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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 '25.
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 share of our first partnership is now valued at over $2 million, and I believe there is room to grow significantly 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 to 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 to 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 weighted average reinvestment 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?
Congratulations on your new role. Looking at our net asset value in July, it has increased from the March estimate of $7.49, which is a positive sign as we have exceeded our distribution rate. This is what we aim for—high distributions alongside increasing NAV. However, there are some factors that affect this. In the CLO AAA market, there is a limited number of large investors compared to the syndicated loan market, which has many potential buyers. The decision-making of a few key players, such as banks, can significantly influence demand, making it complicated. Additionally, we've seen loan spread compression; with our portfolio consisting of over a thousand loans, they can sometimes move in a way that's different from the CLO market. If loan spreads tighten but CLO debt spreads do not tighten as much, it adds to the complexity. Also, the discount rate or yield that CLO equity investors are using is a factor.
These elements collectively determine the value and potential creation of CLOs. Historically, these conditions have fluctuated in and out of favor, but it is rare for all three factors to be advantageous at once. For the month of July, our NAV increased by 2.5%, indicating a return on equity of around 5%, which is encouraging. CLO equity and debt typically lag behind stock and corporate markets; while there was a recovery in May and June, we are now seeing a stronger recovery in July compared to March. Although we appreciate an increase in NAV, we don't overly react when it declines. Our primary focus is on portfolio cash generation, which, despite various changes in recent years, has generally trended upward on a per-share basis. We are satisfied with the overall growth in cash flows, which consistently cover our distributions and expenses. Although it would be beneficial to see an increase in valuations, our main objective remains cash flow generation, and our portfolio has demonstrated reliable cash flow over time.
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.
We engaged in relative value trades, selling some positions that we were comfortable with to invest in what we believe are better opportunities. While we experienced a realization of $0.02 in losses, this does not concern us greatly. We also began breaking out our currency-related items in this quarter, as we have European investments that typically involve 90-day rolling currency hedges. These trades can result in realized gains and losses; however, we anticipate that any realized losses will be balanced out by unrealized gains in the underlying investments. Therefore, we believe it is beneficial to report these figures separately. Overall, we recorded $0.02 in realized losses, but those were in pursuit of more advantageous investments.
Our next question comes from the line of Randy Binner with B. Riley Securities.
I have a few questions. It was a good quarter. Following up on what you mentioned, Tom, regarding the European investments, I noticed that foreign exchange impacted us more this quarter than previously. Is there a better relative value in that region? Also, does it represent a significant portion of your activities? I'm curious about those two points.
There has been an increase in opportunity in Europe over the last couple of quarters. The percentage of our European CLO equity has slightly increased over time. While it is not a significant driver of our program, we are seeing attractive opportunities that have prompted us to enter that market to some extent. We are working to manage the foreign exchange impact in several of our funds, so this approach is quite standard for us. I don't anticipate that the portfolio will reach 50% Europe, but it could increase a couple of percentage points based on available opportunities. In our view, the 1.0 CLOs may not have performed as well in that region, but several of the 2.0 CLOs appear to be doing quite well, and we will selectively include those in 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.
Yes, that's fine. I'm just looking for a rough estimate there. The other question I had is about the all-in yield. It seems to be coming down from the levels we saw in the second half of last year in the first quarter. So, from an all-in yield perspective, especially if the Fed cuts rates, should we expect it to be at the level we saw this quarter and possibly flat or declining? Is that the correct way to think about it for modeling top-line net interest income?
Yes. If you were to track the weighted average expected yield of our portfolio, we are not pleased with it. Over the last eight quarters, it has dropped more than we anticipated. While we primarily operate with floating rates, which means interest rates have a minor impact on our cash collection—mostly coming from the spread between our loans and the CLO debt—the effective yield has declined due to significant spread compression, particularly in the last six to nine months. Our presentations detail the CLO performance, showing that the weighted average spread on the underlying CLO loans has decreased by about 50 basis points, give or take. Defaults remain very low, and many of our CLOs have actually increased in value, which is positive. However, the recurring cash flows have been impacted by the declining loan spreads. We have been actively addressing this through numerous resets and refinancings of CLOs in the past year or two, aiming to cut costs.
If you examine our portfolio, particularly the AAAs on a CLO-by-CLO basis, many exceed a certain threshold, indicating that we still have potential for improvement. We are managing a large number of loans and CLOs, facing rapid repricing on one side while also needing to manage costs effectively on the other. Although we have not seen significant movement in the yields recently, we are working diligently to optimize our CLO investments and reduce expenses wherever possible. While we believe we might be nearing the bottom of the spread compression cycle, the loan market is dynamic, and fluctuations can occur. Thus, we are focused on acquiring the best CLOs and maximizing our growth potential.
