Eagle Point Credit Company Inc.

Greetings and welcome to Eagle Point Credit Company Incorporated first quarter 2025 financial results conference call. At this time, all participants are on 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, Darren Dougherty.

Thank you. You may begin. Thank you, Operator, and good morning.

Welcome to Eagle Point Credit Company's earnings conference call for the first quarter of 2025. Speaking on the call today are Thomas Majewski, Chief Executive Officer, and Ken Onorio, Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that can involve risks and uncertainties that may cause the company's actual results to differ materially from such projections. For further information on factors that could impact the company and the 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 the 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. Earlier today, we filed our first quarter 2025 financial statements and investor presentation with the Securities and Exchange Commission. These are also available in the investor relations section of the company website, EaglePointCreditCompany.com. A replay of this call will also be made available later today. I will now turn the call over to Thomas Bajewski, Chief Executive Officer of Eagle Point Credit Company.

Tom? Thank you, Darren. Good morning, everyone, and thank you for joining us on the call today. The company started off 2025 with a strong part of the first quarter. We priced three new issue majority CLO equity investments. We reset nine positions in our portfolio, lengthening the reinvestment periods to five years, and we refinanced seven CLOs. The second part of the quarter saw a downturn in markets globally, driven in large part from the uncertainty caused by the anticipation of tariff announcements. the prices of nearly all broadly syndicated loans and CLO securities fell in March. The company's portfolio is in an advantageous position and is designed to thrive in periods of volatility. Indeed, with a weighted average remaining reinvestment period, or WARP, of 3.5 years, our CLOs are well positioned to capitalize on this volatility. Our CLO equity portfolio's warp is more than 1.1 years above the market average and is a result of our team's efforts to reset many of our CLOs in our portfolio over the last year plus. Indeed, during 2024 and the first quarter of 2025, 45 CLOs in our portfolio were reset. The company generated net investment income and realized capital gains of $0.33 per share, for the first quarter of 2025, consisting of 28 cents of net investment income and 5 cents of realized capital gains. The realized gains were principally driven by trading activity, selling appreciated securities as part of our strategy to rotate from CLO debt into CLO equity. Our NAV as of March 31st was $7.23 per share. This is a 13.7 percent decrease from $8.38 per share at year end. The decline was driven predominantly by the drop in prices of nearly all CLO securities in the market, including those in our portfolio. That drawdown did continue into April as well. While our NAV may decline in environments like these, it is important to remember that the prices of CLO equity securities will generally move more than middle market loans held by many BDCs. We view the drawdown in our portfolio as a short-term market price fluctuation and not indicative of concerns specific to our portfolio. In fact, in our view, the market price of CLO equity significantly undervalues the reinvestment optionality within CLOs during periods like these. We believe the opportunities to purchase discounted loans today within our CLOs will benefit the company in the medium term, just as it did in 2020 and in other periods of volatility. We substantially completed our planned portfolio rotation from CLO debt into CLO equity and other investments prior to the start of this most recent bout of volatility. During the first quarter, sales and paydowns of CLO debt in our portfolio totaled $48.5 million, and the company generated 5 cents per share of realized gains. The new investments we've deployed these proceeds into are expected to generate more net investment income for the company in the coming quarters. Recurring cash flow from our portfolio remains strong in the first quarter. We collected $79.9 million of recurring cash flows, or 69 cents per share. This exceeded our quarterly aggregate common distributions and total expenses by 8 cents per share. This compares to 82 million or 74 cents per share for the fourth quarter of 2024. The slightly lower recurring cash flows were principally driven by loan spread compression. Some fluctuations in cash flow are expected from quarter to quarter due to new investments in addition to semi-annual paying bond positions in some of our CLO portfolios. Approximately 18 percent of our CLO equity portfolio based on fair value, are new investments or recently reset CLOs and are scheduled to make their initial payments in subsequent quarters. During the first quarter, we deployed over $190 million into new investments. New CLO equity purchases during the first quarter had a weighted average effective yield of 18.9%. During April, we received recurring cash flows from our portfolio totaling approximately $75.5 million. we expect additional collections in May and June. A number of the CLOs in our portfolio are not scheduled to make their first payments until the third quarter, which should bolster cash flows in future periods. For the first quarter, we utilized our at-the-market program to issue $66 million of common stock at a premium to NAV. This resulted in NAV accretion for shareholders of two cents per share. We also issued approximately $22 million of our 7% series AA and AB convertible perpetual preferred stock as part of our continuous public offering. We believe the 7% distribution rate on this perpetual preferred stock represents a very attractive cost of capital for the company. This continuous offering provides the company with a material advantage over our competitors and we are unaware of any other publicly traded entity focused principally on investing in CLO equity having such a program. During the first quarter, we paid 42 cents per share of cash distributions to our common shareholders across three monthly distributions of 14 cents per share. Earlier today, we declared common regular monthly distributions for the third quarter of 2025 also of 14 cents per share. I'd also like to take a moment to highlight Eagle Point Income Company, which also trades under the New York Stock Exchange. It trades under symbol EIC. EIC primarily invests in junior CLO debt securities. We'll be hosting an investor call for EIC today at 1130 a.m., and we invite you to join us and visit eaglepointincome.com to learn more. After Ken's remarks, I'll take you through the current state of the loan and CLO markets. I'll now turn the call over to Ken.

