Eagle Point Income Company (EIC) Earnings Call Transcript

Thanks, operator, and good morning, everyone. We're glad you could join us for Eagle Point Income Company's Earnings Conference Call covering the third quarter of 2026. On today's call, Thomas Majewski, who serves as the company's Chairman and Chief Executive Officer, is with us, along with Dan Ko, a Senior Principal and Portfolio Manager for the company's advisor, and Lena Umnova, the advisor's Chief Accounting Officer. Before we get started, I want to remind everybody that what we discuss today includes forward-looking statements or projected financial information, and those carry risks and uncertainties that could cause the company's actual results to differ materially from those projections. For more detail on the factors that could affect the company and the statements or projections contained herein, please see the company's filings with the SEC. Each forward-looking statement or projection of financial information made during this call rests 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. Earlier today, we filed our third quarter 2026 financial statements and investor presentation, which features an updated format with the SEC. You can also find these in the investor relations section of the company's website, eaglepointincome.com. A replay of this call will also be made available later today. I'll now turn the call over to Thomas Majewski, chairman and chief executive officer of Eagle Point Income Company. Tom?

Thanks, Darren, and good morning to all of you. We're glad you could join us for Eagle Point Income Company's earnings call today. EIC delivered a strong quarter: net investment income, after subtracting realized losses, came to $0.67 per share, which is over twice the $0.33 per share in aggregate distributions we paid for the quarter. Earnings got a lift from income tied to the early repayment of a private infrastructure credit investment that came through the wider Eagle Point platform. That added $0.30 per share to quarterly earnings. If you set aside the contribution from this early prepayment, normalized net investment income and realized gains would have been $0.37 per share, which is still comfortably above our aggregate distributions for the quarter. This transaction shows the value of our ability to access differentiated investment opportunities across the broader Eagle Point platform, and we expect that to keep generating incremental earnings for EIC. As of September 30th, net asset value stood at $12.39 per share, a decline of 1% from June 30th, and GAAP return on common equity was 1.6% for the quarter. Turning to the wider market environment, a growing number of market participants anticipate higher interest rates in the near term; that sets up a favorable backdrop for EIC's portfolio, which is predominantly floating rate. As of September 30th, 53% of EIC's portfolio was made up of floating rate CLO debt investments, which offer attractive current income and stand to benefit from higher benchmark interest rates. Leveraged loans, also floating rate, posted modest price gains, while underlying loan spreads held relatively steady during the quarter. With just 27.7% of loans trading above par at quarter end, loan repricing activity also stayed relatively limited. Even with continued uncertainty about the path of interest rates, underlying credit fundamentals have held up, and we have not observed signs of widespread credit deterioration. Dan will share some additional color on the loan and CLO markets later on the call. Turning to investment activity, during the quarter we put $31 million to work across 16 new investments at a weighted average effective yield of 15.6%. Our new investment activity covered a range of asset classes, including infrastructure credit, Portfolio Debt Securities, regulatory capital relief transactions, asset-backed securities, specialty financings, and equipment leasing investments. These investments are originated by dedicated teams across the broader Eagle Point platform, which gives EIC access to specialized investment expertise opportunities across a wide range of credit markets. As our third quarter results show, these investments can also produce meaningful incremental investment income, complementing the recurring income from our portfolio. Turning to our capital structure, during the quarter we issued about $1 million of our 6% Series AA Convertible Perpetual Preferred Shares. We anticipate issuing additional preferred equity of this kind over the next several quarters. For us, this fixed rate perpetual financing is an appealing source of long-term capital and gives us extra flexibility to deploy capital when opportunities come up. We see this financing as a competitive advantage, since we are not aware of any other public CLO debt-focused fund that has a similar perpetual convertible preferred program. At this point I'll hand the call over to Senior Principal and Portfolio Manager Dan Ko for a market update.

Thanks, Tom. Now I'd like to offer a few more observations regarding the loan and CLO markets. In the third quarter, the S&P UBS Leveraged Loan Index produced a total return of 2.0%. Loan prices moved up slightly, but spreads on the underlying loans stayed fairly steady, and repricing was modest. We view the recent stability in loan spreads as encouraging, given the tightening we saw in earlier quarters. Even with conditions in the underlying loan market generally stable, CLO equity valuations are still under pressure from weaker investor sentiment and broader market technicals. On credit fundamentals, average corporate revenue and EBITDA growth stayed positive in the quarter, which shows leveraged loan borrowers remain resilient amid wider macroeconomic uncertainty. The trailing 12-month leveraged loan default rate fell to 0.6% as of September 30th, versus 1.0% as of June 30th and a long-term average of roughly 2.5%. Notably, EIC's look-through exposure to defaulted loans stood at just 22 basis points at quarter end, which speaks to the quality of our underlying loan holdings and our disciplined approach to CLO selection. In the leveraged loan market, we've also seen encouraging signs of stabilization in software, including fairly limited default activity and a 2.3% rise in loan prices since the end of the first quarter. As we've said on earlier calls, we think concerns about AI disruption may be overstated for many software businesses, especially those delivering mission-critical solutions with strong customer retention and recurring revenues under long-term contracts. We still believe AI is more likely to complement these businesses than replace them, though we remain watchful of developments and their potential implications for the sector. On CLO market activity, issuance stayed robust in the third quarter, with $46 billion of new issuance, $48 billion of reset activity, and $38 billion of refinancing activity. Refinancings and resets continue to give CLO equity investors opportunities to lower liability costs and extend reinvestment periods, while also creating potential early repayment opportunities for CLO debt investors; for CLO debt positions bought at a discount, this activity creates chances to realize gains sooner than expected. Beyond the opportunities from refinancing and reset activity, we continue to see attractive income potential in CLO junior debt. With coupons that are predominantly floating rate, these investments benefit from elevated benchmark rates, while CLO equity returns are driven more by the arbitrage between underlying loan spreads and CLO debt costs. Combined with EIC's capital structure, we believe this positions the company to generate attractive investment income in the current interest rate environment. With that, I'll hand it over to our advisor's Chief Accounting Officer, Lena Umnova, to walk through our financial results.

