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spk01: Ladies and gentlemen, thank you for patiently holding. The conference is expected to start in the next few minutes. Please continue to hold. Ladies and gentlemen, thank you for patiently holding. The conference is expected to start in the next few minutes. Please continue to hold. © transcript Emily Beynon Thank you. Thank you. Thank you. Greetings and welcome to Eagle Point Credit Company Inc. Fourth Quarter 2022 Financial Results Call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Garrett Edson of ICR. Thank you. You may begin.
spk04: Thank you, and good morning. By now, everyone should have access to our earnings announcement and investor presentation, which was released prior to this call, and 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 or projected financial information. Further information on factors that could impact the company and statements and projections contained herein. Please refer to the company's filings with the Securities and Exchange Commission. Each forward-looking statement or 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 to update our forward-looking statements unless required by law. A replay of this call can be accessed for 30 days via the company's website, EaglePointCreditCompany.com. Earlier today, we filed our form NCSR, our full year 2022 audited financial statements, and our fourth quarter investor presentation with the Securities and Exchange Commission. Financial statements in our fourth quarter investor presentation are also available within the investor relations section of the company's website. The financial statements can be found by following the financial statements and reports link, and the investor presentation can be found by following the presentation and events link. I would now like to introduce Tom Majewski, Chief Executive Officer of Eagle Point Credit Company.
spk06: 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 and our portfolio. The company's portfolio had a good end to the year despite the continued challenging macroeconomic environment. We were pleased with our overall performance for the year as we generated strong cash flows that enabled us to increase our common distributions during the year and as well as declare 75 cents per common share in special distributions during 2022. Our portfolio of CLO equity continues to demonstrate resilience compared to many other risk assets. We believe our diverse CLO equity portfolio, with three years as a weighted average remaining reinvestment period, remains well positioned to thrive in the current market environment. For the fourth quarter, Our net income totaled 40 cents per common share before non-recurring expenses. This is just a hair below our regular common stock distributions for the quarter. We actively managed our portfolio, deploying $27.8 million of net new capital in portfolio investments during the quarter. We had recurring cash flows on our portfolio in the fourth quarter of $32.9 million, or 65 cents per common share. As we noted on our previous call, the reduced October amount is largely attributable to our CLO equity portfolio and the rapid changes in the benchmark interest rates resulting in a disparity between one-month and three-month rates and a difference between LIBOR and SOFR. Currently, many loan obligors are paying off of a one-month reference rate, be it LIBOR or SOFR, while CLO liabilities typically have a three-month reference rate at present most of which still LIBOR-based. Cash flows in the first quarter of 2023 have rebounded nicely, and we expect cash flows to trend further upward in April, driven by a tighter spread between one-month and three-month reference rates, and more and more paper both on the asset and liability side converting to SOFR. We previously declared a 50-cent special common distribution, which was paid in January of 2023. NAV per share ended the fourth quarter at $9.07. NAV was lower than it would have otherwise been in part due to the special distributions paid. Since the end of the quarter, we estimate our NAV at January month end increased to between $9.62 and $9.72 per common share. This is up roughly 7% for where it stood on December 31st. We also continue to raise capital prudently through our at-the-market program, and issued about 6.7 million common shares at a premium to NAV. That helped NAV increase by 12 cents per common share simply from the stock issuance. These sales generated net proceeds of about $71 million during the fourth quarter. All of our financing is fixed rate and unsecured. You've heard us say that many calls in the past, and I expect we'll continue to. It gives us a real measure of protection in a rising environment. Nothing is secured, and we have no financing maturities until April of 2028. So we have a very long-term, stable runway for the company's financing. Earlier today, we declared regular monthly common distributions for the second quarter of 14 cents per common share. We were also pleased to announce an additional variable supplemental distribution of 2 cents per common share per month for the second quarter. This is related to 2022 taxable spillover income, reflecting again our 2022 strong performance. Management currently expects to continue monthly variable supplemental distributions for the balance of the year, although the exact timing and amounts of distributions may vary. We're pleased to get more cash into the hands of our shareholders. CLO equity is a highly cash-generative asset, and that's one of the reasons why we believe people invest with us. If you invested in our IPO back in 2014, you've now received over 90% of our IPO price back in the form of cash distributions, and we're looking to crossing the 100% threshold very soon. As of December 31st, the weighted average effective yield of our CLO equity portfolio was 16.23%. This is down just modestly from 16.29% at the end of the third quarter. Our portfolio's weighted average effective yield was aided by a few borrowers defaulting and essentially no loan repricings. In fact, as borrowers tackled 2023 and 2024 maturities, some are even refinancing at wider spreads, which is great news for CLOs. As I mentioned, during the quarter, we deployed $27.8 million of net capital into CLO and other investments. Notably, during the quarter, we deployed a bit of capital into SRT, or significant risk transfer investments. These are bank balance sheet securitizations where banks seek to obtain capital relief on diversified pools of core lending assets. They're sometimes called balance sheet CLOs, and we believe they do present an attractive investment opportunity. We continue to find attractive opportunities also in the secondary and primary CLO markets, but we remain disciplined and maintain significant dry powder. So far in the first quarter, we've deployed an additional $43.1 million of net capital into CLO equity and other investments. As of year end, our CLO equity portfolio's weighted average remaining reinvestment period stood at three years. And this is down just modestly from 3.2 years as of the end of the third quarter. And it's actually in line with where the portfolio stood at the beginning of 2022. So despite the passage of 12 months through our proactive portfolio management, the weighted average remaining reinvestment period on our CLO equity portfolio remains substantially unchanged, which we believe continues to drive the portfolio's outperformance relative to the broader CLO equity market. We remain focused on finding opportunities to invest in CLO equity with generally longer reinvestment periods to enable us to further navigate through the current market volatility. I would also like to take a moment to highlight Eagle Point Income Company, which trades under the ticker symbol EIC. EIC invests principally in CLO junior debt. For the fourth quarter, EIC generated net investment income of 52 cents per common share prior to non-recurring expenses, and this was comfortably above its regular common distributions. Since the first quarter of 21, EIC has doubled its monthly common distribution. And with the rising interest rate environment, EIC remains very well positioned to increase NII over time, given the performance of CLO junior debt, which pays a floating rate coupon, and that's directly correlated to rising interest rates. We invite you to join EIC's investor call at 11.30 a.m. today, and also to visit the company's website at eaglepointincome.com. Overall, we remain very active in managing our portfolio and mindful of the broader economy. After Ken's remarks, I'll take you through our view of the current corporate loan and CLO markets and share a bit more of our outlook for 2023. I'll turn the call over to Ken now.
