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

Thanks, operator, and good morning everyone. I'd like to welcome all of you to the earnings conference call for Eagle Point Credit Company covering the first quarter of 2026. Joining us on this call are Thomas Majewski, our Chief Executive Officer, and Ken Onorio, our Chief Financial Officer and Chief Operating Officer. Before we get started, I want to remind all listeners that what we discuss today includes forward-looking statements or projected financial information, and those carry risks and uncertainties that could lead to the company's actual results differing materially from those projections. For more details on the factors that might affect the company as well as the statements and projections we're presenting here, please see the company's filings with the Securities and Exchange Commission. Every forward-looking statement or projection of financial information we make on this call reflects information available to us as of today's date. We disclaim any obligation to update our forward-looking statements unless the law requires us to do so. Earlier today, we filed our first quarter 2026 financial statements and investor presentation with the Securities and Exchange Commission. You can also find these in the Investor Relations section of the company's website, eaglepointcreditcompany.com. A replay of this call will be made available later today. I'll now turn the call over to Thomas Majewski, Chief Executive Officer of Eagle Point Credit Company. Tom?

Thanks, Darren. Good morning, all of you; it's great to have you with us for Eagle Point Credit Company's call covering the quarter. To kick things off, I'll offer some perspective on what we just went through. During the first quarter of 2026, the market environment for CLO equity was difficult, and those wider forces affected our company too. Fundamentals across CLOs have stayed fairly steady, but loan prices came down—particularly within software—and the credit markets generally carried a wary tone because of the war still going on in Iran, and all of that dragged on our financial results for the period. Software drew a lot of attention this quarter as investors kept evaluating how AI might reshape particular business models and sources of revenue. What matters is that our exposure runs mainly through broadly syndicated loans rather than the middle market lending that shows up so often in BDCs. The loans held in our CLOs tend to be bigger, more liquid, institutionally syndicated credits with observable market pricing, and that can mean mark-to-market volatility arrives more quickly when a sector comes under pressure. At the close of the quarter, ECC's software exposure was approximately 10.8%. There isn't a single definitive figure, yet many market sources would put typical BDC software exposure somewhere in the mid-20% range. Loan price swings hurt our quarterly valuations, but we think they simultaneously opened opportunities for a number of our CLO collateral managers to put pay-downs and sale proceeds back to work in discounted loans offering appealing forward return potential. These factors pushed CLO equity valuations lower over the quarter, yet we believe the market usually underappreciates the reinvestment option built into CLOs when dislocation occurs. Being able to purchase loans at substantial discounts to par has let CLO equity produce attractive intermediate and long-term returns after brief stretches of volatility. We put $100 million to work in new investments during the quarter at a weighted average effective yield of 18.9%, seizing compelling relative value opportunities that a particularly uncertain macro environment had created. All through the quarter, we kept managing our CLO portfolio actively, finishing 4 resets and 3 refinancings of our CLO equity positions, which produced weighted average CLO debt cost savings of 43 basis points across those CLOs. Beyond bringing our debt costs down, the reset positions pushed the reinvestment periods out to 5 years. Our portfolio's weighted average remaining reinvestment period, or WARP, finished the quarter at 3.4 years. That's above the market average of 2.8 years and also above our year-end level of 3.3 years. It shows how we keep concentrating on extending the reinvestment optionality within our CLO portfolio; we're also continuing to widen ECC's opportunity set across credit, and although CLO equity stays central to the company's strategy, as we noted on the earlier call, we have selectively grown our exposure to complementary asset classes, among them infrastructure credit, regulatory capital relief, portfolio debt securities and certain other structured and specialty credit investments. We obtain these investments via specialized groups throughout the Eagle Point platform, and they're built to boost income, strengthen diversification, and seize appealing relative value past what traditional CLO equity alone offers. A recent illustration of this approach working: a directly originated infrastructure investment from the fourth quarter of 2025. Only 4 months afterward, we managed to successfully realize that investment, locking in an appealing return. This result shows we can originate and monetize differentiated credit opportunities outside CLO equity while ECC keeps its income-oriented investment focus. At March 31, CLO equity made up 67% of our portfolio, with other credit asset classes at 31%. Cash accounted for the remainder. Our NAV at March 31 was $4.17 per share, which marks a 26.8% decline from $5.70 per share at year-end. During the first quarter, the company produced a GAAP return on equity of negative 20.2%, and over that quarter we distributed $0.42 per share in cash to holders of our common stock. Even so, ECC's portfolio bounced back strongly in April. Our NAV rose to somewhere between $4.49 and $4.59 per share, roughly a 9% gain at the midpoint < > consistent with our distributed quarter. The distribution level we have now matches the company's near-term earnings profile and mirrors our commitment to keeping a sustainable distribution over time. Also, as noted in our recent public filings, people on our adviser's senior investment team bought over 167,000 shares of the company's common stock in the first quarter, which shows their confidence in the company's long-term value and our belief that present trading levels don't fully capture the intrinsic value of our stock. After the quarter closed, we finished the full redemption of our ECCW and ECCX notes. With that, I'll hand the call to Ken so he can go through the financial results in greater detail.