Thank you, Tom, and thanks, everyone, for joining our call today. For the first quarter of 2025, the company recorded NII and realized gains of $38 million, or $0.33 per share. This compares to NII less net realized losses of $0.12 per share in the fourth quarter of 2024, and NII and net realized gains of $0.29 per share in the first quarter of 2024. The company's first quarter gap net loss was $97.5 million. This was comprised of total investment income of $52.3 million and realized capital gains of $5.3 million offset by total net unrealized depreciation on investments of $122.3 million, net unrealized appreciation on certain liabilities held at fair value of $9.6 million, financing costs and operating expenses of $20 million, and distributions and amortization of offering costs on temporary equity of $3.2 million. As a reminder, temporary equity refers to a multiple series of perpetual preferred stock. Additionally, the company recorded other comprehensive income of $7.1 million for the first quarter. The company's asset coverage ratios on March 31st for preferred stock and debt calculated pursuant to Investment Company Act requirements were 244% and 492%, respectively. Our debt and preferred securities outstanding as of March 31st totaled approximately 41% of the company's total assets. This is above our target leverage range of 27.5% to 37.5%, at which we expect to operate the company under normal market conditions, largely due to the recent drop in the value of our portfolio. Consistent with our long-range financing strategy for the company, all of our financing remains fixed rate, and we have no maturities prior to April 2028, In addition, a significant proportion of our preferred stock financing is perpetual with no set maturity date. I will now hand the call back over to Tom for his market insights and updates.

