Eagle Point Credit Company Inc. (ECC) Earnings Call Transcript

Thanks, Kevin, and hello everyone. It's morning, and I'm glad to have you join us for Eagle Point Credit Company's call covering results from Q4 along with the entire 2025 fiscal year. With us on today's call are our Chief Executive Officer, Thomas Majewski, plus Ken Onorio, who serves as both Chief Financial Officer and Chief Operating Officer. Prior to getting started, I want to note for all listeners that what we discuss today contains forward-looking statements, or projected financial information, and those carry risks and uncertainties that could lead the company's actual results to diverge materially from those projections. If you'd like more detail on the factors that might affect the company as well as the statements and projections we present here, kindly consult the company's SEC filings; also, since this call happens before our annual report gets filed, the financial results we're covering today are preliminary and unaudited, and they remain subject to our year-end audit procedures being completed. The actual results that show up in our annual report could vary from what's discussed on this call, and those variances might be material. Every forward-looking statement or projection of financial information shared during this call rests on information available to us as of today's date; we disclaim any obligation to update our forward-looking statements unless the law requires it. A replay of this call will be made available later today as well. At this point I'll hand things over to Thomas Majewski, Chief Executive Officer of Eagle Point Credit Company. Tom?

Thanks, Darren, and hello everyone. We appreciate you taking part in today's call. For this quarter, we decided to hold our call earlier than we normally would, so that shareholders could get a timely update on our fourth quarter results and recent developments at the company. Our annual report is set to be filed later this month. CLO equity faced difficult market conditions throughout 2025, and the company also experienced the impact of those broader market-wide conditions. While defaults remain below long-term averages, spread compression in the loan market, combined with broadly negative sentiment toward credit—which in our view is excessive—weighed on both our financial performance and the total return we delivered to shareholders last year. Being strict about how we run our portfolio and about generating value over the long haul via CLO resets and refinancings cushioned part of what CLO equity was up against. On top of that, throughout the year we leveraged the broader sourcing reach of our advisers and seized chances to expand the company's holdings in credit assets beyond CLO equity. One factor behind robust loan demand was captive CLO equity funds, which usually purchase new CLOs irrespective of returns. From where we sit, those same funds made loan spreads tighten faster than CLO liabilities did, because the CLO deals they issued added more CLO debt supply than the market would have wanted to absorb otherwise; that took a meaningful bite out of CLO equity arbitrage over the course of the year. Those dynamics, along with other things, gave rise to what Nomura Research put at a median CLO equity return of negative 15% for 2025. Set against that environment, our company delivered a GAAP return on common equity of negative 14.6% for 2025, which is a bit ahead of what Nomura measured across the market. At December 31, our NAV came in at $5.70 per share, versus $7 per share as of September 30. For Q4 2025, net investment income minus realized losses came in at a loss of $0.26 per share. Breaking that down, NII contributed $0.23 per share, but realized losses of $0.49 per share pulled the total negative. In Q3, the comparable figure was $0.16 per share. Recurring cash flows generated by our portfolio during Q4 2025 reached $80 million, equal to $0.61 per share, compared with $77 million, or $0.59 per share, the quarter before. Across all of 2025, cash distributions paid to holders of our common stock totaled $1.68 per share. Because we hold majority stakes in CLO equity, being able to steer resets and refinancings allowed us to partially offset certain loan compression. During Q4 by itself, 10 resets plus 3 refinancings of the company's CLOs were completed. Across 2025 as a whole, we participated in 34 resets and 27 refinancings, a level of involvement that positioned us among the busier CLO equity investors in the market for the year; this strong pace of deal activity generated average CLO debt cost savings of 42 basis points throughout our portfolio. On a weighted average basis, the remaining reinvestment period of our portfolio — WARP — stayed essentially flat, moving from 3.4 years at the start of 2025 to 3.3 years at the close of 2025, despite the passage of the year. That outcome mirrors both the resets we executed and the new investments we closed during the year. In Q4, we put $184 million of gross capital to work at a weighted average effective yield of 15.4%. We keep adding exposure selectively to asset classes including regulatory capital relief, portfolio debt securities and other opportunistic private credit investments, which round out our core CLO equity