Thanks, Tom, and I appreciate everyone being here today. During 2026's first quarter, our company posted NII less realized losses from investments amounting to $19 million, which works out to $0.14 per share. That stacks up against NII less realized losses from investments of negative $0.26 per share during 2025's fourth quarter, along with NII and realized gains from investments of $0.33 per share in 2025's first quarter. When unrealized losses are factored in, we reported a GAAP net loss for Q1 of $148 million, equivalent to $1.12 per share. That is measured against a GAAP net loss of $0.84 per share in each of the prior quarter and 2025's first quarter. Recurring cash flows during Q1 totaled $62 million, or $0.47 per share. That figure came in $0.11 per share below what we paid out in aggregate common distributions plus total expenses for the period. Keep in mind that every piece of our financing carries a fixed rate, and our capital has long duration with nothing maturing before January 2029. Beyond that, a substantial share of our preferred stock financing is perpetual, carrying no fixed maturity date, which gives us extra flexibility in supporting our investment strategy. We don't know of any other publicly traded entity whose primary investments are CLO equity paired with perpetual financing, and we view that as a major competitive advantage for the company. At April 30, on a pro forma basis reflecting April performance together with the redemption of ECCX and ECCW, leverage stood at 47%, calculated off the midpoint of management's unaudited estimated range for the company's April NAV. Looking ahead, our intention is to return the company's leverage ratio to our target range of 27.5% to 37.5% once the company is generally being operated under normal market conditions. As of April 30, we've gathered $51 million of recurring cash flows and anticipate further collections over the rest of the quarter. Management's unaudited NAV estimate at April month end fell between $4.49 and $4.59 per share, with the midpoint representing a 9% rise from quarter end; with that said, I'll hand the call back to Tom.

Thank you, Ken. At this point I want to offer a few further observations regarding the loan and CLO markets, along with the way our portfolio is currently positioned. In the first quarter, CLO new issuance came to $47 billion, and reset plus refinancing volume stayed robust at $32 billion and $24 billion, respectively, even with the market's volatility. The S&P UBS Leveraged Loan Index dropped 50 basis points during the first quarter. In April, however, it recovered 1.2%, which pushed the year-to-date total return into positive territory. Corporate revenue and EBITDA growth stayed positive in the first quarter, which supported credit fundamentals generally throughout the broadly syndicated loan market, even though loan prices declined. The trailing 12-month default rate finished the first quarter at 1.4%, somewhat above where it stood at year-end, yet it is still far under the 2.5% long-term average. At ECC, our look-through default rate is still low, at 32 basis points, well beneath the broader market average, and in our view this shows both the quality of the loans we hold and our commitment to a rigorous process for selecting collateral managers. Although weaker loan prices may have weighed on CLO valuations in the near term, they have simultaneously opened up appealing reinvestment opportunities for our CLOs. The share of loans trading above par has fallen substantially, which creates the possibility of price appreciation throughout the broader loan market in the coming quarters. Meanwhile, repricing activity has decelerated markedly, producing wider spreads on newly issued loans and a better forward return outlook. That represents a meaningful change, since repricing activity had driven spread compression, a major headwind for the CLO equity market in 2025. Now to our portfolio positioning. The metrics for our CLO equity portfolio continue to stack up well against the broader market. At quarter end, CCC rated exposures in our portfolio were 4.1%, below the 4.9% market average, while our weighted average junior over-collateralization ratio was 4.4%, about 10% higher than the 4.0% market average; these figures demonstrate our disciplined approach and our emphasis on higher-quality collateral managers, and they help prepare the portfolio to handle stretches of difficult market conditions. Outside of CLO equity, we still find compelling opportunities in credit investments that provide strong structural protections, contractual or asset-based cash flows and attractive risk-adjusted return potential. Such investments are not meant to fully substitute for CLO equity but instead are complemented within our portfolio by adding differentiated sources of income and returns. Going forward, we think the present environment is substantially more attractive than the first quarter's headlines would imply. Lower loan prices, diminished loan repricing activity and ongoing market dispersion have enhanced the opportunity set for deploying new capital. In addition, Eagle Point's NAV recovery strengthens our conviction that the first quarter's decline stemmed largely from short-term mark-to-market pressure rather than fundamental deterioration in our portfolio's long-term earning power. We continue to concentrate on allocating capital toward the best relative value opportunities spanning CLO equity and complementary credit investments. We aim to deliver returns that last and remain appealing over the long haul for those who hold our stock, centering on investments tilted toward income and underpinned by a net asset value that stays level or rises as time passes. We appreciate the time you have given and the interest you have shown in Eagle Point Credit Company. At this point, I will turn the call over to you for your questions. Operator?