Thank you, Ken. Let me share some updates on what we see in the loan and CLO markets, and I'll share a bit more about our portfolio. Starting off with loan performance, the S&P UBS Leveraged Loan Index generated a total return of 0.6% during the first quarter. After two positive months, during March, the index experienced its first negative monthly return since 2023. The decline in the loan index reversed, and as of May 23rd, the index is now up 1.8% for the year. During the first quarter, there were only three leveraged loans that defaulted, and as of March 31st, the trailing 12-month default rate stood at 82 basis points, which is well below the long-term average of 2.6 percent, and certainly below most dealer forecasts. Our portfolios looked through default exposure as of March 31st, stood at 40 basis points. Bank research desks have revised their 2025 forecasts for default rates upward, with many estimates now between 3 and 5 percent for the year. We continue to believe this represents an overly pessimistic outlook especially in light of how many bank estimates significantly overstated corporate default risk in both 2023 and 2024. During the first quarter, approximately 5 percent of leveraged loans, or roughly 20 percent annualized, prepaid at par. Many loan issuers have been proactively tackling their near-term maturities, and the maturity wall of the market continues to get pushed out further and further. As part of many of these repayments, however, borrowers issue new loans at tighter spreads. This has been driving the spread compression that we've talked about for the past few quarters. Looking to our portfolio, the weighted average spread of our CLO's underlying loan portfolios stood at 3.36% as of March 31st. This compares unfavorably to 3.49% as of year-end and 3.74% as of March 31st, 2024. Spread compression has been a meaningful headwind to the CLO equity market over the past year. While a significant majority of the loan market was trading at a premium to par on January 31st, 2025, thankfully, as of May 23rd, less than 20 percent of the loan market is now trading at a premium. While it will likely reappear at some point in the future or now, spread compression is largely behind us. Indeed, we are starting to see increases in some of the spreads of our CLO's loan portfolios. The weighted average AAA spread within our CLO equity portfolio tightened by about three basis points during the quarter to 137 basis points. This was primarily driven by our reset and refinancing activity. While CLO debt spreads in the market have widened over the past 60 days, still over 36% of the CLOs in our equity portfolio have AAA spreads wider than 140 over, with some as wide as 200 basis points over SOFR. This means that even in the current market, some of our portfolios still has the potential for reset and refinancing upside. We are focusing on these CLOs and expect to complete multiple resets and refinancings in the coming weeks and months. In terms of new CLO issuance, we saw $49 billion issued during the first quarter of 2025. Combined with the $64 billion of reset activity and $41 billion of refinancing activity, the total issuance volume reached $153 billion during the quarter, significantly above the $88 billion from the first quarter of 2024. This activity was concentrated at the beginning of the quarter as market volatility led to wider CLO AAA spreads and a subsequent slowdown in the latter part of the quarter. We continued to deploy significant amounts of capital throughout the quarter, placing a greater emphasis on secondary market opportunities given the dislocation during the latter part of the quarter. Triple C concentrations within our CLO equity portfolio stood at 4.9 percent as of quarter end. This compares favorably to the broader market average of 6.2 percent. Similarly, the percentage of loans trading below 80 within our CLOs stood at 2.9%. This is also more favorable than the market average of 4.6%. Further, our CLO equities weighted average junior OC cushion stood at 4.6% at quarter end. This is also significantly better than the market average of 3.7%. By all three of these measures, it's very clear that our portfolio is a much higher quality portfolio than the broader market. This doesn't happen by accident. It's a direct result of our advisors' time-tested, proactive investment process. Looking at the company's capital structure, we continue to maintain 100% fixed-rate financing with no maturities prior to 2028. This provides us protection from any future rise in interest rates and locks us into an attractive cost of capital for years to come. Before wrapping up, I'd also like to touch on our current market outlook. Defaults remain low, and we're not seeing signs of fundamental weaknesses in many companies. Indeed, revenue and EBITDA of many borrowers continues to grow. The spread compression that we observed this past year plus has largely abated, and we're seeing CLO refinancing and reset activity pick up again in May as markets stabilize. We've continued selectively with resets, and this should lead to lower CLO financing costs within our portfolio of CLO equity. Macro factors, particularly global tariff policy, will remain in focus for some time. While macro uncertainty nearly always brings price volatility to the CLO market, our view is that in credit, the rumor is worse than the news, and that loan prices will move more than the actual default rates in the market. every loan that doesn't default pays off at par. And that's how today's discounted reinvestment opportunities ultimately translates into good returns for ECC in the median return. In closing, we continue to focus on enhancing our net investment income and cash flow. Our proactive investment approach, particularly our focus over the past year on resetting and refinancing CLOs, as well as rotating from CLO debt to CLO equity, has been effective. Indeed, our resulting CLO equity portfolio has a significantly better warp and weighted average OC cushion than the broader market. We believe the company is well positioned for continued strong performance going forward. We thank you for your time and interest in Eagle Point Credit Company. Ken and I will now open the call to your questions. Operator?

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd 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 comes from Mickey Schlein with Ladenburg-Solomon.

Please proceed with your question.

Hey, good morning, everyone. Tom, you mentioned that the dislocation in the markets feels temporary, but CLO and AVs have been weak now for several quarters, which is obviously disheartening. Meanwhile, I see that your estimated yields at fair value are almost 20%, and they're even higher in terms of cash yields. So other than some clarity on the administration's tariff policy, what do you think it's going to take for the market to recognize what seems to be a relatively stable background for CLO cash flows?

I don't know is the short answer on that.