spk11: Thanks, Tom. For the fourth quarter of 2022, the company recorded net investment income and realized losses of approximately $15 million or $0.29 per share. This compares to NII and realized gains of $0.47 per share in the third quarter of 2022 and NII and realized losses of $0.37 per share for the fourth quarter of 2021. NII and realized losses for the fourth quarter were net of a realized loss of $0.07 per share related to the write-off of a small number of CLO equity holdings where further cash flows were determined to be improbable, as well as an estimated excise tax liability of $0.04 per share related to 2022 spillover income. Excluding these non-recurring items, NII would have been $0.40 per share. When unrealized portfolio depreciation is included, the company recorded GAAP net income of approximately 8.8 million or 17 cents per share for the fourth quarter. This compares to GAAP net income of 21 cents per share in the third quarter of 2022 and GAAP net income of 20 cents per share in the fourth quarter of 2021. The company's fourth quarter GAAP net income was comprised of total investment income of $32.5 million and net unrealized appreciation on certain liabilities held at fair value of $20.7 million, offset by total net unrealized appreciation on investments of $26.8 million, realized capital losses of $3.6 million, expenses of $13.5 million, and distributions on the Series C preferred stock of half a million. The company also incurred other comprehensive loss of $15.2 million during the fourth quarter. The company's asset coverage ratios at December 31st for preferred stock and debt calculated pursuant to Investment Company Act requirements were 286% and 423% respectively. These measures are comfortably above the statutory requirements of 200% and 300%. Our debt and preferred securities outstanding at quarter end totaled approximately 35% of the company's total assets, less current liabilities. This is at the upper end of our target range of generally operating the company with leverage between 25 to 35% of total assets under normal market conditions. Leverage decreased to approximately 32% in January, reflecting higher valuations and ATM issuance. Moving on to our portfolio activity in the first quarter through February 15th, the company received recurring cash flows on its investment portfolio of 41 million. This is significantly above the 33 million received during the full fourth quarter of 2022. Note that some of our investments are expected to make payments later in the quarter. As of February 15th, we had approximately $55 million of cash available for investment. Management's estimated range of companies' NAV per share as of January 31st was $9.62 to $9.72, reflecting a 7% increase at the midpoint from year end. During the fourth quarter, we paid three monthly common distributions of $0.14 per share. Earlier today, we declared monthly regular distributions of 14 cents per share and a monthly variable supplemental distribution of two cents per share on our common stock for an aggregate common monthly distribution of 16 cents per share for the second quarter of 2023. The supplemental distribution relates to the excess of the company's estimated taxable income for the tax year ending November 30th, 2022 over the aggregate amount distributed to common stockholders for the same time period. In addition, the company paid a special distribution of $0.50 per share in January to shareholders of record as of December 23, 2022. I will now hand the call back over to Tom.
spk06: Great. Thank you, Ken. Let me take the call participants through some thoughts on the loan and CLO markets. The Credit Suisse Leverage Loan Index generated a total return of 2.33% in the fourth quarter of 2022, and this is well in excess of what investment-grade bonds or high-yield bonds returned. The index was actually down 1.06% for 2022, which is only the third year in its 31-year existence that it finished the year with a negative total return. There have never been two consecutive years with annual declines, a testament to the robust nature of the loan asset class. Indeed, in the two prior times when loans were down, the following years proved quite robust for the loan market. While who knows for sure what will happen in 2023, the year is certainly off to a strong start, and loans are up about 3.38% through the middle of February. In addition, on a relative basis, the loan asset class continues to exhibit greater resilience and outperformance versus other risk assets, most of which, or many of which, certainly saw double-digit declines in returns for 2022. These loans are the raw materials that underpin the strong cash flows to our CLO portfolio. Leverage loan defaults did begin to rise during the year, coming up from near-zero default rates, but notably, despite many negative headlines about credit, there's so many of them, there were actually no corporate loans that defaulted in the fourth quarter. As a result, At year end, the trailing 12-month default rate actually fell back down to 72 basis points, well below the historic average. There are not a lot of headlines about no companies defaulting. That doesn't seem to get a lot of clicks, but it's in fact what happened. Research desks are expecting a pickup in defaults this year, in many cases around the historical average or even slightly above for 2023, but indeed defaults were quite low and obviously at zero for last quarter. During the fourth quarter, Equally importantly, or perhaps more so, 3.5% of leveraged loans repaid at par. This provides our CLOs par dollars to reinvest in a discounted loan market. This is a very important part of the long-term success of CLOs. Given the market conditions that are still choppy, the percentage of loans trading over par remains quite low, and approximately 20% of the loan market was still trading below 90 at year end. As a result, repricing activity in the loan market is also essentially zero. Indeed, borrowers with maturities in the next two years have actually been focused on refinancing just to push out their maturity wall, even if it comes at the cost of paying a higher spread. We've seen a number of loans refinance at wider spreads. That's obviously very, very good news for CLOs, and we're happy to see those. With a significant share of high-quality issuers trading at discounted prices, CLO collateral managers were well-positioned to improve the underlying loan portfolios during the year through relative value credit selection in the secondary market, as well as take advantage of a high-quality primary market, often with nicely discounted prices at original issue. On a look-through basis, the weighted average spread of our CLO's underlying loan portfolios remained steady at year-end compared to the end of September. This measure of our portfolio has now increased or remained constant for the last five quarters. Triple C concentrations within our CLOs stood at 5.4% at year end, and the percentage of loans trading below 80 within CLOs is around 7.4%. Our weighted average junior OC cushion was 4.12% as of December 31st, a slight reduction compared to 4.24% at the end of September. That OC cushion is a very important measure, and that's the principal driver that could cause interruption to equity distributions. We believe our portfolio has a very strong and healthy cushion. In the CLO market, we saw $23 billion of new CLO issuance in the fourth quarter, as issuance edged to over $129 billion for the full year. This was the second largest year of CLO issuance on record. At the same time, CLO reset and refinancing activity was essentially zero because most current CLO financing is in the money. The spreads in many CLOs are lower than where you could issue today, so frankly, it doesn't make sense to do. While the market gives the in-the-money nature of our CLOs financing some credit, in our opinion, we don't believe the market gives it full credit, and that represents some hidden value embedded in our portfolio. As we have noted, it is an environment of loan price volatility where we believe CLO structures and CLO equity in particular are set up well to buy loans at discounts to par with a very stable financing structure and using par paydowns and other relative value trading to outperform the broader debt market over the medium term as they've done consistently in the past. To sum up, we generated NII excluding non-recurring expenses for the quarter of 40 cents per common share. We paid another 50 cents in special common distributions in January 2023, thanks to our high taxable income from 2022. We continue to use our regular monthly distributions for the second quarter, and we're pleased to introduce the new variable supplemental distribution. I'll get the hang of that phrase shortly, for the second quarter as well. That was two cents per common share per month. We also further strengthened our liquidity position during the fourth quarter. generating an accretion of $0.12 per share of our NAV increase through our ATM program. We continue to source and deploy capital into very attractive investments at nicely attractive yields. And we continue to maintain 100% fixed rate financing on our balance sheet with no financing maturities prior to 2028. And this gives us a measure from any further increases in interest rates, and we believe locks in a very attractive cost of capital to us for many years to come. We believe the company navigated through a challenging 2022 very well, and the portfolio is positioned, we think, well for continued success in 2023. We remain pleased to return cash to our investors in the form of special and supplemental distributions and will remain opportunistic and proactive as we manage our investment portfolio with a long-term mindset. We thank you for your time and interest in Eagle Point Credit Company. Ken and I will now open the call to your questions.
