Eagle Point Credit Company Inc. (NYSE: ECC) Q1 2025 Earnings Call | 05/28/2025

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Eagle Point Credit Company Reports Q1 2025 Results: Navigating Volatility with Strong Portfolio Positioning

Eagle Point Credit Company (ECC) announced its financial results for the first quarter of 2025, highlighting a strong start to the year in terms of CLO activity, despite a market downturn in March driven by tariff uncertainties. The company emphasized its portfolio's advantageous position, designed to thrive in volatile periods due to its longer weighted average remaining reinvestment period (WARP).

Q1 2025 Financial Highlights:

Net Investment Income (NII) and Realized Capital Gains: $0.33 per share (comprising $0.28 NII and $0.05 realized gains), primarily from strategic trading activity.
Net Asset Value (NAV): $7.23 per share as of March 31, 2025, a 13.7% decrease from $8.38 at year-end 2024. This decline was attributed to a market-wide drop in CLO security prices, viewed as a short-term fluctuation.
Recurring Cash Flow: Strong at $79.9 million or $0.69 per share, exceeding quarterly common distributions and expenses by $0.08 per share. This was slightly lower than Q4 2024 due to loan spread compression.
Capital Deployment: Deployed over $190 million into new investments, with new CLO equity purchases yielding an 18.9% weighted average effective yield.
Financing: Issued $66 million of common stock at a premium to NAV (accreting NAV by $0.02 per share) and approximately $22 million of 7% Series AA and AB convertible perpetual preferred stock, which the company views as an attractive cost of capital.
Distributions: Declared common regular monthly distributions of $0.14 per share for Q3 2025, maintaining the current rate.
GAAP Net Loss: $97.5 million for the quarter, largely due to unrealized depreciation on investments.
Asset Coverage Ratios: For preferred stock and debt were 244% and 492% respectively as of March 31, above the target leverage range due to portfolio value decline. All financing remains fixed-rate with no maturities before April 2028.

Operational and Market Insights:

CLO Activity: Priced three new CLO equity investments, reset nine positions to lengthen reinvestment periods to five years, and refinanced seven CLOs. Since 2024, 45 CLOs in the portfolio have been reset.
Portfolio Rotation: Substantially completed a planned rotation from CLO debt into CLO equity and other investments prior to the recent market volatility.
Loan Market Performance: The S&P/LSTA Leveraged Loan Index saw a 0.6% total return in Q1, with a positive rebound in May (up 1.8% year-to-date as of May 23).
Low Default Rates: Trailing 12-month default rate stood at 0.82% as of March 31, well below the long-term average and most dealer forecasts (which were perceived as overly pessimistic). ECC's portfolio's looked-through default exposure was even lower at 0.40%.
Spread Compression Abating: While loan spread compression has been a headwind over the past year, it is now largely behind them, with less than 20% of the loan market trading at a premium as of May 23.
Portfolio Quality: ECC's CLO equity portfolio exhibits higher quality than the broader market, with lower Triple C concentrations (4.9% vs. 6.2% market average), fewer loans trading below 80 (2.9% vs. 4.6%), and a significantly better weighted average junior OC cushion (4.6% vs. 3.7%).
Market Outlook: Defaults remain low, and fundamental weaknesses are not widely apparent. While macro factors like global tariff policy will cause volatility, ECC believes market price movements often exaggerate actual default risks. The company sees current discounted reinvestment opportunities as beneficial for medium-term returns, similar to 2020.

About this video

Eagle Point Credit Company Inc. (NYSE: ECC) reported its Q1 2025 results on May 28, 2025, highlighting a period of active portfolio management and robust cash distributions amid ongoing volatility in the CLO (collateralized loan obligation) markets. Total revenue for the quarter reached $52.34 million, a 28% increase from $40.81 million a year earlier, driven by higher recurring cash distributions and continued expansion in the CLO market. Net investment income (NII) and realized capital gains were $0.33 per weighted average common share, up from $0.29 per share in Q1 2024, while NII alone was $0.28 per share. However, the company reported a GAAP net loss of $97.5 million, or $0.84 per share, compared to net income of $35.27 million a year ago, primarily due to unrealized mark-to-market depreciation in its CLO equity portfolio as credit markets weakened late in the quarter. Net asset value (NAV) per common share declined to $7.23 as of March 31, 2025, from $8.38 at year-end 2024, reflecting broad-based market dislocations and markdowns in structured credit. The company received $79.9 million in recurring cash distributions from its investment portfolio, or $0.69 per share, which exceeded aggregate distributions on common stock and operating costs for the quarter. Portfolio activity included $94.5 million in net capital deployed into CLO equity, CLO debt, and related investments, with new CLO equity investments averaging an 18.9% effective yield at the time of investment. Eagle Point maintained a diversified approach, with CLO equity comprising 79% of the portfolio, and continued to issue both common and preferred shares to support growth and capital needs. The company declared three monthly distributions of $0.14 per share for Q1 2025, funded by a combination of NII and capital returns, resulting in a payout ratio of 50% as NII declined due to asset write-downs. Management noted that $0.07 of the dividend came from non-income sources, underscoring the importance of NAV stabilization for future dividend sustainability. Looking ahead, Eagle Point’s management remains focused on opportunistic investments, portfolio resets, and refinancing strategies to optimize returns and manage risk in a challenging credit environment. The company’s leverage ratio stood at 40.9% of total assets (less current liabilities), and its indirect exposure spanned approximately 1,931 unique corporate obligors through its CLO equity holdings. Management reaffirmed its commitment to high current income and capital appreciation, while cautioning that dividend sustainability will depend on market recovery and stabilization of NAV. Outlook: Q2 2025 NAV guidance: estimated range of $6.71–$6.81 per share as of April 30, 2025, reflecting continued market volatility. Continued focus on CLO equity investments, yield optimization, and risk-adjusted returns. Dividend sustainability closely tied to NII recovery and NAV stabilization. About Inside Ticker: For more expert analysis and real-time updates on Eagle Point Credit Company Inc. (NYSE: ECC) and other market movers, follow Inside Ticker and visit InsideTicker.com for in-depth reports, financial insights, and the latest news on leading companies. #EaglePointCredit #ECC #EarningsCall #Q12025 #CLOs #CreditMarkets #Dividend #PortfolioManagement #StockMarket #InsideTicker

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