The cash flows have been stable for CLO equity since I've been doing this. 25 years, give or take, 30, you know, 30 in total in the markets, 25 in CLOs largely. The cash just keeps coming. I mean, we saw this in COVID, you know, in the financial crisis, you know, half of CLOs missed a payment, some missed two, not many did worse than that. The cash just keeps coming. I've looked over our track record, I think going back to 2015 and the average cash versus the value of the portfolios on an annualized basis. This is, I think, firm-wide, not just ECC, between 25% and 30%. The cash just keeps coming. So that's the first thing. So at least historically, the money keeps coming at the end of the day. That's what we're here to generate. Now, the prices of CLO securities move around more than, in my opinion, the the real fair value suggests, but marks are the marks, and this is the price of securities. You've seen other public CLO funds have similar mark-to-market trends in the first quarter and in April as well, which was another down month. Without opining on our specific portfolio, credit markets are generally stronger in May and trending in the right direction. Obviously, the month's not over yet, so it's too soon to call what's going to happen. in our portfolio, but I'll say in general, the tide has turned. And if you look at like the JP Morgan BB index, the Chloe index, just as a market indicator, you can see that's up a bunch from the lows in May. So we view situations like this as an opportunity on a two-prong basis. First is we can buy stuff cheaper. To be candid, we can't buy enough Volumes lighten in situations like this, but we have been able to buy some things at cheaper prices, so we like that. And then within our CLOs, this is the time when they really can shine. And if you look at the total return on our NAV from January 1, 2020 to December 31, 2021, if I look at the change in NAV, proverbially investing the day before COVID, you could see just how well it did. And that's a function of what I think the market underappreciates is the reinvestment optionality. Okay, spread, let's, you know, if we were having this call on April 15th, and I'm kind of glad we weren't, you know, spreads had gapped out a bunch. Loans were down, CLO equity was down, CLO debt was wider. But our CLOs have locked in financing for the next up to 12 years. at yesterday's spreads. I mean, we've got CLO AAA spreads as low as 115, maybe even lower in the book. And we can keep reinvesting within each CLO and making relative value trades. It's hard to do that in strong markets. The biggest thing that was a drawback, you know, with the benefit of hindsight over the last 15 plus months, frankly, has been spread compression, not defaults and things like that. People always ask about defaults. The The challenge over the last 15 months really ending proverbially April or March 1 was loan spreads tightening. And you can see a weight average spread in our loan portfolios down with 35, 40 bips, Ken, something in that context. And we've done our part to lower the right side of our balance sheet, but we haven't done it as – we've done more actions than probably anyone in terms of resets and refinancings. That said – we still got to keep doing more. And the good news is we have an active pipeline of it because we still got a lot of stuff above AAA is wider than the market, including as wide as 200 over. So we're still going to be keeping resetting, lowering the right side of our balance sheet right now, essentially no loan borrowers resetting or repricing their financing. If anything, we're seeing collateral managers start to get spreads up in portfolios, which is good against that. While dealers talk about, you know, three, four or 5% default rates, you know, the, Show me the data. I mean, it's just not there. There are some loan modification exercises going on, LMEs. Sometimes that creates winners and losers in a loan. And, you know, in many cases, many of our CLOs have actually built par over the last year, which is great, suggesting they're net winners in LMEs. Not everyone, of course, but some and I think many are. But this is the vagary of the market. And I appreciate, I made the direct comparison to BDC middle market loans. Loans were down a bunch. Middle market loans probably didn't move as much as the broader syndicated market. I'll leave it to others to decide what's right and wrong there. I appreciate that our NAV moves differently than others, more than others, I guess would be the way to put it. But what I hope you see and you can look back over years and years of our public data is Up markets, down markets, sky's sunny, sky's raining, the cash just keeps coming. And that's at the end of the day what we're here to create and keep doing.

Yeah, I agree, Tom. And, you know, thanks for your insight. It's always helpful. And I appreciate your time this morning.

Very good. Thanks so much. And if you have any follow-up questions on the numbers, feel free to give us a call later. Thank you, Mickey.

Mm-hmm.

Our next question is from Randy Biner with B Reilly Securities. Please proceed with your question.

Okay, good morning. Thank you. I had a couple. Yeah, good morning, Dom. I had a couple, but yeah, I obviously appreciate the commentary and the solid result. The first is on the resets and refis, initially I thought that was, you know, like nine resets and seven refis was a lot. But I think I heard in your commentary that it could kind of keep that pace for the next couple of quarters. So just wondering if we get a little more color there on if that level of activity is something we should kind of plan on in this, you know, given movement in the market and interest rates or what's driving that? And is it, did I hear it right that it would stay at this level?