spk01: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from the line of Mickey Schlein with Leidenberg. Please go ahead.
spk10: Good morning, everyone. Hi, good morning. Can you hear me all right? Perfectly. Tom, obviously the markets remain really concerned about the potential of a hard landing as the Fed tightens. But as you also mentioned in your prepared remarks, it doesn't seem like there's a lot of data that supports that view. But I'm curious to understand, you know, to what extent are you seeing any deterioration in the trends in your underlying obligors, which would support that concern?
spk06: Sure. Well, and indeed, no companies defaulted in the fourth quarter. That's obviously optimal default rates. And if anything, with the companies refinancing and pushing out the maturity walls, there was par building opportunities in the quarter. To your question, though, the answer may be still a little bit hidden in the data. And how do we see? A big issue facing quite a few companies in the loan market is higher interest rates. And one of the things we love is, well, we own all these floating rate investments and everything's up, up, and away. And LIBOR was 20 basis points or something when we started the year last year. And now it's foreign change percentile is 5%. That's great news for those who receive that higher interest rate. Someone's got to pay it, and that's the company. While I've read research, maybe 30% to 40% of companies or 30% to 40% of interest expense is hedged to some degree at leveraged borrowers. There's imperfect data on that, and this is anecdotal things from dealer research. Interest rates go up, you have to pay higher interest. In the wake, a lot of companies and a lot of press report interest coverage, it's like on a trailing 12-month basis. And so that includes the first quarter and second quarter of 2022, which is certainly not consistent with the third and definitely not the fourth quarter of interest coverage. So when we talk about, I mentioned in my prepared remarks, a lot of banks kind of expect defaults to return to kind of more typical levels, more long-term average type levels. Deutsche Bank even above the long-term average for loans. A lot of that is really driven by the interest rate expense that these companies are facing. If you had a LIBOR floor of 1%, you were paying L plus 350, you're paying 4.5% interest at the beginning of the year. Last year, your LIBOR today is 4.9%. You're paying $3.50 over on that. You're looking at 8.5% interest, roughly. That's a big difference for companies. So while the trailing interest coverage looks not too bad, the trailing 12-month interest coverage looks not too bad, the trailing 3-month interest coverage might be the more accurate picture. And I do think we will see some companies start to struggle with EBITDA not fully covering their interest. Now, the flip side, though, ever since the depths of the Q2 in 2020, companies do run with more cash on their balance sheet. Even if interest expense dips below EBITDA for a quarter or two, it's not as if companies are going to simply default or go out of business. In many cases, these are fine businesses, and they have extra cash on their balance sheets. And frankly, it wouldn't surprise me to see sponsors step up and help out some of these companies or them go and borrow more money in the market. The market is largely open. So a long answer, but to the question, I think the biggest risk facing the loan market, frankly, is interest coverage, not so much a decline in EBITDA. Some companies will do better, some worse, but we're not looking at a wholesale decline in EBITDA across the market. But the interest part of EBITDA, which comes before, is creeping up. And if we're going to see problems this year, I suspect that's where we're going to see it. But we don't expect it to be widespread, simply because we think companies have better liquidity than average.
spk10: Tom, given what you just said, and when we think about loan collateral prices actually up in the fourth quarter and spreads were relatively stable, Is this the issue you think that's driving the decline in CLO equity values, at least what we saw in the fourth quarter, or is there something else the market's also worried about?
spk06: A couple of things. If anything, probably the decline in cash flows. If I had to say one thing, moved prices lower in the fourth quarter, those October payments We're not good. And this goes back to the difference I mentioned. In the old days, everything was just three-month LIBOR on the assets and liabilities, and it just always worked beautifully. With the rapid increase in rates, at one point the spread between one-month LIBOR and three-month LIBOR was, I want to say, over 50 basis points. I'm looking at the screen right now. One month LIBOR is 4.59, a three month 4.90. So we're still at a 30 basis point spread between those two rates. It was much greater. So if you're a CFO of one of these companies, it stinks that lever your cost is going up to begin with. If you're going to say five basis points a year, it's not worth doing this, you know, the certifications every month. But if you're going to say 50 basis points, you're done well going to switched to one-month LIBOR. So we had a difference in that. We're always paying three months on our CLOs, but a lot of the loans went to one month. And then you had a LIBOR SOFR delta, three months, which is actually closing now quite nicely, but at one point that was also significant. So you had some companies trying to move over to SOFR or new loans getting issued off of SOFR, which was different than LIBOR. So CLO equity was down. I think the market maybe got a little bit spooked by the October payments. But that was kind of a low point or the bad point, in my opinion, of the mismatch between the multitude of rates in a CLO ecosystem. By the summer, I believe, essentially everything will convert over to SOFR. So we won't have the LIBOR-SOFR dynamic anymore. And as I mentioned earlier, the one-month and three-month LIBOR differential is closing pretty significantly. We've still got more wood to chop there. but the one-month, three-month curve is getting tighter. I mean, we can see this in our cash flows. Our January cash flows were about $40 million. I gave the exact number here. Let me find it. What did we collect? Was it $40? Let's see. Cash flows were up a bunch. We were... So 32.9 million for the fourth quarter and January cash flows were up about 10% from all of the fourth quarter. And as we forecast out cash flows for future periods based on where the rate curve is, and this is really just the one-month, three-month curve. We don't care about the five-year curve, 10-year curve doesn't impact us, has moved up, has tightened significantly. I think people are looking at all the economic uncertainty. Wait, the payments are way down on these CLOs. There must be some big problem. I think that was a big driver of the price movement. And certainly you can see as the payments came in in January and voila, what do you know, our NAV is up about 7% in January. So perhaps the drawdown was attributable a lot to that cash. And I think we'll see even better cash flows in the second quarter.
