Eagle Point Income Company Inc. (EIC) Earnings Call Transcript

Thanks, operator, and good morning. It's a pleasure to welcome everyone to Eagle Point Income Company's Earnings Conference Call covering the Fourth Quarter and Fiscal Year 2025. Joining us on today's call are Thomas Majewski, our company's Chairman and Chief Executive Officer; Dan Ko, Senior Principal and Portfolio Manager at the company's Adviser; and Lena Umnova, Chief Accounting Officer at the Adviser. Before getting started, I want to remind all of you that what we discuss today includes forward-looking statements, or projected financial information, that carry risks and uncertainties which could cause actual results at the company to differ materially from those projections; for more detail on factors that might affect the company along with the statements and projections contained herein, please see the company's filings with the SEC. Any forward-looking statement or projection of financial information we make on this call rests on information available to us as of today's date; unless the law requires it, we disclaim any obligation to update our forward-looking statements. Earlier today, we filed our full year 2025 audited financial statements and our fourth quarter investor presentation 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 be available later today as well. At this point, I'll hand the call over to Thomas Majewski, Chairman and Chief Executive Officer of Eagle Point Income Company. Tom?

Thank you, Darren, and good morning to all of you. The CLO market went through a difficult stretch over the course of 2025, and our company felt the effects of those wider market forces like everyone else. Even though default rates within the loan market are still sitting under the longer-term historical averages, a handful of significant elements weighed against both our financial results and the total return delivered to shareholders during the past year. Among those elements were the impact that lower SOFR levels had on income from our CLO debt investments, continuing compression in loan spreads that affected our CLO equity portfolio, and a generally more negative mood across the market when it came to credit. All through the year, we kept actively managing our portfolio in line with our investment mandate as market conditions shifted, hunting for opportunities in both CLO debt and equity, along with certain other asset classes outside of CLOs; we feel our long-term record of distributions demonstrates how durable our strategy is through varying interest rate cycles and credit environments. As we head into 2026, we believe solid underlying borrower fundamentals, combined with our disciplined approach, will leave us well positioned. Turning to the company's results for the year, EIC posted a GAAP return on equity of negative 0.7%, along with a total return on our common stock of negative 15.2%, assuming distributions were reinvested. Cash distributions paid to our common shareholders came to $1.98 per share, which equals 15% of our average stock price for the year. The high volume of CLO refinancings, resets and calls seen during 2025 led to early repayments throughout our CLO debt portfolio. Paydowns in that portfolio reached $147 million over the year. Since a large number of these investments had been bought at discounts and then repaid at par, those repayments produced $0.12 a share of realized capital gains for the year. Over the course of 2025, we took part in 10 resets and 6 refinancings within our CLO equity portfolio. Each time we did a reset, the reinvestment window got extended to five years, and when you add in the refinancings, the result across those CLOs was an average reduction in debt cost of 46 basis points. Turning to last year's fourth-quarter performance, the company's net investment income minus realized losses came to $0.03 per share, which breaks down as $0.35 of net investment income reduced by $0.32 of realized losses. The bulk of those realized losses came from repositioning the portfolio, including moves to exit some holdings tied to CLO collateral managers whose results were lagging. For the fourth quarter, net investment income reached $0.35 per share, compared with $0.39 of net investment income per share in the prior quarter. Two things were mainly behind the decline in net investment income. The first was that SOFR dropped over the quarter, and that came from the Fed continuing to cut rates across the back half of 2025. That hit our CLO debt portfolio directly, because the coupons on those CLO debt positions usually have a floating rate that's pegged to SOFR. The second was that broadly syndicated loan spreads kept tightening, and they tightened faster than CLO liability costs came down, which also ate into what we earn from our CLO equity portfolio. That's the market pattern we refer to as spread compression. And although net investment income declined, the cash flows coming off the portfolio remain robust. Looking at Q4, our recurring cash flows totaled $19 million, equating to $0.79 per share. In the previous quarter, that figure stood at $17 million, or $0.67 per share, which means we saw roughly an 18% rise from quarter to quarter. This improvement reflects both the caliber and the breadth of the company's investment portfolio. On top of that, Q4 recurring cash flows surpassed our regular common distributions along with total expenses by approximately $0.15 per share. At December 31, NAV had declined to $13.31 per share, versus $14.21 per share when September ended. The primary factor behind this was ongoing loan spread compression, which has driven CLO equity valuations downward. For Q4, our GAAP return on equity came in at negative 4.2%. Thanks to how we invest, we're able to put money to work in CLO debt, CLO equity, and additional credit asset classes, whether through primary or secondary markets. Having that kind of flexibility makes it easier for us to direct capital toward whatever offers the strongest relative value at a given time. During Q4, we allocated about $45 million toward fresh investments. Within that figure, $26 million was directed to other credit asset classes, including infrastructure credit, asset-backed securities, portfolio debt securities, and regulatory capital relief transactions, which carried a weighted average effective yield of 21.6%. One key point: the adviser brings know-how in those additional credit approaches and has held positions in them for a while on behalf of other funds and accounts it oversees. Beyond that, we've kept working hard to fine-tune our capital structure in hopes of bringing financing expenses down. During Q4, we finished redeeming in full our 7.75% Series B term preferred stock. We additionally signed a fresh revolving credit facility featuring appealing capital costs and a maturity of 3 years. Then, earlier today, we stated our plan to fully redeem the company's 8% Series C term preferred stock, which right now stands as the priciest source of capital we have. Also in the quarter, we bought back $19 million worth of common stock, and those repurchases came at an average discount to NAV of 18.2%. That added roughly $0.14 per share to NAV. Then in November 2025, we told everyone that our Board of Directors had raised the authorization for common share repurchases to $60 million. What we're doing here shows we're still focused on building shareholder value, and whenever shares are trading at substantial discounts to NAV, we plan to keep repurchasing them as opportunities come up. Our view is that the stock is still undervalued, so putting company capital into buybacks is a highly appealing option. During the previous week, we announced three monthly payouts of $0.11 per share covering Q2 of 2026, matching what we had already declared for Q1. In our view, the present $0.11 per share monthly payout amount fits with what the company can reasonably earn near term given today's lower interest rate conditions. One quick thing before we continue: when the Board of Directors makes its determination about the monthly distribution figure, many factors go into that decision. Among them are cash generated by our investment portfolio, our GAAP earnings, and the requirement that we distribute almost all of our taxable income. Because CLO debt carries a floating rate, you should expect our capacity to generate earnings to typically track benchmark rates. Even so, our view remains that CLO junior debt delivers attractive returns for the risk involved relative to plenty of other opportunities across the wider credit market. In our view, the portfolio we hold is positioned well to produce returns no matter what happens in the economy or where rates go in their cycle. The size and the expertise of Eagle Point, our adviser, are still major strengths as we work to take advantage of openings in a market that keeps shifting. At this point I'll hand things over to Dan Ko, Senior Principal and Portfolio Manager, who will give us a market update.

