管理層發言
Ladies and gentlemen, greetings, and welcome to the Eagle Point Income Company's Third Quarter 2024 Financial Results Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Garrett Edson of ICR. Thank you. Please go ahead.
Thank you, and good morning. As a reminder, before we begin our formal remarks, 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 those projected in such forward-looking statements and projected financial information. 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 and projection of financial information made during this call is based on 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. A replay of this call can be accessed for 30 days via the company's website www.eaglepointincome.com.
Earlier today, we filed our third quarter 2024 financial statements and our third quarter investor presentation with the Securities and Exchange Commission. The financial statements and our third quarter investor presentation are also available within the Investor Relations section of the company's website. The financial statements can be found by following the Financial Statements and Reports link and the investor presentation can be found by following the Presentations and Events link. I will now turn the call over to Tom Majewski, Chairman and Chief Executive Officer of Eagle Point Income Company.
Thank you, Garrett, and welcome everyone to Eagle Point Income Company's third quarter earnings call. We appreciate your interest in Eagle Point Income Company or EIC. If you haven't done so already, we invite you to download our investor presentation from our website. This presentation contains detailed information about the company and our investment portfolio. It has been a solid year so far for EIC. We've generated strong net investment income and realized gains and continue to strengthen our balance sheet. CLO junior debt remains in robust demand and we're actively managing our portfolio towards maximizing shareholder returns. Among our highlights for the quarter, the company received recurring cash flows of $13.1 million or $0.76 per share. This compares to cash flows from the prior quarter of $12.4 million or $0.87 per share. The decrease in cash flows per share during the quarter was a result of a significant number of new investments made after their third quarter payment dates.
We are now seeing our first payments from those investments in the fourth quarter. The company generated net investment income and realized gains of $0.57 per share during the quarter. Realized gains of $0.08 per share were generated from a number of sales and repayments at par on positions in our portfolio during the third quarter as we were able to realize the convexity of our discounted purchases over the past quarters sooner than expected. In line with the previous two quarters, we paid three monthly common distributions of $0.20 per share during the third quarter and have declared the same monthly distributions through March 2025. Our NAV as of September 30 was $14.90 per share, a 2% decrease from the level at June 30. We continue to strengthen our balance sheet as well through our at the Market Program or ATM and Committed Equity Finance programs we issued approximately 2.8 million common shares of stock at a premium to NAV.
This generated NAV accretion of $0.05 per share during the quarter. We also realized proceeds of $7.1 million from additional issuances of Series B and Series C term preferred stock via the ATM. Daily average trading volume for our common stock continues to increase with volumes in the third quarter, 29% higher than the second quarter and more than tripling the average trading volume on a year-over-year basis. All of our CLO coupons remain in the double digits and some CLOs have the potential for higher returns if those CLOs are called early. Furthermore, the portfolio closing equity exposure continues to enhance our portfolio's earning ability. As investors focused on the long-term, we remain consistent in our approach to construct a portfolio to weather any economic and rate cycle. We believe the portfolio is strongly positioned for continued future performance. For additional commentary on the overall market and our recent portfolio activity, I'd like to turn the call over to Senior Principal and Portfolio Manager Dan Ko.
Thank you, Tom. We continue to find attractive investment opportunities in junior CLO debt and CLO equity. EIC continued to capitalize on the elevated rate environment in the third quarter by investing in high yielding CLO debt and CLO equity. Despite the Federal Reserve's recent rate cuts, we believe floating rate CLO debt still offers an attractive return profile compared to other fixed income securities. Furthermore, CLO equity is relatively insulated from rate movements because it is principally a spread arbitrage product. All things equal, lower rates should lead to lower defaults of the loans in our underlying CLO portfolios. The Credit Suisse Leverage Loan Index continued to perform well, generating a total return of 2.1% for the quarter and 6.6% year-to-date through September 30th. The index continued its trajectory in October with loans up 7.5% year-to-date as of October 31. We continue to see attractive return profiles in both the primary and secondary markets.