spk10: That's helpful. A couple more questions, Tom. Did you have any meaningful CLL positions failing their tests? And what is the portfolio's average CCC bucket?
spk06: Yeah, let's see. The average CCC bucket, let me go pull that up. I know I said that, and then we are at 4 point, let's see, 5.4%. And then if you look at our investor presentation. Yes.
spk05: This is going to be on, we'll give it on a deal-by-deal basis, on pages, let's see, 25 and 26.
spk06: Yes. Our triple C concentration, there's such tiny numbers.
spk09: Let me make sure.
spk06: That's, 6.11%, and that's as of the, let's see, that's the most recent reports we have, so it would be later than the year-end numbers. Yeah, I'm sorry.
spk10: I should have seen that. I'm sorry. I didn't realize it.
spk06: So that's our triple C cushion, and then our junior OC cushion is a 4.12 number, and if you look, you can see deal by deal. There's a handful that are negative, These are typically older or smaller positions that are out of their reinvestment period. But it's a, I'm just looking, I'm scrolling through the portfolio. I see three negatives at this point. One just a hair negative, but two very slightly negative, one more significantly. But you can kind of see quite a few of the bigger positions, the kind of the bigger dollar positions, Looking at junior OC cushion, plenty of them still have 5%. Yeah, I see that. Which is good. You can never have too much OC cushion. No CLO manager has ever said they have too much OC cushion. There's always a trade-off. And when we're involved in the structuring of CLOs, we like more versus less. The trade-off is at some point, if you have too much cushion, then you start getting a less optimal capital structure. So it's always, you know, it's a give and get. We typically structure 10% more cushion than the market, if I had to say judgmentally. And I think that's money well spent. In theory, we could put in double the OC cushion than the market. I think that would be money not well spent. But overall, one of the things we look at when we monitor and evaluate collateral managers and bring new ones onto kind of our approved universe or those we seek to eliminate. I guess at the same time, their ability to manage OC tests and triple C buckets, but particularly OC tests, is something very, very important. The last thing I'll say about OC tests is I used to say they matter four days a year. They really only matter four minutes of the year, at 5 p.m. on the determination date each quarter. It was interesting all year long, but The only time it really impacts us is the proverbial 5 p.m. on the quarterly determination dates. And the nice thing about that is you know when those are coming. So if you're a CLO collateral manager and you're getting a little tight on the OC test, there's techniques you can do to keep things on site. And quite a few of the CLO managers we work with kept all or substantially all their deals in the reinvestment period on sides during the financial crisis, during COVID. So folks know how to do it, I think, pretty darn well.
spk10: Yeah, I think the market may not understand that this cycle is very different than the COVID cycle. It gives managers an opportunity to do their job more effectively. Tom, just one last question. What drove the realized losses or the net realized losses on investments this quarter?
spk06: Sure. Something we've done, and we have done this at the fourth quarter and one or two prior years, Basically, it's a reclassification from unrealized to realized. And maybe Ken, you want to expand on that?
spk11: Sure. And that's a good segue from the previous comment. So we analyze our positions on a periodic basis to see if there's any permanent impairments. Permanent impairment being we've marked the position down in fair value, but the advertised cost is still where it is. And what we effectively do is move the unrealized loss to a realized loss and record it above the line. And of the three positions that Tom mentioned that have negative OC cushion, two of them were the two that we wrote down this quarter, Marathon 6 and Marathon 10. In addition to the negative OC cushion, both of those positions are outside their reinvestment period of greater than one year, and they obviously have negative effective yield. Those three factors allowed us to determine that a future recovery was improbable, and we just recognized that loss in income, moving it from unrealized to realized.
spk06: But that was already fully factored into a NAV, so not a NAV event, just a request.
spk10: Yeah, it's not a NAV event, and if I'm understanding you correctly, you actually didn't exit those positions. This is more of an accounting treatment. Is that correct? Correct.
spk11: Yeah, so when we get into a permanent impairment, situation. We recognize that above the line.
spk10: Right. And Tom, I just thought of, I wanted to circle back and I apologize for all my questions, but the markets are obviously so volatile. So folks have a lot of questions on their minds. You talked about cash interest coverage ratios, and that's certainly come up in a lot of earnings calls. And, you know, if I were to sort of paraphrase what I generally would hear was that, you know, perhaps in the middle market prior to the Fed tightening, those cash interest coverage ratios were north of three and maybe in the upper middle market and the syndicated loan market, it was better, perhaps four or five. And those numbers would roughly drop in half based on the forward curves. But apart from tail risks, the consensus was that balance sheets could absorb that higher interest expense. You know, let's not forget that the forward curve actually shows rates going down in the not too distant future as the economy slows. So is this phenomenon you're describing more of a tail risk, you know, perhaps concentrated in borrowers that have more highly levered balance sheets and maybe less recurring revenues? Or is this something, a theme that you're seeing more broadly?
