Eagle Point Credit Company Common Share of Beneficial Interest

Greetings and welcome to Eagle Point Credit Company's fourth quarter and year-end 2020 financial results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Garrett Edson of ICR. Thank you. You may begin.

Thank you, Rob, and good morning. By now, everyone should have access to our earnings announcement and investor presentation, which was released prior to this call, which may also be found on our website at eaglepointcreditcompany.com. Before we begin our formal remarks, we need to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from those projected in such forward-looking statements and projected financial information. Further information on factors that could impact the company and the statements and projections contained herein. Please refer to the company's Finances, Securities, and Exchange Commission. Each forward-looking statement and projection of financial information made during this call is based on information available to us as of the date of this call. We disclaim any obligation, update, or forward-looking statements unless required by law. A replay of this call can be accessed for 30 days via the company's website, equalpointcreditcompany.com. Earlier today, we filed our form NCSR, our full year 2020 audited financial statements, and our fourth quarter investor presentation with the Securities and Exchange Commission. Financial statements and our fourth quarter investor presentation are also available within the investor relations section of the company's website. Financial statements can be found by following the financial statements and reports link, and the investor presentation can be found by following the presentations and events link. As a reminder, Eagle Point Income Company will also be holding its conference call this morning at 1130 a.m. Eastern Time. A web link for that event can be found at the investor relations section of www.eaglepointincome.com, or you can dial in by calling 877-407-0789 and reference conference ID 1371-5044.