portfolio. Out of that $184 million we deployed during the quarter, new investments in other credit assets came to $147 million. As of year-end, the non-CLO share of our portfolio represented roughly 26% of our total investment portfolio. Since 2022, within ECC, we have been making private credit investments beyond CLOs on a selective basis. These investments have served the company quite well. When it comes to the $97 million in investments that have completed their full cycle and been entirely realized, we've achieved a gross IRR of roughly 18%. Deliberately, we've chosen this portfolio approach of growing assets outside of CLO equity — it's a strategy meant to drive the highest possible total return for those holding our shares. A key point here: our adviser brings know-how in these other credit strategies, and has been putting money into them for quite a while on behalf of additional funds and accounts under its management. Looking ahead, depending on where we identify the most appealing investment opportunities, it's possible that a larger portion of our portfolio could be allocated to credit assets beyond CLO equity. Across our portfolio, we kept pushing strategic initiatives ahead during the past year and on through 2026. One example is the ongoing backing we give to Muzinich's platform for U.S. CLO collateral management, and another is the support we provide, as a separate matter, for that firm's introduction of a fresh collateral management platform for European CLOs. The more than $40 million we committed to the U.S. operation has now been entirely put to work, and Muzinich just completed an initial close on a fund meant to underpin additional U.S. CLO issuance by the firm. That ought to lift the worth of the revenue share we take from the top line. As for the European tie-up, it remains early days, with the inaugural loan accumulation facility up and running and building volume. Because Muzinich already has a solid footprint in Europe, we think growth will come more quickly than it did during the early days of our U.S. partnership with them. On top of that, during the first quarter we started a new joint venture alongside a strategic investment partner. That JV's focus will be on regulatory capital relief transactions of a greater volume. Once our Q1 financials are released, sometime in the second quarter, you'll be able to see the JV reflected there. Over time, we're looking to bring additional JVs into our portfolio, and we believe they have the potential to boost returns for the company, much like many of the other private and non-CLO investments we've already made. In Q4, we rolled out a number of steps designed to keep improving how our capital structure is set up. We announced we would call the 8% Series F term preferred stock — the Fs were the most expensive piece of financing we had, at 8% — and that redemption was completed in full on January 30. Beyond that, in the fourth quarter we went into the open market and repurchased $9 million of our other $25 par securities, doing so at a discount to par. As for new issuance, we raised about $29 million during the quarter by selling our 7% Series AA and BB and AB convertible perpetual preferred stock. In our view, the 7% distribution rate attached to this perpetual preferred stock is a highly appealing cost of capital for the firm and gives us extra flexibility to back our investment strategy. As far as we know, no other publicly traded entity focuses mainly on CLO equity while using perpetual financing, and we regard that as a meaningful competitive edge for the company. Through the close of 2025, we had issued $155 million in total of the Series AA and BB convertible perpetual preferred stock. We wrapped up that offering as the year ended and intend to look at further perpetual preferred issuance possibilities that might carry even lower costs down the road. During Q4, common stockholders received $0.42 per share, which came via three monthly payouts of $0.14 each. In that same quarter, we also declared identical distributions for Q1 of 2026. Earlier today, we declared three monthly distributions of $0.06 per share for Q2 of 2026. When determining this new distribution level, the Board considered several factors, among them GAAP earnings, recurring cash flow, and the requirement that we distribute substantially all of our taxable income. It is our belief that this new distribution rate is consistent with the company's near-term earnings potential. In addition, the Board approved a common stock repurchase program of $100 million. With this repurchase program, we can opportunistically acquire our stock on the open market whenever it trades at a material discount to NAV. As we look toward 2026, we see appealing chances to deploy capital into CLO equity as well as other credit asset classes. Through resetting the distribution rate, we intend to hold onto more capital for investments offering attractive risk-adjusted returns; in our view, this approach underpins sustained cash flow and long-term total return, with a key objective of helping NAV stay stable or, ideally, grow over time. Ken will now walk through our financial results in somewhat greater detail, and after that I'll return with a few remarks about the broader loan and CLO markets.