spk06: Let's see. Well, every company's facing higher, any company with floating rate debt is facing higher interest expense. So that's market-wide. In our deck, that same deck I had referred to earlier, if you go out to page 32, and let me actually go to 33, and then I'll come back to 32. 33 is something that really, and this shows the annual year-over-year change for revenue and EBITDA for below-investment-grade companies that are public issuers within the S&P LSTA leveraged loan index. So this is not the full market by any stretch, but it's some set of data. And again, this doesn't get a lot of headlines, but revenue and EBITDA are growing at double-digit percentages. So that's good. Let's start with that. So we're not Now, this is an average. Some companies are up, some companies are down. But overall, you don't usually think of financial doom and Armageddon when revenue is up 15% and EBIT is up 14%. So that's a good starting point. But then flip back a page to page 32. And if you look at the top right chart, this is the average interest coverage multiple for outstanding loans. And if you look at it, it actually shows 6X. That's the highest ever on that chart. What that's not factoring in, and that's for outstanding, you can see newly issued down below is lower. What that is, though, is I believe that's trailing 12-month. As of the third quarter, yeah. Yeah, yeah. So if I show you that, gee, that looks great. Mickey, there's no problems in the world. The reality, what we know is That includes not bad data, but not applicable data, and that includes LIBOR at less than 1% for a while. So the key takeaway that I think people should look at, it'll be the newly issued loans. You can see that's down to, what is that, 3.3x down in the bottom right-hand corner, the interest coverage. Yes. Yeah, and that's trending downward in aggregate interest. But it's not historically particularly low. I mean, that's my point. Yeah. It's headed the wrong direction. If you think about that 6X for the overall market, and again, or that's just a subset of publicly reporting companies, which is not the full market by any stretch. It's about $200 billion or $190 billion alone. So it's a bunch, but not nowhere near all. But mindful, that includes a year ago data in there. It's not great, in my opinion. This is where companies are going to trip. Mindful, these numbers are averages as well. Some above the median, some below or mean. But it's not the Armageddon that folks are talking about. And certainly when you couple it with the increase in revenue on EBITDA, that's the number one mitigate to all problems is increasing EBITDA, obviously. So there will be some problem, but it's not going to be as bad as I think. doomsday sayers are saying. And if those doomsday sayers are right, the price of loans should fall significantly. And having three years on our remaining reinvestment period, while our marks will nearly certainly be down on that day, then the reinvestment option within our CLO gets far more attractive.
spk10: Right. And this is why, in terms of lack of, you don't think we're in a doomsday scenario. That's why you're actually expecting your cash flows to at least this year remain robust. Would you agree with that?
spk06: Yes. No question about it. And defaults really impact the terminal value. Loan defaults, even without par building from other reinvestments, really just impact your terminal payment, your terminal value of a CLO. It doesn't have that big of an impact on the ongoing cash flows. And if you see cash flows in January are up quarter over quarter, so that's... That's the best news we can always have is our cash flows are up.
spk10: Right. Again, thank you for your patience. That's it for me this morning. I hope everybody has a good day.
spk09: Thanks so much for your interest, Mickey.
spk01: Thank you. Our next question is from the line of Paul Johnson with KBW. Please go ahead.
spk03: Yeah, good morning. Thanks for taking my question. Good morning. Most of my questions have been touched on, but kind of just, I guess, adding into, you know, the discussion, you know, the points you hit on with Mickey's questions, you know, and everything you sort of described, I was just wondering, you know, maybe your kind of overall thoughts on the current vintage of CLO creation, you know, just given the obviously strong resurgence in that market and, what seem to be more attractive terms in the loan markets as well. Any kind of thoughts there would be interesting to hear.
spk06: Sure. New CLOs stink. Let's just put it right out there. With very limited exception, the new issue dynamic isn't great today. I think ECC has been involved in two new CLOs in the past six months, plus or minus, and each of those, there was some supplemental economic drivers that were further inducements to participate in new CLOs. Frankly, substantially all of our portfolio activity in CLO equity, this is across all of Eagle Point, has been in the secondary market, where we're able to pick things up, weighted average yield of new things we put in the ground, high teens, low 20s over the last six months in the CLO equity market on a loss-adjusted basis. So that's where we're putting most of our investment dollars to work today. There's not enough good opportunities in the secondary market. There never will be, I guess. We'd always like more. But that's, by and large, where we're finding the most attractive parts. Why is that? So AAAs rolled a clock back a few months ago where 225 to 240 over. and the rest of the stack, you know, even, you know, commensurately wider, that's certainly come in a bunch, you know, kind of, I don't know, 175 area type context, which is in radically, if you told me, oh, triple A's are in 50 bips, that'd be, I'd normally say that's great news. The bad news is loans are up a bunch. And it's a little bit out of whack right now, the arbitrage for new versus used. But, it doesn't really matter. I mean, we obviously love a robust new issue market. We have no problem finding opportunities in the secondary market when we'd like. I shared the stats earlier. We put in the ground already this year about $41 million into, so far in the first quarter, we've deployed an additional $43.1 million net capital into CLO equity and other investments. So, The opportunity set does ebb and flow a little bit, but right now, substantially all of our focus is on the secondary market. And absent unusual circumstances, we don't think the new issue market is attractive today. That said, it can turn on a dime. We did a whole bunch of stuff in May of 2022, and those CLOs did great. They made big first flush payments in January, so that's great. We love it. And that the tide will turn again, and we're able to pivot very nimbly between the primary and secondary market. To that end, we have a handful of loan accumulation facilities, kind of in early formation stages at this point. A little bit of capital in them, not a lot, but it's frankly getting us slots in collateral manager pipelines. In many cases, we're able to command even more preferential fees today, fee pre-breaks than we normally do, simply because we're, we're willing to set things up and it's basically just kind of buying a reservation at this point. Um, but the market will turn at some point and we're positioned to capitalize on that just as, just as we are focused on secondary right now.
spk03: Yes. Very interesting. Um, thanks for all that. Um, and I guess, you know, one of the things you mentioned, I was curious if you could talk a little bit more about, um, on the call with the SRT bank, you know, balance sheet CLO transactions that you did this quarter. I'm just curious if you could just explain that a little bit further and, you know, what you find, I guess, attractive with it, if it offers better economics, you know, better deployment opportunities. Curious to hear what you have to say there.