I would now like to introduce Tom Majewski, Chief Executive Officer of Eagle Point Credit Company. Thank you, Garrett, and welcome everyone to Eagle Point Credit Company's fourth quarter earnings call. If you haven't done so already, we invite you to download our investor presentation from our website, which provides additional information about the company, including information about our portfolio and the underlying corporate loan obligors. For today's call, I'll provide some high-level commentary on the fourth quarter, the full year 2020, and some recent events. Ken will then walk us through the fourth quarter financials in a little more detail. I'll then return to talk about the market environment, our strategy, and provide some other updates on recent activity. And, of course, we'll be happy to open the call to your questions at the end. Simply put, we believe 2020 validated our approach to investing the company's assets and managing the company's liabilities. We make investments that, frankly, some in the media have panned. After the depths of a pandemic and a double-digit decline in GDP, The company generated an ROE just shy of 20% last year. We had no forced sales. We had no liquidations. To the contrary, because of how the company and our investments were structured, most of the time we were on the offense, buying when others were forced to sell. Our NAV ended 2020 higher than where it began the year. We were even able to take advantage of market dynamics to buy back a portion of our own debt at deep discounts during the year. While there is risk in all investments, we believe our performance in 2020 is an excellent case study as to how our portfolio can handle economic stress. Looking to 2021, by a number of important measures, the year is already off to a very good start. Recurring cash flows received on our portfolio in January 21 were $30.7 million. This is up from Q4. And even more notably, it's 21% greater than our collections in January of 2020. Our NAV went up again during January to begin between $11.95 and $12.05 a share at the midpoint. This represents a 7% gain from where the NAV stood as of December. Not a single company in the U.S. syndicated loan market defaulted in January. Truly remarkable. And through Friday, only one retailer that had been trading at distressed prices long before anyone knew what COVID was sought bankruptcy protection so far in February. So the default cycle is close to nonexistent so far in 2021. We remain mindful that COVID is still with us, and frankly, uncertainties remain, but it appears there are far more tailwinds today than headwinds. and we could be in the early stages of the next expansionary period. Our net investment income for the fourth quarter was 24 cents per share, in line with our common distribution level. If you look through our quarterly investor deck, you'll see we also had a reversal of some previously accrued income, principally related to CLO debt. Without that, NII would have actually been two cents higher. During the quarter, there were certain holdings in our portfolio that were already marked down to fair value where we determined that any future cash flows were either to be nonexistent or de minimis. Several of these investments were seasoned CLOs that unfortunately ended their reinvestment periods during the depth of the COVID uncertainty, or were 2014 vintage CLOs that had heavy energy exposure and suffered losses a few years ago. We decided to write them off. moving from an unrealized loss to a realized loss for these positions. Because we fair value our investments regularly and mark our books accurately, these amounts had largely been factored into NAV already, so despite the optical realized loss, there wasn't a meaningful impact on our NAV. You could think of this really as an accounting reclassification moving from one category to the other. Thus, for the quarter, we had NII less realized losses for a loss of $0.80 per common share. Along with our NII performance, we've been able to find attractive CLO opportunities in both the secondary and primary markets. During the quarter, we've deployed over $10 million in net capital, including five secondary and two primary CLO equity purchases. The new CLO equity that we purchased had a weighted average effective yield of a little over 19.25%. and the two primary purchases were conversions of existing loan accumulation facilities that we held. Beyond the positive trends in our cash flows and earnings, we continue to maintain a very solid balance sheet. We have no financing maturities prior to October of 26. All of our financing is unsecured, and we have no repo-style financing or unfunded revolver commitments. Going through the depths of the COVID uncertainty earlier in 2020, the company's balance sheet proved to be a very steady hand. Frankly, our balance sheet even provided us with opportunity through the debt buybacks we executed. We made about a million dollars for our shareholders through those buybacks. When I was writing the script, originally I was going to say we were lucky how our balance sheet was structured. However, I think it's really more accurate to say that it was good planning that put us in a very fortunate position that we were in during the depths of the market. Looking forward, pro forma for January's performance, we're actually closing in on the low end of our long-term leverage band. We have ample dry powder, just shy of $30 million in the bank as of February 9th, allowing us to continue to be on the offense. Earlier this month, we declared common distributions of $0.08 a month for April, May, and June. That's keeping with the rate we've been at for the last few quarters. As we've also done, I want to highlight the value of the right side of our CLO equity portfolios balance sheets. Within each of the CLOs, we continue to believe our portfolio could withstand a prolonged recession and, frankly, thrive in it. This is not because we're blind to defaults, but we're very mindful of the value that can be created through reinvesting within our CLO structures. We saw some of this play out last year. The money to reinvest within a CLO comes from relative value sales and repayments on loans. You may be surprised to know that after the start of the pandemic, kind of beginning on April 1st through the end of the year, 12% of the loan market prepaid at par. Many of our CLO collateral managers during the depths of the crisis were able to use these par paydowns to reinvest in high-quality loans, which were at the time trading in the 80s and 90s. This had the effect of building PAR and offsetting other losses that might have needed to be taken. A key metric to evaluate our reinvestment optionality is how much reinvestment period we have left in our portfolio. At year end, our equity portfolio's weighted average remaining reinvestment period stood at 2.4 years. This allows our CLOs to continue to be on the offense in volatile markets. This measure was 2.9 years at the beginning of 2020. So, despite the passage of a year's time, through our proactive management, our portfolio decayed by only half a year. With the CLO reset market open as it is today, frankly, we have a path to potentially lengthen the tenor of a number of investments that we already have in the ground. I also want to highlight something on our schedule of investments that's new and a bit unusual for us. If you look at the SOI, you'll see we have approximately 679,000 shares of common stock in McDermott International. McDermott is a design and construction firm for the energy industry, not something we normally have on our SOI. One of the things you may have heard about over the last two years relates to restructurings of bankrupt companies, which are designed by the distressed fund community to be unfriendly to CLOs. McDermott is a prime example of that. In this case, as part of the workout, Lenders were given the option to buy common stock at 50 cents a share, kind of post-bankruptcy common stock. Yet the stock was trading around 85 cents a share at the time, so this was a very valuable option. Unfortunately, due to restrictions within CLOs, while CLOs can typically receive and hold common stock as part of a workout, if they can't write a check to purchase common stock, And in this case, the restructuring was set up in such a way by people who knew CLOs couldn't write that check. As we became aware of the situation, we contacted our CLO collateral managers and said since the CLOs couldn't take advantage of the situation, we would. Most, unfortunately not all, but most of the collateral managers were very cooperative, and we bought several blocks of the McDermott stock that was assigned to the CLOs that ECC was the owner of. We promptly sold enough stock in early January to cover our cost basis but have held on to the balance. Now we're sort of working with house money would be a good way to think of it. We're still evaluating what to do with this holding, but since we sold enough to cover our costs already, we can be more opportunistic with the remaining position. In this case, the amounts involved aren't tremendously large. Nevertheless, it's an important statement to the market for CLOs not to be pushed around. CLOs own the majority of the loan market, and by definition, they have the heft and scale to drive things, particularly when the CLO market works in unison. We've seen several examples over the last year where the CLO market ultimately had the upper hand over distressed investors. The best solution, of course, is not to get involved with companies that go through restructurings, but it's inevitable in our business, and you can be confident that we'll seek to use any tool available to us to capture value for the company And this is a prime example. There's one other item that's slightly unusual that I also wanted to highlight. It's in the good news category. We finalized our taxable income for 2020, and it looks like roughly 80% of our common distributions from last year will be treated as a return of capital for tax purposes. While we had nearly a 20% ROE, that's for GAAP purposes, the taxable income on your 1099 will reflect only about 20% of the cash distributions you received last year. So those distributions perhaps were a little greener, so to speak. While cash flow is the most important part of investment, our investment program, there's also gap earnings and tax measures which are important to understand. In my experience, there's never been a year for CLOs where cash, gap, and tax all equaled each other. They each work under different rules, And while an aggregate for the life of an investment, it will ultimately all tie out. In any given year, things can and will vary. And in the case of 2020, they vary widely. Of course, nearly all investors want to pay as little tax as possible, so we consider this good news. What gave rise to the low taxable income was principally trading activity within our underlying CLOs. Within PFICs, or Passive Foreign Investment Corporations, which many CLOs are, capital losses can be offset against interest income. This is a fairly novel provision of the U.S. tax code and one that worked tremendously to our advantage last year. To give an example, let's say a CLO bought a loan at par a few years ago and sold it last year at 85 in the uncertainty around COVID. That CLO used the sale proceeds and went and bought a different loan that they might have liked better, also at 85. In this example, the CLO would have reported a loss for the 15 related to the first sale, and it wouldn't have to pick up much income related to the buy at 85. It might be a little bit of accretion income, but they don't have to pick up the full 15 as income right away. So, of course, there is no free lunch, and if that new loan pays off at par in 2021, we'll have to pick up roughly $15 of gain as taxable income this year. So where we sit today, we don't expect 2020's low taxable income scenario to repeat itself in 2021. One of the things I've said in the past is that taxable income provides a floor on our distributions, which it functionally does due to RIC rules governing taxable income distributions. But importantly, it doesn't serve as our only guidepost for distributions, and I want to make sure investors are very aware of that. A fortunate year last year, we likely will see a higher tax bill coming in 2021. Since the time of our IPO in 2014 through the end of 2020, on average, our common stock has traded at a double-digit premium to NAV. That's something we've been quite proud of over time. Ken and I are keenly aware that where we stand today, our stock is at a single-digit discount to NAV. We have some ideas as to why, but thankfully know that there are a number of levers available to us to help address the share price We can share more details on our plans and approach when appropriate, but please know that Ken and I are highly focused on the share price of the stock. After Ken's remarks, I'll take you through the current state of the corporate loan and CLO markets and then share a bit more on our outlook for 2021. I'll now turn the call over to Ken.