Thanks, Tom, and I appreciate all of you being on the call today. During Q4 of 2025, our net investment income minus realized losses on investments came in at negative $33 million, which works out to negative $0.26 per share. On its own, net investment income reached $0.23 per share, though realized losses of $0.49 per share brought that down. That's against NII minus realized investment losses of $0.16 per share during Q3, and NII realized losses of $0.12 per share in Q4 of 2024. The realized losses we booked this quarter broke down as $0.40 mostly tied to rotating away from collateral managers that were underperforming, plus $0.09 from moving unrealized losses into realized for 10 legacy CLO equity positions that got called. Once unrealized losses are factored in, the company posted a GAAP net loss attributable to common stock of $110 million, or $0.84 per share, for Q4. That compares with GAAP net income of $0.12 per share the quarter before and $0.41 per share in Q4 of 2024. Our Q4 GAAP net loss consisted of $51 million in investment income, which was offset by $69 million of net unrealized losses on investments, $64 million of realized losses on investments, $20 million in financing costs and operating expenses, $6 million in distributions and amortization of offering costs on perpetual preferred stock, and $1 million of net unrealized losses on certain liabilities recorded at fair value. Beyond that, for Q4 the company recorded an other comprehensive loss of $5 million attributable to changes in the mark-to-market of certain liabilities recorded at fair value. Our leverage ratio — debt and preferred equity divided by total assets less current liabilities — stood at 48% when Q4 ended, which sits above the 27.5% to 37.5% target range we generally aim to run the company within under normal market conditions. As of January 31, leverage was 46%, calculated off the midpoint of management's unaudited estimated range for the company's January NAV, which reflected the Series F term preferred stock redemption. Over time, we intend to return the company's leverage ratio to our target range. Importantly, the company continues to comply with every applicable regulatory and financing covenant. In line with our disciplined financing strategy, all of our financing stays fixed rate, and nothing matures before April 2028; on top of that, a significant portion of our preferred stock financing is perpetual, with no set maturity date. Thus far this quarter, through January 31, we've gathered $57 million in recurring cash flows, and we anticipate further collections across the rest of the quarter. Also, management's unaudited estimate of the company's NAV at January month end landed between $5.44 and $5.54 per share. With that, I'll hand things back to Tom for market insights and closing thoughts.

Alright, thanks Ken. Across the year, the fundamentals in the loan market stayed mostly steady, even with periodic stretches of turbulence tied to headlines about tariffs, rates, and geopolitics. For borrowers in leveraged loans, corporate revenue and EBITDA growth stayed in positive territory all year, which helped credit performance hold up reasonably well. In the U.S., the S&P UBS leverage loan index delivered a 1.2% return in the fourth quarter and 5.9% for the entirety of 2025. Loan demand stayed robust, although continuing spread tightening put some restraint on it. In 2025, total repayments on loans came to $294 billion, roughly 19% of the market, which produced a trailing 12-month prepayment rate of 21%. Gross issuance of $400 billion converted into $106 billion of net new issuance over the year. Just as important, the loan market's maturity profile keeps getting better, and only 3.1% of loans behind our CLO equity positions are due to mature before 2028. The trailing 12-month default rate fell to 1.2% as of December 31 from 1.5% in September, which remains well under the 2.6% long-term average. On December 31, exposure to defaulted loans in our portfolio was 24 basis points. Expected cuts in rates ought to keep supporting this low default rate backdrop, since issuers can achieve some savings on interest costs. CLO new issuance ticked up to $55 billion in the fourth quarter, lifting the full-year 2025 figure to $209 billion, which beat 2024's record $202 billion. Resets and refinancings in the fourth quarter amounted to $54 billion and $20 billion, respectively. All together, 2025 CLO issuance, counting resets and refinancings, reached $546 billion, above last year's $511 billion. The metrics for our CLO equity portfolio keep standing out relative to the wider market. At quarter end, CCC rated exposures in our CLO equity portfolio were 4.1%, below the 4.3% market average; beyond that, just 3% — 3.6% of loans in our CLOs traded under 80, versus 4.4% for the market overall. In the same way, our weighted average junior OC cushion was 4.5%, well above the 3.9% market average. To put it plainly, we think our CLO equity portfolio was substantially better than the market. These quantitative measures demonstrate the quality of our CLO equity portfolio and how it stacks up against the broader market. Movements in base rates, such as the Fed's present easing cycle, usually have only a limited direct effect on CLO, because it is mainly a spread arbitrage product. In fact, lower base rates can be helpful at the margin, as borrowers see their interest expense reduced. As we look forward, we're still enthusiastic about the strong set of refinancings and CLO resets in our portfolio; we find value in fresh CLO issuances — CLO equity issuances on a selective basis, especially when we hold a top line revenue share or can otherwise capitalize on the recent volatility in the loan market driven by AI; we're also enthusiastic about our current investments in credit sectors outside of CLO equity, plus our adviser's origination pipeline and other areas of the credit markets. In fact, this is where we currently see some of the most appealing risk-adjusted returns out there. Our goal stays the same: to produce consistent cash flow and long-term total return for our shareholders, including a focus on a stable or even growing NAV. We appreciate your time and interest in Eagle Point Credit Company. Ken and I will now open the call to your questions.