In the third quarter, we deployed approximately $90 million of net capital into new investments. The weighted average effective yield of the new CLO purchases during the quarter was a robust 12%. During the third quarter, approximately 6% of leveraged loans market-wide, or roughly 23% annualized, repaid at par. The prepayments were driven by loan issuers focused on refinancing their near-term maturities in an effort to further extend the maturity profile of their debt. Regarding new CLO issuance, we saw $40 billion of new issuance in the third quarter of 2024 and $142 billion for the first nine months of 2024, still on pace to break the previous record of $187 billion set in 2021. As noted on our prior calls, third-party CLO equity investors, including us, have returned to the primary market as CLO debt spreads have tightened. We continue to see a large increase in resets and refinancing of CLOs driven in large part by tighter CLO debt spreads.
Year-to-date through September 30th, we completed four refinancings and one reset of our CLO equity positions, lowering their debt costs in the refinancings by an average of 32 basis points. The reset extended the reinvestment period to five years, thus increasing our portfolio's weighted average remaining reinvestment period, which remains our focus for the CLO equity portion of EIC's portfolio. We continue to expect that refinancings, resets, and calls will lead to some of our discounted CLO BB purchases over the past quarters being repaid at par, crystallizing the convexity in certain of our investments sooner than anticipated. Defaults continue to improve during the year with only three leveraged loan defaults in the third quarter and the trailing 12-month default rate declining to 80 basis points as of quarter end, remaining well below the historical average of 2.6%. EIC's default exposure as of September 30th stood at 0.6%.
We expect default risk to remain low for some time. As we've consistently noted, CLO BBs have withstood multiple economic downturns in the past, experiencing very low long-term default rates. We believe it would take a significant amount of loan defaults well above the historical average and importantly coupled with limited loan price volatility for EIC's portfolio to be permanently impacted by a default wave. Moving forward, we remain well positioned to deploy new capital into additional investments that offer compelling risk-adjusted returns for the Company's portfolio. With that, I will now turn the call over to our Advisor's Chief Accounting Officer Lena Umnova to walk through our financial results.
Thank you, Dan. During the third quarter, the company recorded NII and realized gains of $9.9 million or $0.57 per share. This compares to NII and realized gains of $0.44 per share recorded for the second quarter of 2024 and NII of $0.38 per share for the third quarter of 2023. When unrealized portfolio depreciation is included, the company recorded GAAP net income of $1 million or $0.06 per share. The company's third quarter net income was comprised of total investment income of $12.5 million and net realized gains of investment of $1.3 million. This was partially offset by unrealized appreciation on certain liabilities held at fair value of $3.6 million, net unrealized depreciation on investments of $5.3 million, and financing costs and operating expenses of $3.9 million. Additionally, for the third quarter, the company recorded other comprehensive income of $2.4 million representing the change in fair value on the Company's financial liabilities attributed to instrument-specific credit risk.
During the third quarter, we paid three monthly distributions of $0.20 per share and last week we declared continued monthly common distributions of $0.20 per share through March 2025. As the quarter end, the company had outstanding borrowings from the Revolving Credit Facility and Preferred equities, which totaled 32% of total assets less current liabilities. This is within our long-term target leverage ratio range of 25% to 35% at which we expect to operate the company under normal market conditions. The company's asset coverage ratios at the quarter end for preferred stock and debt, calculated in accordance with Investment Company Act requirements were 316% and 4,965% respectively. These measures are comfortably above the statutory requirements of 200% and 300% of preferred stock and debt. As of September month end, the company's net asset value was $277 million, or $14.90 per share, compared to $15.24 per share as of June month end.
Moving on to our portfolio activity for the month of October, the company received recurring cash flows on its investments of $15.2 million. Note that some of the company's investments are still expected to make payments later in the quarter. As of October month end, net of pending investment transactions and settlements, the company had over $21 million of cash and revolver capacity available for investment management. Management's unaudited estimate of the company's NAV as of October 31st was between $14.99 and $15.09 per share. At the midpoint, NAV is up where we stood at September 30th. I will now turn the call back over to Tom to provide closing remarks before we open up for questions.