spk06: Yeah, it's, you know, it's a market we've studied for quite some time. We might have had one or two little positions in the, around, you know, over the years in the space within broader Eagle Point. What makes these interesting is the things you look for is that these are sort of the core lending operations of the bank. These aren't like discontinued operations where the bank wants to shed their risk. It's kind of a situation where they say, this is something, this is an important business. We're probably growing it, which typically means they're making a lot of money in it. but they might need more capital. And it's basically a way for banks to get stealth capital into their balance sheet without having to go do an equity raise in the common stock market. So for them, it's taking good stuff, taking and selling a pro rata piece, keeping a lot of risk themselves, but kind of just getting more capital in their system. That's their motivation. And a key thing we look at when we're making investments in the space is making sure these are core operations for the bank, not some legacy stuff or something they took over via merger. What we saw in the fourth quarter was demand from other investors, other funds that typically invest in securities like these. They had dried up and all of a sudden kind of the, hey, what would it take to get a ticket done with you guys kind of picked up. One of the other nice, so that was good. All of a sudden when you're getting that second call, that's a proverbial second call. That's always a very good sign And then one of the other nice things about these is there's no concept of a AAA market in that the banks are already funding these themselves. And the way this paper is quoted, it's a stated coupon to the residual tranche, which we're owning. And we're not having to go deal with a bank or insurance company to place AAAs. So it's a very elegant solution for the issuers. They're getting some degree of capital relief for us as an investor. We're investing alongside the banks, subject to strict NDAs. They provide us with their track record and typically 20 years plus of loss experience to the extent they've been in the businesses that long. And these are typically their crown jewel assets, in my opinion. And then overlay the attractiveness of not needing to deal with the AAA market. Very, very good. And then, frankly... These are assets that I think are a little more stable from a valuation perspective compared to CLO equity and CLO debt, which trades more rapidly, frankly, than the SRT transactions. So, of course, we'll fairly mark everything. But what we see is, having been involved with the assets for a number of years, they displayed less price volatility than broader CLOs. So it's an interesting mix. I don't anticipate it being a very large part of our portfolio. but it presented some interesting opportunities when few others were buying, and frankly, we had cash available. Just another form of CLO, typically with higher quality underlying assets, if anything.
spk03: Yeah, very interesting. Thanks for that, Tom. That's very interesting. My last question, you guys had around four cents or so of excise tax this quarter. I may have missed this bill over a number of you if you gave it on the call. But I guess with the large distributions that you guys paid out in the fourth quarter, and then as well as the supplemental that you guys declared for this year, I mean, do you expect that to be, I guess, enough to kind of clear out the spillover income for any sort of additional excise tax expense like you took this quarter? Or do you, I guess, expect to be carrying over some level of spillover where you'd be taking a similar charge again this year?
spk06: Well, so a couple things around that. One sentence I did say in the call, management expects to continue monthly variable supplemental distributions for the balance of the year, though actual timing and amounts of distributions may vary. So that certainly remains the case. Cash versus gap versus tax and CLO equity is the great mystery that will never be resolved. We have a presentation on our website from, I think, 2015. which lays out a representative transaction. And over the life of an investment, cash, profit, gap profit, and tax profit, substantially all equal. There may be a small bit of non-deductible stuff for tax. By and large, it all equals. But in my experience, it never equals in any given year. If you look back in our history, we've had years with almost no taxable income where our common distributions, the vast majority of which were return of capital because there was no taxable income. even though we had gap earnings perhaps, um, and other years where we have losses on gap, but gobs of taxable income, um, that when, and it's very difficult to predict because even if everything's going swimmingly, you could, the tax outlook can change, um, and a bunch of losses could be realized in the last month of the tax year. So even if you're predicting accurately along the way, kaboom, the last month things change. Um, So when we do this, we take the reserve or the charge of the expense, and it was 4 cents for ECC. You only really take that once a year, kind of when you're at the end of your taxable year and you make your best estimate of what your taxable income will be. So it's not something I would struggle to see us having any... We might have a penny or two of adjustment to that as we get the final numbers in. I would struggle to see... another excise tax of any note prior to this time next year. Would that be fair, Ken? Yeah. Okay, just Ken's looking at me and smiling. And it's been much higher in some periods, much lower in others. And honestly, some of the reason we went to kind of the little couple extra pennies a month was trying to reward long-term shareholders. Obviously, everyone loves a 50-cent special. That's, you know, a nice way to start the year. I'm a shareholder. It's, you know, nice to get as well. But we certainly were long-term investors, and we like to reward long-term investors. And we thought what might be a better way to kind of handle the variability of the spillover income, which is still our best estimate, not definitive, is to kind of pay it out on a monthly basis like that. We will revisit that number each quarter, so it could go up or down, but our plan is at this point we'd expect things for the rest of the year. Got it. Appreciate that.
spk09: Thanks for the color on that, and those are all my questions. Great. Thank you very much, Paul.
spk01: Thank you. Before we take the next question, a reminder to all the participants, that you may press star one to ask a question on your telephone keypad. Our next question is from the line of Matthew Howlett with B Reilly. Please go ahead.
spk02: Oh, hey, good morning, everybody. Hi, Tom. Hey, good morning, Matthew. How are you? Good, thank you. Thanks for taking my question. You know, I just want to look at the capital deployment. It looked like it was sort of lagged and you raised money through the ATM in the fourth quarter. It looks like a lot of it got deployed in January. Was there a drag, if you will, on the $0.40 adjusted NII? We look at NII going forward and look at what could be run rate. I'm assuming that it's a bit higher given the lag in capital employment. Yes.
spk06: Usually I have very long answers, but that one is just yes. It's a dilemma. You raise capital, you raise capital at a premium. The day when there's the best opportunities, it's the hardest time to raise capital. So it's an art, not a science, the relationship between the two. And there were fewer opportunities than we'd like in the very end of the year. You never know. Sometimes there's year-end specials. This year there weren't. It turned out January proved to be the most ripe time for deployment. We try to be measured on the ATM. You think about $0.12 of NAV accretion, that's almost one month of distribution kind of covered through that, which is obviously nice. But we had over 5% cash, if I had to judgmentally say it. So, yes, there was some drag in that $40 for sure.
spk02: When I look at what you've done post-year-end, the 2.6 million shares of common, and now it looks like you're tapping into the Series D, I think that's trading around a little bit over an 8% yield. When I look at that going forward, where purchase yields are today in the secondary market or that new sort of synthetic piece, how accretive is this? You can now issue a little bit of the preferred now that your leverage is down. continuation of ATM above NAV. I mean, is this all accretive to NII? I mean, we look going forward in our models, can we just say if this continues, you know, that they're going to put, you know, things on it. I know high teens and cost of capital is somewhere, you know, low double digits or something. I mean, how should we think about the accretion to NII, you know, through the capital markets, you know, at this point?