Tom, you mentioned something during your remarks about the rising count of captive CLO equity funds. From what I've been hearing anecdotally, those funds were responsible for most of the CLOs created last year. Just last week, 2 big credit platforms announced a new JV focused on captive CLOs, and it carries no fees either at the CLO level or at the JV level. How do you think that type of structure will affect the fees charged by third-party CLOs? And looking ahead, do you believe third parties have any real chance of competing against captive funds?

That's a great question. We are familiar with the — I think it's the same joint venture you're talking about. From what I gather regarding these funds, when they purchase those assets and inject capital into the JV, the fees land on the JV's shareholder level — the various JV shareholders. That's where we observe the economics taking shape. I believe I understand their rationale for establishing the vehicle, though I won't guess at it. And yes, assuming everything else stays the same, CLOs that don't carry internal management fees could potentially deliver better results than ones that do. On the other side of that, you're right that a big chunk of last year's newly formed CLOs got bought up by captive funds, which definitely have different fee arrangements and different kinds of entities. But no matter what their fees look like, none of them can escape spread compression. We generally treat those funds as unsponsored private equity, and the folks collecting fees — even in that venture you mentioned, the investment managers earn fees from the funds putting money into the JV — only start earning those fees once the money actually goes in the ground. What we keep witnessing, time and time again, strongly echoes what happened back in 2017 and 2018 — the stretch we refer to as the risk retention era here in the States, applying to syndicated CLOs. Picture this: suppose $10 billion gets raised, and that ends up generating roughly $100 billion in extra loan demand, all within a market sized at $1.25 billion to $1.5 billion. You'll hear headlines about the loan market pulling in $0.5 billion or $1 billion from mutual funds on certain occasions — those shifts happen at the million-dollar scale, whereas here we're discussing $100 billion. So the distortion is unmistakably there, showing up on the asset side as well as the liability side, and it's being driven by those vehicles. What's interesting is that during the risk retention era, you didn't see many of those funds either. A handful existed, but not a large number. Often, those vehicles would put money into primary deals with either no fee burden underneath or a lighter one, yet in my view they fell short on one thing: actively overseeing a CLO throughout its life. There's a built-in tension between pursuing a reset and launching a brand-new CLO. If you're a collateral manager running a newly issued deal, your AUM is expanding; with a reset, you're merely extending the maturity date. And the way I see it, certain CLOs that sat inside captive vehicles from that final wave of them likely weren't looked after the way they should have been, nor called at the right moment either. With that said, we've posed a question to ourselves: is what we're seeing just a brief wobble in the market? Or is it a lasting change? My own view is that the truth falls somewhere between the two — it's a phenomenon that goes beyond the short term, and that's exactly why we're shifting part of our investment approach toward places where we're picking up more top line revenue shares from the CLO collateral managers. That way, as those platforms grow, we gain through revenue shares, even on CLOs we aren't involved with. When I laid out our joint venture — a fund set up to invest in CLO, their own CLOs — I chose my words carefully and avoided saying captive fund, yet that is in fact what it is. Naturally, we're hoping it performs extremely well. Still, much of our attention has gone toward — and I believe we mentioned that 26% of the portfolio right now sits in credit assets outside of CLO equity. And although we're certainly not abandoning CLO equity in any way, and it remains the bulk of the portfolio, what we're generally finding is that the strongest return opportunities today often lie outside the CLO equity asset class; moreover, we believe a super majority — likely above 75% — of every CLO created during the second half of 2025 was picked up by captive funds. That skews the market. Our mission is, above all else, to produce robust returns for our shareholders; and the best path we see for achieving that over the medium term is to raise our allocation to credit asset classes that go beyond CLO equity alone. The key point is that every one of these asset categories is somewhere we've spent many years investing and where we have teams assigned specifically to them. Across other funds we run, we own the same assets or ones that are similar. Then, looking at how we did on GAAP total return, or return on equity, which came in at negative 14.6% — obviously, as you're aware, this is a leveraged vehicle. There are expenses attached to our vehicle. Given both those expenses and that leverage, a leveraged vehicle would normally be expected to decline more sharply than the market — and yet our total return ended up just a bit better than the figure Nomura projected for the overall market; so from that angle, moving the portfolio partly away from CLO equity during the past year has clearly paid off for us. When you own those assets, a levered vehicle ought, in principle, to fall further than the unlevered index. We believe that the caliber of our CLOs, together with the portfolio rotation approach we implemented, worked in our favor — a meaningful result during a down year — and gave us an advantage relative to what would have happened without those steps. Looking ahead, we anticipate raising that allocation to some degree as chances arise.