Thanks, Lena. EIC continues to perform quite well and our proactive investment strategy continues to generate significant net investment income. Despite the rate cuts in mid-September and early November, we continue to believe our portfolio is well-positioned to succeed in any rate or economic environment. We maintain our view that CLO BBs are one of the most resilient risk asset classes in the market. This is attributable both to their structural protections and underlying collateral. We remain confident that EIC is well positioned to generate compelling risk-adjusted returns for our shareholders. We thank you for your time and interest in Eagle Point Income Company. Lena, Dan, and I will now open the call to your questions.
分析師問答
Thank you. The first question is from Matthew Howlett with B. Riley Securities. Please go ahead.
Hi Tom, thanks for taking my question. Hey look, congrats on first quarter covering a just terrific results here. And I want to talk about the BB market because you are really a unique vehicle out there. What are you seeing? So on acquisitions, can you go over primary and secondary on the prior call, you said this ECC call, you said there was a big difference on spreads on the equity side. I want to hear about the BB side. And I want to hear about hearing. I mean what's going on with the tiering among the managers? Is there much of a difference these days?
Hey Matt, this is Dan Ko here. In terms of spreads, I'd say that despite the recent Fed rate cuts, CLO BB has actually held in pretty well in terms of prices. We've actually seen prices rally despite the Fed rate cuts and these being floating rate CLO debt securities. Now the current cash yields certainly are falling as the base rates are falling. But you have to remember that, I guess, the spread on CLO BB is a larger chunk of kind of the yield than other floating rate securities, a little less impacted there, certainly on the overall yield. And then to your question about tiering. We are certainly seeing tiering compress within the Tier 1 and Tier 3 collateral managers out there. But then we're also seeing tiering between new issue and resets as well. So for a new issue portfolio that's being issued today, you have a much cleaner portfolio, no tail in the portfolio, less stressed assets, whereas resets while obviously it is nice to have a portfolio in place that already ramped. There are some stressed assets that are in the portfolio. So we do see potentially even 100 basis points of difference in terms of kind of the spreads that we're seeing on new issue versus resets.
That's huge. And what about primary or secondary just in general on the double business if it's not a reset if it's a new issue or something?
Yes. Regarding primary versus secondary, much of the convexity we observed in CLO BBs over the past year has faded, as most of the CLO BB asset class has returned to par. While there are some that remain discounted, those are typically not ideal investments. However, there are still opportunities to purchase discounted assets, and there are some intriguing prospects at a premium. Presently, there is a more favorable balance in value between new issues and secondary markets, given that the secondary market has seen significant rallies.
Great. Regarding the discounts you own, I'm curious about the prepay aspect. I'd like to understand how much is still in the portfolio and how we should view the future contributions from those prepays, considering you would appreciate the yields, but also recognize the gains as they pay off at par.
Yes. No, it's a good point. We certainly see the benefits of being able to realize the convexity sooner, and so we take those kind of realized gains, but then you're right. I mean you were losing out on some of the wider yielding stuff. I'd say that a large chunk of the portfolio still consists of purchases that we made at discounts that we do still see potential for, I guess, the gains to come through. But in terms of kind of the mark in terms of the NAV, I guess we've already marked those positions kind of at par. So it's really more of a when those, I guess, unrealized gains will be moved to realized.
Right. Exactly. Got you. Okay. Moving towards the portfolio, it's essentially doubled, and you're the only real vehicle out there that does these BBs. Talk a little about the 4 basis points of losses; it's just so low and incredible. It raises the question of why more people aren't engaged in this. You have the efficiency in this vehicle, your cost of capital is decreasing, and you become more efficient as you grow. Tom, what should the appropriate yield requirement be? If you could, put on your equity analyst hat for a moment. How should this vehicle be compared to other risk-type vehicles? It seems you're not exposed to significant losses in these BBs.
Certainly, the historic data you mentioned is accurate. The distribution rate I just looked up on Bloomberg calculates to a high 14s yield right now, which we believe is significantly low compared to private credit, likely the closest comparison. I'm curious about your perspective on a typical dividend yield at this moment.
BDC.