Thank you, Dan. In the third quarter, the company generated net investment income, or NII, of $0.73 per share. Net investment income, excluding realized losses on investments, came to $0.67 per share, versus negative $0.29 per share in the second quarter of 2026 and positive $0.26 per share in the third quarter of 2025. On a GAAP basis, including unrealized losses, net income attributable to common shareholders was $4.6 million, or $0.20 per share, for the third quarter. That compares with GAAP net income of $0.84 per share in the second quarter of 2026 and $0.43 per share in the third quarter of 2025. Cash flows from the company's investment portfolio reached $9 million, or $0.40 per share, during the quarter, against aggregate distributions on the company's equity and total expenses of $0.44 per share; we paid three monthly distributions of $0.11 per share in the quarter, and earlier today we declared monthly distributions of $0.11 per share through the first quarter of 2027. At September month-end, our leverage ratio stood at 17.3%, still below our target range of 25%-35%, where we generally expect to run the company under normal market conditions. We expect leverage to rise over time as we continue our Series AA/AB Convertible Perpetual Preferred Stock program, moving us closer to that target. Turning to our capital structure, on October 30th we paid off a Series A Term Preferred Stock, or EICA, at its scheduled maturity. That totaled $38 million. Looking at portfolio activity in October, the company received roughly $9 million in cash flows from its investment, with more cash still expected later in the quarter. At October month-end, the company had more than $9 million of available cash and revolver capacity for investments and other purposes. We also estimated our NAV at October month-end to be between $11.92 and $12.02 per share. At the midpoint, that represented a 3% decrease from September month-end. I'll now turn the call back to Tom for his closing remarks before we open the call for questions.

Thanks, Lena. Before we wrap things up, I wanted to point to our updated investor presentation, since it gives shareholders a fresh and fuller picture of the investment portfolio we hold. As we look forward, we continue to feel good about what's available in CLO junior debt, especially with base rates moving higher, and the same goes for our complementary private credit investments, a lot of which carry floating rates too. Along with disciplined portfolio management and the ability to reach differentiated investment opportunities throughout the broader Eagle Point platform, we think EIC is in a strong position to deliver attractive income and long-term returns to shareholders. We're grateful for your continued support, and thank you for your time and for your interest in Eagle Point Income Company. Lena, Dan, and I will now open the call to your questions. Operator?

Yeah, hi. Appreciate you taking our questions today. So I see the new investor deck, obviously — great stuff. Looking at slide 11, I guess I find it pretty interesting, what you've laid out here regarding Eagle Point CLO, BB investments when it comes to downgrades and PIKs. I guess it'd be great to maybe just hear some general market commentary on those two, and then a little bit about why you think EIC's better positioned relative to the market. Thank you.

Hey, Tim. This is Dan Ko. Thanks for your question. What this data illustrates is how we came through the last major period of market dislocation; we lean toward the better-quality BBs, tier one. What we value is being able to trade rather than purchasing some of the less liquid tier three names, which may carry a wider spread yet are more exposed to downgrades and PIKs depending on their credit selection; and given that we serve both institutional and retail clients who, I believe, favor the higher quality, that is what has fed through into, I suppose, the figures shown here. This covers our entire BB strategy, not only EIC. So we think that the safer portfolio has ultimately worked out well for our shareholders.

Alright, thanks. So when I look at those two numbers and consider the portfolio along with some of the verticals and industries it covers, are there particular areas—software, for instance—where you're noticing more downgrades or more PIKs, or is it happening elsewhere? Maybe some commentary at the industry level on where those downgrades or PIKs are showing up.

Oh, so we're talking about this at the CLO tranche level, is that—

Okay

—what it is, I suppose. So in the end, if it's targeting that CLO BB tranche, then cash flow stops coming in, which is a bad outcome, and downgrades, well, they may matter less for EIC since it has no ratings requirement, but a number of our institutional clients are clearly sensitive to a move from BB or Ba3 down to B1. That's basically what this lays out.

All right. Thanks for clearing that up. I appreciate it. That's everything from me today.

Hello. Good morning. Justin here, filling in for Erik today. I'm wondering whether you can give a percentage or a dollar figure for investments that haven't yet made their first payment.