Thanks, Tom. I'll give a brief update covering what happened in the loan and CLO markets in Q4. Fundamentals in the loan market stayed mostly steady across the year, even with sporadic stretches of turbulence tied to headlines about tariffs, interest rates and geopolitical developments worldwide. Issuers of loans kept posting gains in revenue and EBITDA all year long, which helped keep the credit market fairly healthy. For Q4, the S&P UBS Global Leveraged Loan Index delivered a return of 1.2%, and for all of 2025 it returned 5.9%. The trailing 12-month default rate fell to 1.2% as of December 31 from 1.5% at September's close — a level still well under the 2.6% long-term average. Our portfolio's default exposure stood at 32 basis points as of December 31. Further declines in rates ought to foster an environment with fewer defaults, since issuers will save money on interest costs. CLO new issuance ticked up to $55 billion during Q4, bringing the 2025 total to $209 billion, which beat the 2024 record of $202 billion. Resets came to $54 billion in Q4, while refinancings were $20 billion. Adding resets and refinancings together, full year CLO issuance for 2025 reached $546 billion, above the $511 billion total recorded last year. Narrow loan spreads and a bigger supply of new issue CLOs acted as headwinds for CLO equity returns, which put some pressure on our results. Meanwhile, new issue loan activity is accelerating, with a number of sizable loan deals announced lately. As the market soaks up larger loan volumes, this added supply might push loan spreads wider, which could mean higher equity cash flows down the road and set up a possible tailwind for CLO equity. Despite the mild volatility seen in Q4, CLO debt spreads have held up well. Our CLO BB positions, concentrated in the better quality segment of the market, gain from appealing yields along with our subordination. As of December 31, cash plus undrawn revolver capacity came to $52 million, giving us plenty of liquidity to put into appealing investment opportunities or to buy back our stock when opportune and deliver long-term value to shareholders. With that, I'll turn the call over to our advisers' Chief Accounting Officer, Lena Umnova, who will walk through our financial results.