The distribution rate currently stands at a high 14% yield, which we believe is significantly lower compared to private credit, our nearest comparable sector. While many private credit managers perform quite well, there will inevitably be some challenges and a few accounts in non-accrual status. However, we do not have any non-accruals in our BB book, and our capital structure remains very appealing. Although we still have some 5% paper maturing in 2026, our balance sheet presents a strong right side. Additionally, the fee structure for EIC is considerably more advantageous than that of typical BDCs. We are investing in higher-yielding assets with a lower historical loss rate and charging less for it. There remains a significant difference between the distribution yield of EIC and that of many BDCs, which is expected to narrow.
Yes, I think it's one of the most overlooked yield vehicles out there, like it's re-rated a little bit, but I mean it's got a long ways to go, and you guys are doing a great job. And on just like the asset class itself, I mean, it's only 4% to 6% of a typical CLO, but it's big enough. I mean, it is big enough, you could still double, triple the size of EIC. It's big enough for you guys to grow out.
Yes, the short answer is yes. If you consider the U.S. CLO market to be around $1 trillion, the BB class represents about 4%, which amounts to roughly $40 billion. Our assets are approximately $400 million, meaning we account for about 1% of the market with this specific vehicle. However, at Eagle Point, we also manage other accounts and vehicles that include CLO BB investments, so in total, we own billions of dollars in CLO BBs. This is not our only investment in this strategy. What makes it particularly appealing, in my view, is the extensive nature of the corporate BB market, where high-yield bonds and BBs reach into the hundreds of billions of dollars. This is relatively small compared to what a typical rating-sensitive insurance company or similar entity might consider, making the market seem too small to generate significant enthusiasm.
On the investment-grade side, the tranches are bigger and bigger and they can put bigger sums of money to work. But if you're running a general account with $100 billion, $500 billion like some of the large life companies have, they're very active in the single A and AA part of their capital structure in CLOs. And while they buy lots of BB-rated bonds on their balance sheet as well, I'm sure just getting involved in the $40 billion market just is too small of a piece of the opportunity for their pie chart. So for EIC, we see a lot of room for growth in terms of the investment opportunity set is tremendous. And because of that structural imbalance of it while it's an important part of a big $1 trillion market financing a roughly $1.4 trillion leveraged loan market in the United States. This little slug is only $40 billion which then gets overlooked by a lot of large institutional investors. Not due to the quality just due to the scale of the opportunity.
If you're operating a large life insurance company, the market for EIC is too small to warrant involvement, as we have a long way to go in terms of market capacity. We can analyze the numbers, but with growth, the company will experience some operating leverage, and the cost of capital is gradually decreasing. The stock is showing some movement above NAV, and your bonds are slightly above par. All of this is encouraging for the future. Am I understanding this correctly? We agree completely.
Yes. It's just an incredible vehicle set up.
Yes, we have the revolver outstanding, which makes things more efficient. We also have preferred stock and the revolver, allowing us to manage it effectively. While it doesn’t always happen perfectly, we prefer to keep the revolver slightly drawn. If we're able to issue anything on the ATM, we can use those funds to pay down the revolver and continue investing. Ideally, the vehicle is mostly fully invested. At the time we cited, which was October 30th, we had drawn very little due to incoming payments. We're committed to deploying capital as quickly as possible. We see a lot of potential for this vehicle and are pleased with the increase in volume. A year ago, stock volume was too low, and we still want it to rise further. We're actively pursuing that along with attractive investment opportunities. Even with rates decreasing slightly, our portfolio still exhibits very attractive double-digit yields across every BB. Additionally, some CLO equity contributes further to our positive outlook, so we feel confident about our prospects.
I look forward to the market becoming more educated on EIC, as they will certainly recognize its relative value. Wishing you continued success, Tom. Thank you for taking my question.
Appreciate it. Thank you, Matt.
Thank you. As there are no further questions, I would like to hand the conference over to Thomas Majewski for closing comments.
Great. Thank you very much for joining the call today. Lena, Dan, and I appreciate your interest in Eagle Point Income Company. We're all around in the office later today if anyone has any follow-up questions. Thank you, and have a good day.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.