spk06: Yeah, so we look at our cost of capital on a blended basis. There's debt. I mean, we have those five and three-eighths Vs, and I wish we had more of those. Basically, Treasury is flat at this point, or nearly, all the way through perpetual preferreds. I wish we had more of those, and obviously common. Then we look at the weighted average stack, and I use the midpoint of the range, kind of the 30%. as kind of where our bogey is. And if we're raising new equity capital, I know what the distribution is, and I factor all that in, and we look as, are we going to be able to be both NAV accretive, that's easy math, with raising, and can we deploy the capital within a reasonable timeframe on an income neutral to accretive basis? And those are kind of the governors that we look at around each of these. So our including capital including all the expenses of the company. It's a little bit of mid to mid-upper teens kind of blended cost of capital right now. And many of the investments we're able to find, not every single one, but quite a few of them are in line with or above that, which would suggest NII accretion. That said, it's a portfolio approach. Some investments are going to be higher yields, some are going to be lower yield. We can't just buy investments that are above the average because eventually you find your way into too high of a risky portfolio there. But we look at it carefully between, at some point, the premium is so great you just issue. At the same time, if you don't think you can service that distribution that you're due when you issue it, then you've got to be very careful. So it's an art around this, but it's something we're very conscious about. And being long-term investors, while we always want the maximum earnings per share in NII in any given quarter, I said this earlier, the day that stuff is being sold and given away is probably not the best day for us to be issuing new common stock. So sometimes there is going to be a little bit of mismatch in that. the day you can raise capital is probably not necessarily the best day to deploy, but the day that is the best day to deploy is probably very tough to raise. So it's a collage of all of these factors.
spk02: Gotcha. And without asking, you know, NII, asking you for NII guidance, I mean, I'm assuming when you look at setting the dividend, you know, the board, you know, you look at, you know, being learned on a gap basis going forward, and I look at sort of what your run rate is and thinking that, you know, when the dust settles, you're probably above, You're probably in sort of the mid-40s where you were X any sort of one-time expenses. You're going forward when things sort of shake out.
spk06: Yeah, I mean, obviously, we have to be very careful on NAB guidance or NII guidance. Obviously, you can see the yield of things we have in the ground today.
spk11: And also, another dynamic to consider is cash flows that the portfolio, recurring cash flows from our CLL equity portfolio, if they're down in one quarter, the subsequent quarter, the weighted average effective yield of the portfolio could also be down because of the amortization of cost that recalibrates the effective yield on a prospective basis. So something to Tom's point there. not only capital issuance, but the stuff we already have in the ground also needs to be considered for NII.
spk02: Gotcha. That makes sense. That's what I'm counting. Great. Gotcha. Well, thanks for clearing that up. And I guess the second question is, you gave some sensitivity. I was reading your letter about sort of the every 0.5% improvement in the junior OC. I think it was 20-bip improvement can withstand 50-bip of extra defaults. Could you just remind me? I would assume that you could CLOs could easily withstand a 3% default rate. What was that?
spk11: Just remind us what that sensitivity was.
spk06: Yeah, sure, sure. Yeah, and just to frame it again, just looking at our average CLO, and this is on page 26 of the investor deck, our average OC cushion is 4.12%. So let's just say all CLOs were 100% average. We could have 4% defaults and zero recovery on our average CLO, assuming the collateral managers took no other corrective actions And to our average CLO, it wouldn't cut off the equity distributions. Now, the sensitivity we use, it kind of depends on what recovery rate you want to assume. Let's assume 60% recovery for loans, just for a point of illustration here. So again, holding all else constant in a portfolio, if you had 1% default at 60 recoveries, you lose 40 basis points of par. Right. So that would suggest, at that math, on our average CLO, we could have 10% default at 60 recovery and still only a decay 400 bps of PAR, so we'd still have some OC cushion left. Now, in the day where 10% of corporate America is defaulting, triple Cs are probably up, which could go over the 7.5% threshold. That could start to hurt the numerator even further. Against that, hard to see a scenario where loans are at par on the day where 10% of corporate America is defaulting, such that the other little secret in CLOs is pretty much anything you buy over 80 is going to count as 100 in the OC test. So you can buy discounted paper, which, again, in the picture of the world in March and April of 2020, loans, many good loans were in the low to mid 80s. These are the kind of things that you can buy and build a ton of par. very, very quickly. And again, these OC tests only matter four minutes of the year. You know when the test is coming. There's no surprise test. So you've got the ability when you're managing a CLO to prepare and pounce and position your portfolio such that you're passing the test, even if it's potentially a close call.
spk02: And I guess that's why it's so important that the managers, there's tiering, right? Obviously, there's some managers that do this. better than others, correct? And that is sort of somewhat priced in when you buy the equity. Is there still, I guess, tiering among the managers?
spk06: Yeah. Oh, absolutely. And tiering is probably greater than it's ever been. Right. The flip side, the tiering is principally driven by based on the AAA investor's perception of the riskiness of what a collateral manager does. Not necessarily their prowess in delivering equity returns. So there are some collateral managers, I probably don't want to, on a recorded call, get into naming them, but in our portfolio, that the market might consider a tier two collateral manager, but knows how to deliver IRR to the equity, we unambiguously call them tier one. So there's, and so what that comes to is a challenge. Like when issuing a CLO, if you're a tier three collateral manager, it's very expensive to find a AAA bid if you're issuing a new CLO today. At the same time, the secondary equity might be very cheap and they might've gotten the AAAs done in 2021 when, you know, the market was on fire and open and you could get stuff done. So we're, With very few exceptions, there's no bad bonds, just bad prices. And there's a few bad bonds, perhaps, in the market. But by and large, we're going to focus on collateral managers who have a proven track record of generating returns to the equity, which in some cases does line up a tier one, what the market would commonly call tier one, but by no means dollar for dollar.
spk02: Well, Greg, you do a great job of orchestrating and explaining a lot of very highly complex assets, certainly for equity investors. So I think I certainly agree that there's a lot of value in the CMO equity that I think is just misunderstood by the market.
spk06: Thanks. Well, thank you, Matt. You know what I can say? I mean, you look at our portfolio over eight years. It's been up. It's been down. You know, markets are left and right. You know, trouble here, trouble there. China, COVID. Portfolio just keeps generating cash flow. And I mentioned that in the call. If you invested at the IPO, you've gotten over 90% of your money back in distributions, and you still own the company. And we expect to cross 100% soon. And that's the name of the game. And to the questions of if you look at the cash generation of our portfolio, that's the real thing that keeps going. There's going to be up-down. There's going to be higher defaults, sometimes lower defaults. But The cash, at least historically, had a pretty good habit of continuing coming, and we expect that to continue.