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’re undertaking at Eagle Point. We're committing between $100 million and $200 million in equity capital for the initial CLOs of a firm. Our first attempt was very successful, and we're looking to replicate that success. A key aspect of our approach is that we do not incur operating expenses; the firm manages all aspects such as hiring the team and covering salaries. We simply provide equity capital as well as guidance throughout the issuance process, where we believe we excel in the market. In our first partnership, the firm successfully issued six CLOs and reset two of them. Our full investment was made, and they're now attracting capital from third parties, which is a positive development. Consequently, our funds, including ECC, are benefiting from revenues generated from fees charged to other CLO investors. There are upfront costs involved, and we sometimes need to accept less than ideal CLOs, but we view this as a long-term investment.
For instance, in our first joint venture, the AAA rates were significantly high at that time, and while we had to endure a challenging start for the initial two years, the platform is now performing well and has received several awards. We've laid a strong foundation for this business to expand and succeed. In our current market setup, the pricing dynamics for AAA rated CLOs are much tighter compared to our earlier investment, which means we expect less of a J-curve effect in this new endeavor. Timing may have posed challenges with our first investment, but we are optimistic about this new opportunity, which seems to be in a more favorable position. Additionally, we’ve observed that one externally managed public BDC saw significant growth in their RIA, and although we do not own an RIA, we have a revenue-sharing model that minimizes our operating risks. This model is valued modestly on our books, but I believe it can increase substantially.
We continue to explore other opportunities and remain selective in our approach, aiming to create top-tier CLO collateral managers managing vast sums of money. If we can provide some initial funding and secure a meaningful stake in the potential upside, we believe we can successfully replicate this model.
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, so if rates decrease, the interest on these loans will automatically decline as well. Interest rates do not primarily influence repayments; rather, it is the sentiment on spreads that plays a significant role. Looking back at high repayment periods—like in 2013, 2017, 2021, and even 2024, which is slightly below average—these years were generally regarded as bullish. Most repayments are driven by two main factors: companies repricing their loans tighter, not due to interest rates but because of spreads. Our weighted average loan spread tends to decrease soon after these periods of high repayments. This indicates that opportunities to reprice tighter are essential. Generally, strong debt markets correlate with increased M&A activity, and when sponsors sell companies, loans are usually repaid. While some have portable capital structures, most loans need to be settled. The data from 2022 and 2023 suggests little loan spread compression, whereas we observed this change in 2024, reflected in the 27.9% figure. Ultimately, it is the bullish or bearish sentiment regarding loans that will drive these trends; increased optimism will likely lead to higher prepayments, with rates not being the primary influence in this scenario.
And so kind of maybe switching gears a little bit, but similar thought process. So 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 kind of 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 are predominantly floating rates, with only a few exceptions like fixed-rate bonds. Therefore, when rates change, they tend to adjust automatically between the two. While there are some slight variations due to loans resetting randomly, CLOs reset four times a year, so the impact is minimal. Typically, movements in rates balance each other out. If there's significant spread compression, CLO AAAs may react, but it takes time for the entire process to unfold. We have a dedicated team focused on this. However, prepayments will be the main factor influencing loan spread compression, necessitating more resets and refinancings.
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 seems 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 affect CLO equity cash flows. For example, if the price of oil drops to $50 a barrel, that benefits various sectors, such as airlines or drivers, since many companies have fuel costs as part of their expenses. This reduction in energy costs could improve free cash flow for many firms, but it won’t necessarily lead to more cash available in our CLOs, as companies are only required to pay the stated interest rate on their loans, which fluctuates with LIBOR. While lower expenses might reduce the risk of default for these companies, it won’t directly translate into increased CLO cash flow. The most significant drivers for increasing recurring cash flow in our portfolio are limited spread compression—though that has slowed considerably—our ability to reset and refinance, and lowering costs in our portfolio. Selective new issue investments could also be beneficial, but we need favorable conditions for those to occur. Ultimately, enhancing the cash flow capability of the CLOs through minimal spread compression and cost reduction will be the main factors driving an increase in recurring cash flow for us.
Our next question comes from Shalabh Barish with Vincent Cap Advisors.
I had a couple of questions. First of all, can you shed any light on what drove the significant sell-off in the CLO equity closing funds recently?
The main reason is that there are more sellers than buyers. That's the primary factor. I believe Shalabh was referring to ECC, and many CLO equity-oriented funds experienced significant drops in their share prices over the past few months, which I think is unjustified, but various factors could be at play. One possibility is the anxiety about tariff-related increases in defaults. It's challenging to pinpoint exactly what's happening; I monitor the random inquiries that come into the Investor Relations inbox. Some people inquire about defaults, others about war, and various topics. As far as I remember, no one has asked about spread compression. I can't say I've read every inquiry that came in. If I could magically change one thing, it would be to restore loan spreads to where they were nine months ago; Ken and I would certainly celebrate that, assuming everything else remains unchanged. Although we don't celebrate often here, we understand the impact of current events, like the turmoil in Iran, as well as economic uncertainty linked to rapidly evolving tariff policies.