Thanks, Dan. In Q4, we posted net investment income—NII—minus realized losses on investments of $0.7 million, which works out to $0.03 per share. For comparison, the previous quarter had NII minus realized losses of $0.26 per share, while Q4 of last year showed NII plus realized gains of $0.54 per share. When unrealized losses on the investment portfolio are factored in, GAAP net loss came to $15 million, or $0.60 per share, for Q4. That's against GAAP net income of $0.43 per share in Q3. Breaking down that Q4 net loss: investment income of $15 million, offset by $16 million in net unrealized investment losses, $8 million in net realized losses, and $6 million in financing and operating expenses. On top of that, we booked an other comprehensive loss of $1 million for Q4, tied to mark-to-market changes on liabilities carried at fair value. Three monthly distributions of $0.13 per share were paid out in Q4 of 2025. Then last week, we declared monthly distributions of $0.11 per share for Q2 of 2026, matching what was paid for Q1 of 2026. At December month end, outstanding preferred securities represented 31% of total assets less current liabilities. That sits inside our long-term target leverage range of 25% to 35%, which is where we aim to run the company in normal market conditions. NAV at December 31 stood at $312 million, or $13.31 per share, compared with $14.21 per share at September month end. In Q4, we bought back more than 1.6 million common shares for $19 million, at an average discount to NAV of 18.2% per share, producing NAV accretion of $0.14 per share. Turning to portfolio activity at January month end, the company collected recurring cash flows of $14 million from its investment portfolio. Keep in mind that certain investments are still anticipated to make payments later in the quarter. At January month end, after accounting for pending investment transactions and settlements, we had $85 million in cash and revolver capacity available for investments and other uses. Management's unaudited estimate of NAV at January month end fell between $13.23 per share and $13.33 per share. I'll hand the call back to Tom now for closing remarks before we open it up to your questions.

Thanks, Lena. During Q4, we kept concentrating on actively overseeing the portfolio even as markets continued to move around. The numbers encountered technical pressure caused by spread tightening in leveraged loans and the pace of repricings — it wasn't the result of deteriorating credit fundamentals. Given those conditions, we've remained focused on relative value and on deploying capital carefully in CLO debt and, when we're selective, in CLO equity and other credit market asset classes outside of CLOs; we continue running our share buyback initiative because we believe our stock trades below its worth and view repurchasing shares at a discount as an attractive use of capital. As we look forward, we stay constructive regarding CLO market fundamentals. Our pipeline of refinancings and resets is robust, and we expect that to assist in bringing down liability costs within our CLO equity portfolio. Meanwhile, greater new issue loan activity could, over time, help bring supply and demand in the loan market back into balance, which we also think might offer incremental support for CLO equity. All things considered, we view the current market backdrop as an attractive chance for those investors who can wait things out and are well funded, and given a robust balance sheet, hands-on portfolio management and an ongoing focus on relative value, we feel Eagle Point is set up nicely to steer through shifting market circumstances and produce strong risk-adjusted returns along with long-term value for our shareholders. We appreciate the time you've spent with us and your interest in Eagle Point Income Company. Lena, Dan and I are ready to take your questions now. Operator?

I'd like to begin by following up on a few of your remarks, Tom, regarding the realized losses this quarter that resulted from rotating away from certain managers who weren't performing well. I'm curious whether you might provide a bit more detail on that — specifically, which measures or metrics were coming in below what had been expected? I'd just like to know if you can elaborate there.

Erik, Dan here. Regarding those collateral managers that underperformed, I'd say these are among the ones facing greater credit problems along with loan spread compression that we had anticipated on the CLO equity side. There may have been a few on the CLO BB side too that came in below our credit expectations. So we simply concluded it made sense to exit and rotate into other CLOs as well as certain asset classes outside of CLOs that you've watched expand within your portfolio, including collateralized fund obligations, asset-backed securities, and then additional portfolio debt securities — all asset classes that Eagle Point and other funds within Eagle Point are putting money into. We just identified stronger relative value in those areas. So we decided we would boost the portfolio's yield while also introducing a bit more diversification through those holdings.

That's really helpful detail. Now regarding the Series C term preferred stock redemption you announced, I'm wondering where the money will come from for that? Is it a mix of existing cash and possibly drawing on the new revolver? Or what's your funding strategy there?

Yeah, precisely. So it's — the new revolver definitely plays a role, the one now in place. Some cash we already have is part of it, but beyond that, there keep being plenty of refinancings and resets. For our CLO debt, that means we're receiving payoffs at par on things we'd generally purchased at a discount before; so we capture that convexity, get par returned, and then can apply those proceeds to eventually retire the EICC.

Understood. Then here's my final one. The press release mentions that the CLO portfolio's weighted average expected yield stood at 12.5% when the quarter closed, compared with 11.6% before. I'm wondering what caused that rise — was it tied to income, or more about the denominator, meaning the shift in the portfolio's fair market value?