spk09: Great. Thanks, Tom. Thanks, everyone. Thank you. Thank you.
spk01: Thank you. Our next question is from the line of Stephen Bavaria with Inside the Income Factory. Please go ahead.
spk00: Hey, Steve.
spk07: Good morning.
spk00: Good morning. Congrats for your great work on both your funds. Quick question. I see that you've managed to keep your average reinvestment period out to three years, which is great. And we've talked so many times about how CLOs really make out great when they can continue to collect at par and then reinvest that market discounts in the secondary market on new loans, which I guess has certainly continued during the past year and I guess rates have discounts have shrunk a little bit, but you're probably still got good prices in the secondary market. So my question then is what happens like on an individual CLO when it's reinvestment period runs out and it, now it has to start taking those repayments and paying off its cheapest debt first at a certain point, its margin obviously shrinks and shrinks and could even disappear. as it's only funding itself on its most expensive debt. So at that point, I assume that CLO has to sort of start selling off its assets into what may be a declining market. So the advantage you have when you're reinvesting now turns into a disadvantage if a CLO is disinvesting, so to speak, at the end of its life. And so if I'm assuming that correctly, so an individual CLO sort of turns into an annuity at a certain point. But are you confident that you can continue to sort of asset manage the entire fund in such a way that you'll always have a positive reinvestment period so that the fund itself, you know, never turns into an annuity as opposed to the individual CLOs that are in it? Does that make sense?
spk06: Yeah, no, it's a very good question, Steve. We certainly... value reinvestment period probably more than the average investor in the market. I think we're right, obviously, or we wouldn't do it. But there's no one who manages a CLO who said, I have too much reinvestment period. I don't think that's ever been said. And mindful, you can always call a CLO after the non-call period if it makes sense to call the CLO if your debt costs are too high. In general, we're going to continue seeking, and even while most of the new things in the ground have been from the secondary market, we focus on CLOs with longer remaining reinvestment periods, even in the secondary market. And so, every quarter, we face a quarter of decay. If we just sat on our hands, that three-year measure would be 2.75 at the end of this next quarter. We will do everything in our power to make sure that doesn't happen. I can't assure you what will happen, but we will try our best to find long paper to keep putting into ECC such that it keeps its life going, its weighted average remaining reinvestment period longer. It got down to the low twos at one point. I don't know if we have a chart of it in here. I know I've seen one somewhere. We might not have it in. in the deck, but we certainly publish it every single quarter, and you can see it even probably on our monthly tariff sheets, what that reinvestment period is at any given time. It did get down to the twos at some point in the last two years, but we were able to get it up significantly. And that's a key part of our portfolio management approach for ECC. To the other part of your question, how does it work within a given CLO? So let's say a CLO ends its reinvestment period. What happens then, the end of the reinvestment period is a name. It's not a hard rule. There are in many CLOs the ability for the collateral manager to keep reinvesting certain, oh, there, apologies, we've got it right here. Ken has it. It's page... Oh, sorry. I have an internal chart of it. It did get the reinvestment, weighted average remaining reinvestment period got down to 2.3 in Q1 of 2020. That's the lowest it's been since Q1 of 17, which is as far back as this chart goes. We do include this stat every month in the monthly tear sheets for the funds, so you can go back and see the data. Again, we're at three years right now. Within the CLOs, When it gets to the end of the reinvestment period, there actually are provisions that allow the collateral managers to reinvest certain amounts, certain unscheduled proceeds. Even after the reinvestment period, there's additional criteria. It has to be same or better rating, and maturity has to be same or shorter of the loan that paid off. But there's some ability to keep reinvesting after the reinvestment period, but it does get more limited. To the extent there are more paydowns than reinvestment opportunities, then indeed, you're using principal dollars to repay your AAA, your lowest cost of funding. So now you're de-levering, and your cost of capital is going up. So that's bad. Then the question comes about, but you're never forced to sell, and that's important. So the nice thing is every CLO will either be, or we would expect to either be reset or called. If we don't think we can do either of them, we might just sell the darn thing. But what we would expect is we control when we get to the call or reset option. Obviously, there's a non-call period in a typical CLO, two-year non-call, five-year reinvestment period, 12-year legal final. And the increase in cost of debt and the delevering kind of really becomes a little more painful maybe one year after the end of the reinvestment period, so kind of in year six of a CLO. So what that means is we have a window of four years when the non-call period ends, the kind of reinvestment period plus one, where we get to make the decision. Do we call this? Do we reset it? If we call it, you sell the collateral into the market, you get the best price you can, pay off the debt. You reset it, hopefully lower your cost of funding, lengthen the weighted average, get a new five-year reinvestment period. We did that in spades in 2021. But the nice thing is we've got kind of a four-year window for nearly every investment in which to make that decision. And I don't know what the future is going to bring tomorrow. Reasonably confident at some point in the next four years, there's going to be an attractive time to do these things. And just like in 2021, it was refi reset mania here at Eagle Point. I mean, we did dozens of them. The refi reset department pretty much had the year off last year, certainly once the Ukraine stuff started. But it'll turn back on again. I don't know exactly when, but highly confident it will. And we're able to pivot our actions, be it new issue, be it buying secondary, being refi, reset, wherever the market opportunity is. But what's so important is it's not like we're betting on one specific day. If we had a fixed maturity and there was no ability to do it early, like we had a bullet maturity, that would frighten me. We've got this four-year window. we're going to find the right time for every one of those. And even if we don't, it just gets a little more expensive to hold and cash flows would go down a little, but not in a situation where we're never a forced seller. And that's such an important part of our CLO investment program. Thank you.
spk00: That's very important to a lot of your retail investment base.
spk09: I appreciate that reassurance. Gladly. And thank you for taking the question. Perfect. Thank you, Steve. Okay.
spk01: Thank you.
spk09: Thanks, all.
spk01: If there are no further questions at this time, I would like to turn the floor back over to Thomas Wojcicki for closing comments.
spk06: Great. Thank you very much, everyone, for your time, interest, and questions. Ken and I appreciate everyone's continued interest in Eagle Point Credit Company. We're going to do it again, and Lina and I are going to do it again with a new participant in 13 minutes for Eagle Point Income Company. If anyone would like to join, we welcome speaking with you then. Thank you.
spk01: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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