Let me kick things off with something I've been wondering about. The press release referred to a weighted average yield for new investments, and that figure factors in an allowance for credit losses down the road. Given how much geopolitical and macroeconomic uncertainty there is right now, I'd love to hear a bit about how large a credit loss allowance you're setting aside at present, and whether that amount matches what you've historically applied < > has it stayed fairly steady throughout the market cycle?

Sure thing, Erik, this is Ken. We apply a baseline default rate tied to every cycle assessment, and we treat that as a constant default rate representing a credit loss. Beyond that, I'd say we also align with the market, which tends to shift more and mirrors the present economic backdrop along with where credit and CLO equity currently stand. So one piece stays fixed, while another piece moves with market conditions. If you look back at February in Q1, and at November in Q4 as well, those months saw a lot of volatility that hit credit hard, and we captured that in our valuations. Once that trend turns around and the market gets better, you get the opposite outcome — clearly, this past April was a strong month for loans and credit, and during it that variable piece of the credit loss adjustment gets treated favorably. So here's how to think about it: a baseline default rate applies regardless of which quarter it is or what's happening in the market, plus a variable piece driven by the present market backdrop, which we revisit and update each month.

That's quite useful. It sort of segues into what I wanted to ask next. I'm wondering whether you might spend a moment describing which particular elements were behind the rise in NAV during April — was it spreads, market liquidity, or something else? And I suppose, are you observing that this has carried on into May so far?

Yes, absolutely. What I'd say is that we've witnessed a wide recovery from what happened in the first quarter. Credit fundamentals generally, along with market sentiment — especially within the software SaaS arena — have gotten better too. So April, in my view, really represents a bounce back from the first quarter, or a return to normal following the first quarter's drop in valuations; and beyond that, based on where things stand right now, we are indeed seeing strong performance persist in loans, in our CLO equity portfolio, and in our non-CLO portfolio too.

I'd like to ask about the fresh investments you completed during the first quarter, totaling $100.2 million. Of that amount, how much went into non-CLO equity as opposed to CLO equity?

Of course. We'll need to check on that. Just a moment.

If you have another question you could while I go to the tape here.

To piggyback on what we discussed regarding the balance sheet, I'd like to understand a bit more regarding the preferred stock redemptions you completed in 1Q and 2Q. Was there a particular reason behind redeeming that stock?

We repurchased or fully redeemed 2 baby bonds. Those got called a week or 2 back now, and that fell under a wider — so this was unsecured company debt, not preferred equity, though it looks and feels quite similar. The thinking there involved bringing the company back toward its target leverage ratio. Over the long term, we aim to operate the company at a set leverage ratio. We remain above that level today, yet we've acted proactively to pay down debt. to bring leverage back on site. A benefit from that is being on site with our targets, extending our closest maturity; before, I believe we had some 2027 paper outstanding. Today our closest maturity is 2029; and a growing share of our portfolio — of our debt portfolio or our liabilities, whether debt or preferred, is now perpetual in nature via both the ECCPRD and then the ECC Series AA and AB, which clearly, we favor from a stability standpoint. We also hold ECCC, which is preferred stock outstanding and that does trade at a bit of a discount to par. And we do purchase that occasionally in the open market.

Yes, exactly. We do purchase our own debt when the situation warrants it and when it's available below par. So over time — this serves two purposes. First, it adds a buffer to our leverage ratio; beyond that, we pocket a modest gain when we retire it. So it's a fast method to earn a small amount; whenever our debt is being sold at a discount, we seize the chance, repurchase it, and pay it off.

Now, regarding the first question that came in — it's in the investor deck, on Page — actually, this is simply an internal report of ours, but would you like to talk about it?

Yeah, absolutely. So during the first quarter, about 75% of what we bought was in non-CLO investments, while the other 25% went into CLO investments. That 75 to 25 split leaned toward non-CLOs.

Tom, you brought up lower loan prices. Just to clarify, does that apply to loans already sitting in the CLO, or to loans being purchased from the banks or the CLO?