If we were on the capital allocation board of a major industrial company weighing the decision to build a new plant, we might consider holding off for now. If we were already halfway through the project, we would likely proceed, but for new investments, some might hesitate. So while the concerns about economic uncertainty are legitimate, it's important to note that we've weathered several crises, including COVID, the financial crisis, issues in China, and the tech and telecom downturn after 2002. Generally, underestimating American companies below investment-grade—often backed by sponsors—has been a mistake over the long term. If you consult the UBS S&P/UBS loan index, these below investment-grade assets, which include BB, B, and some CCC-rated loans, have shown positive total returns in 30 out of the last 33 years. The future may vary, with two of those negative years being less than 1% in losses, apart from 2008, which was particularly bad.
These assets often rebound because they are backed by growth-oriented companies and sponsors. To illustrate, if you own a Class B office building in Manhattan and face financial difficulties with a low debt service coverage ratio, your options are quite limited unless you can make significant payments out of pocket. Historically, companies don't simply hand over their keys when faced with minor issues; they take measures to keep operating. Companies have numerous options compared to a straightforward real estate investment. While some companies may default, betting against this segment of American firms has not been prudent for a while. Are people currently showing reluctance in capital allocation? Yes, and there will be an impact from reduced capital expenditures on the economy. However, I can't think of any company that is completely giving up; they may be cautious, but they are not throwing in the towel.
There's a perception that could lead to that, like if someone thinks that leveraged loans are bad and considers exiting or shorting, but I have seen some of that happening. Despite the current environment, today seems to be moving in a positive direction amidst all this uncertainty.
Yes. 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 is some concerns about underlying capital structure.
Yes. A number of closed-end funds, including ours, have generally traded at a 10% premium to NAV for quite some time. Currently, we are at a slight discount to NAV, but it's changing quickly. NAVs were down through the second quarter, which is not unique to us. All the CLO equity vehicles I track experienced NAV declines. So, when you have a NAV decline and something that was at a premium becoming a discount, it feels like a double hit. That said, the feedback we receive from shareholders highlights the importance of high current income from our portfolios, where cash flows reliably cover distributions and expenses. I believe that's what investors are looking for and they tend to reward it. While every CEO might say their stock is undervalued, I genuinely feel that when you assess the cash generated by the portfolio that we can share with investors, and our capability to return cash to them promptly, this approach combined with good-quality loans as an asset class will ultimately succeed over time, though not necessarily every single day.
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. And 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 right. To illustrate further, if you reflect on the past two quarters, it feels like navigating a difficult course. However, from the first quarter to the second quarter, it seems we've reached a low point. That said, we might just be at a temporary pause, and there may be more challenges ahead that we are not yet aware of. Much of the spread compression we observed in the second quarter was actually a result of repricings that were initiated in the first quarter. For instance, if a loan is repriced on February 28, its effects may not be realized until mid-April. Therefore, there wasn't much loan repricing happening in the second quarter; the slight decline we saw was mainly due to the aftereffects of the first quarter. A good indicator of potential spread compression is the percentage of loans in the market that are trading above par. Typically, when this percentage exceeds 40% or 50%, it signals to bankers to start repricing aggressively.
While there have been a few repricings in the last few weeks as the market improved, many have also been withdrawn. I find those updates particularly interesting. Overall, the market seems to be in a steady state right now, not skewed definitively in either direction, but that can change rapidly. I don’t expect any major movements in August, as people tend to be more cautious during that month. We'll have to see how capital availability affects investors.
What was interesting was that the sell side was saying that July was a very big month for repricing. The stated loan spread in your portfolio only dropped by 1 basis point.
Yes. It was primarily the lowest spread loans. I want to mention that one loan decreased from 175 to 150. The majority of what I observed showed the tightest spreads, with the BBs tightening a bit more, but there was significantly less activity in the single Bs, which make up most of the CLO portfolios.
Okay. And then one final question on the collateral manager tie-ins that you have. Are they European collateral managers or 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 take a moment to check something in the financial statement. Please hold on one second. Where do we find the information? Ken and I will look for it. It should be on the schedule of investments, correct?
I think the U.S. one is well known, right, because you guys have talked about that before. I think it's Marblepoint, right?
No, no, no, not Marblepoint. No, that was a former affiliated CLO collateral manager that our adviser owned, and that's sold and is now part of Investcorp. 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 a 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 0 cost basis. So that's good. I think that number should keep going up, but that's my opinion. And I guess they put the press release out already, so it's fine. The European one is Musinich Europe, actually. Yes. So 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.