Tom, regarding the change you just outlined, what's the Board's stance on possibly altering the fund's investment objective so it could permit a larger shift away from CLO equity?

We've held early conversations with the Board, and yes, this broad change came up. Naturally, everybody reviews the schedule of investments each quarter. Within our portfolio, that figure has been climbing steadily since 2022. When we reached the mid-20s, it justified a deeper conversation with the Board. Gold mines aren't what we're purchasing, nor crypto, nor anything of that sort. We remain inside our core credit competencies, in asset classes we invest in broadly here at Eagle Point. And the evidence shows in those investments that have gone full cycle, fully realized — we put our money out, we got all our money back. Coming into ECC, that's roughly an 18 IRR. My wish is that every investment we held in ECC since 2022 produced an 18 IRR, plain and simple. So with the aim of generating money for credit, through credit investments on behalf of our shareholders, our Board has supported and continues to support steadily raising the allocation away from CLOs whenever opportunities arise. By no means are we exiting entirely; and if a big sell-off appeared, which we aren't forecasting, but should a big dip occur, we would absolutely purchase a bunch of CLOs or CLO BBs, yet the Board has backed the portfolio's gradual realignment.

Tom, to wrap up, regarding the possibilities you brought up for this year — if we look back at the prior 12 months, loan default rates, and that counts LMEs, which really amount to a default, correct? The figure stood at roughly 3.4%, while increasingly loose deal terms have pushed recoveries to something like 60%. That left the loss given default rate somewhat high, near 135 basis points, which clearly hits CLO equity; and tighter arbitrage, the thing you brought up, hurt cash flows too; and basically, that's why the asset class performed negatively during the last year; so where do you see these patterns heading in the current year?

Nobody can forecast what's coming with accuracy on a repeated basis. That's where I'll begin; what follows is simply my own view regarding what lies ahead. Suppose I got up and made a guess that on July 1 our loan spreads would be 300 or 340. My expectation is they'd be at 300 versus 340. I observe a continuing tendency toward spreads getting tighter. There's been some volatility in the market, and those putting money into AI have stocks that swing around. Perhaps they're overinvesting in AI, so that businesses facing the danger of AI disruption see their loans shift wildly and fast. Yet on the whole, they appear to bounce back pretty fast, and then another sector comes under attack. So on balance — I see a route toward ongoing spread compression. I do see CLOs tightening as well, though not, in my crystal ball, at the pace loans do, but that's merely one person's view; regarding credit expense, I mean, truly, once you include the LME element, the default plus LME rate exceeds the default rate alone, what I'd say is that LMEs arrive in 2 varieties, half or a group are pro rata, meaning every vendor gets equal treatment. And the rest are non-pro rata, meaning various lenders within one loan end up with different results. And certainly, several loan managers in our portfolio have demonstrated a solid record of landing — on the victorious side of non-pro rata loan modifications in LMEs. So although LMEs are in certain instances bad, no doubt, and in a perfect world we'd have zero, in certain instances our CLOs have in fact managed to be the net winner, nearly a reverse Robinhood scenario, in which, frequently, larger loan holders fare better than the smaller loan holders. So you can't compare LMEs and performance directly, one-to-one. It is certainly a factor. I wish we had fewer, but the devil is in the details on the LMEs. And for certain CLO collateral managers perhaps they've been a net benefit, moving the credit problem to weaker hands. That trend, I don't see disappearing.

