to quickly return cash to investors is a strong formula. Loans represent a solid asset class that should perform well over time, though it may vary daily.
I had a second question about loan spread compression. So you mentioned that you feel that it could be like a bottoming-out loan spreads. If you look at the metrics that you guys publish every month, stated loan spread on the underlying portfolio declined by about 13 basis points in the first quarter, but only by about 3 basis points in the second quarter. Is that the right metric to look at when we're trying to estimate how much spread compression has been in the portfolio?
Yes, that's exactly it. If we look back to two quarters ago, it was quite challenging. However, from the first quarter to the second quarter, it feels like we have reached the low point. That being said, there may be more challenges ahead that we cannot yet see. Much of the spread compression observed in the second quarter was actually due to the final effects of repricings that were announced in the first quarter. For example, if a loan reprices on February 28, the effects might not be felt until April 15. Therefore, there wasn't much loan repricing happening in the second quarter, and the limited basis points we noticed were primarily a result of the first quarter's dynamics. A good indicator of future spread compression is the percentage of loans trading above par. When this figure exceeds 40% to 50%, it signals an opportunity for bankers to initiate repricings. Recently, there have been some repricings as the market improved, though many repricings have also been retracted. In general, I would say the market is in a steady state right now, although this could change quickly. I don't anticipate any significant movements in August, as there's typically less aggressive activity during this period. We will need to monitor the availability of capital for investors moving forward.
What was interesting was that the sell side mentioned that July was a significant month for repricing. The stated loan spread in your portfolio only decreased by 1 basis point.
Yes. It was mainly the loans with the lowest spreads. I noticed one loan decreased from 175 to 150. Most of the loans I observed were the tightest, with the BB spreads tightening a bit more. However, there was significantly less activity in single Bs, which make up the majority of the CLO portfolios.
And then one final question on the collateral manager tie-ins that you have. Are they European collateral managers, U.S., or a combination?
I'm sorry, what about the collateral managers?
The partnerships that you have.
The joint ventures. One is U.S., the original one is U.S., and the new one is European.
And I guess you can't disclose who they are, right?
Do we disclose who they are? Let me check one thing in the financial statements. Please hold on for a moment. How do we list them? Ken and I are going to look for something. It should be on the schedule of investments, correct? If you look on the schedule of investments on Page 21 of the June 30 financials, down at the bottom, you'll see it's Muzinich & Co. for the U.S. collateral manager, and that's valued at $2.40 million right now. And delightfully, you'll see it has a 0 cost basis. So that's good. I think that number should keep going up, but that's my opinion. I guess they put the press release out already, so it's fine. The European one is Muzinich Europe, actually. Yes. Same formula, same folks. The partnership is going really well. Let's do it again.
Ladies and gentlemen, we've come to the end of our time allowed for questions. I'll now turn the floor back to Mr. Majewski for any final comments.
Great. Thank you very much. We appreciate everyone's time and questions today and appreciate your continued support for Eagle Point Credit Company. Thank you very much.
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.