All right. Yet, at a broad level, if you had to lay out how you see credit shaping up during this year, what's your take regarding credit quality and the direction of credit expenses over this year?

What I'd mainly say is that things look roughly unchanged from the prior year, and that isn't exactly a daring prediction. Businesses keep grinding through their issues gradually and deliberately. Looser documentation provides them with additional time to wait. Cheaper financing costs provide a modest lift. Sadly, the firms facing the most difficulty aren't the ones whose spreads are tightening, yet they will still gain from cheaper financing costs; we aren't forecasting any meaningful rise in credit expense, and we aren't witnessing any meaningful enhancement of it either.

Thanks for bearing with me. I simply want to confirm I've got this right. Putting it together, I believe what you said was that it wouldn't shock you if spreads on loans kept narrowing, spreads on liabilities didn't narrow at the same pace, and the credit backdrop resembled the prior year. That comes across as '26 largely echoing '25. Is that accurate?

Or 2016 echoing 2017. 2018 echoing '17.

Let me kick things off with a quick one about the newly announced buyback, and I believe the wording you've used suggests you'd act as an active participant whenever shares change hands at a meaningful discount to net asset value. Now, "meaningful" is open to interpretation, I suppose, yet my sense is the current share price might well qualify. So I'm wondering whether you'd describe it that way, how aggressively you might actually operate under that repurchase plan, and how you'd balance that against deploying money into investment opportunities?

A whole mix of considerations feeds into whether we pull that lever. Over at the other fund we run, EIC, we've described ourselves as aggressive in how we've deployed it, and there are caps on a per-day basis for purchases; we've stated that with EIC we've been an aggressive buyer. At ECC, we'll weigh the entire — the entire blend of the share price, and examining our leverage ratios is one thing we monitor, plus reviewing where relative investment opportunities stand. Let me draw the comparison to EIC once more, in a scenario where shares sat at a 10% discount while BBs traded at 90 — actually, BBs were at par — that call was fairly straightforward. In the current environment, we may find investments that we hope will deliver as strongly as, or perhaps even outperform, certain non-CLO investments we've made historically, and in that case we might earn more by going that route. This is an art rather than a science; no formula exists on our end, though Ken and I keep a very close eye on it. And whenever it's sensible to deploy, we absolutely intend to do so.

Then, regarding what you said, Tom — I think it was near the end of your prepared remarks — you noted that certain moves and the strategy, the vessels you're working on, give you hope for NAV growth or at least stability over time. Building on what Mickey just asked, with 2026 potentially resembling 2025, where asset repricing appears to outpace chances for resets and refis, the arbitrage window stays difficult, and that clearly weighed on NAV. So what do you think would need to shift for NAV to hold steadier? Any early signals of that yet?

Sure. One right-away item: distributing cash far above net investment income. We've altered that, for better or worse, but the new payout of $0.06 per month works out to $0.18 per quarter. Our net investment income came in at $0.21...

$0.23.

We paid $0.23 during the prior quarter, so honestly, we built in a bit of a buffer there. What that means is we're being somewhat conservative with capital, holding onto it on the balance sheet. Consequently, a meaningful chunk of the NAV drop versus a year ago came just from distributing cash to our investors. Obviously we recognize that shareholders appreciate cash — we hold shares too — but we've also gotten feedback from them that a steady NAV matters. In our opinion, a business generating a distribution sitting in the mid-teens is one that, honestly, has earned its place. So although we anticipate — if we had to guess based on what we see right now — additional challenges ahead in the CLO space, that picture can reverse in an instant, as we're well aware, and whenever loans become inexpensive, that's precisely why we prioritize maintaining the largest weighted average remaining reinvestment period possible in our portfolio. Once loans become inexpensive, we can take advantage of that inside our CLOs and possibly grow our CLO portfolio. Turning to assets outside the CLO space, the other private credit investments we're pursuing throughout the firm, we identify opportunities for those — frequently — to generate gains, at times via warrant appreciation and similar avenues. ECC carries certain capital loss carryforwards, and should we be lucky enough to realize gains, if that happens, generally those can be applied against the carryforwards, meaning no distribution obligation would arise from them, and that might serve as one route toward a higher NAV.