So I think we said nine resets that we focused principally there. That was actually, I think, a light quarter for us. Kind of in the latter part, certainly March, we were not particularly active. Everyone was just kind of seeing what's going on in the world. So to make a generic statement, that nine feels like a two-month number, not a full quarter number. Okay, got it. That said, if you look back to our Q4 and Q3, you'd see much higher numbers, frankly. That said, looking forward, we shared a number, what was it, in the 30s percent of our CLOs that have AAAs over 140. We have it in the prepared remarks. It was 30-something percent of our CLOs have AAAs over 140. You can see on our presentation, line by line, on our website, the AAA spread on every single CLO we're the equity in, so you know exactly what we're talking about. we've got AAA spreads from 141 to 200. So we're going to keep working on ripping those costs out as best we can. The market's a little slower now compared to the first quarter while it's back open. Yeah, everyone, you know, it was a big bang. Everyone's still kind of behaving a little, a little cautiously. But yeah, I would certainly expect single digit, maybe double digit resets a quarter in current market conditions. Obviously that can change very quickly. for the portfolio. One of the analogies I like to make when you look at what's happened to us on the loan spread side, which has come down a ton, as I mentioned, we've got somewhere between 1,500 and 2,000 obligors underlying all our CLOs. Picture like a wall of sand, these little grains coming at you. There's so many, so many, so many. And we've got 150 or give or take CLOs. We're kind of pushing boulders the other way, 10 times bigger than the sand coming at us. And it just takes, unfortunately, we could get 40% of our loans, 60% of our loans to reprice in our face very quickly. We can't reset all of our CLOs that quickly. What that does get us is kind of forced vintage diversification. And on February 15th, I didn't know if spreads would be wider or tighter on May 28th. I couldn't reset everything I wanted to on February 28th just because the market's not big enough. Now, if spreads kept tightening, great, I would have said, oh, great, we'll refinance tighter today. It turns out they widened. But by virtue of the diversity of our portfolio, we still have things that we can do to keep creating value on the right side of our balance sheet. Going back to the earlier questioner's question, the biggest thing, though, is you just look at the trend in cash flows on the portfolio. These things just keep generating gobs and gobs of cash. These changes in prices are frustrating. My... skin is perhaps a little thicker to it, having done it for so long. But as we said very clearly, we believe this is a short-term mark-to-market swing, not any sort of fundamental issue with our portfolio. And the proof is in the pudding with the cash that keeps coming off of it.

All right, that's helpful. And then the other one I had was just kind of higher level. And it goes to the, I think it was covered in your prepared remarks in the press release, but the You said you deployed nearly $200 million of new investments, but then the specific number of net capital into the CLO structures was $95 million. And I'm not reconciling that number based on what we put into our model. Could you just clarify that? Like, what's the difference between the $95 and the $200? Sure.

So the difference between the $200 and the $95, it's gross versus net. As you recall, we have done a significant rotation program of CLO debt into CLO equity. So those sales would bring down the overall number to a net basis, as well as any other conversions of loan accumulation facilities or other assets that were sold off the balance sheet and redeployed into new investments.

Okay, got it. Thank you. Appreciate it. No problem. Our next question comes from Eric Zwick with Lucid Capital Markets.

Please proceed with your question.

Thanks. Good morning, Tom and Ken. Maybe I'll start just with a follow-up to that last question on deployment. So in the press release, you indicate since April 30th, deployed 4.2 million of net capital um which seems like a relatively slower pace compared to the the 95 that was just referenced in the first quarter and i realized april was a fairly volatile um month in the market so curious if that that slower pace of deployment um yeah it grows into the net number so maybe the the gross number was larger but just curious kind of you know what you saw in april uh that resulted in the slower net deployment and that's it was market related has that maybe not resolved yet, but lessened so that deployment in May and June will potentially be at a higher level.

Yeah, so it's frustrating.

So the marks are down, we've got cash. Show me the trades, unfortunately. What happens in the CLO market, and this happened during COVID, This happened during the regional bank crisis. This happened, or turmoil, pardon me. This happened during the energy blip in 2015. Prices drop and volume grinds to a halt in the CLO equity market. Grinds comes very slow significantly, let me say, let me correct my statement. And that kind of stinks. So while we have ample cash and can be on the offense, we were you know, working in a market where sellers hadn't, everyone agrees with the, where they buy something sellers hadn't agreed to sell there yet. So we got a little bit in the ground, um, kind of four to six weeks after a big bang event and that big bang event measured on April 2nd, 2025 this year for us, you start to see things open up again. And literally today I'm watching the Bloomberg, the Bloomberg messages here as we're talking, um, Lots of CLO equity actually trading today. I think we'll be bidding on a bunch of stuff that's up for auction today. While the prices in general are up from the April lows, they're still, I'd call them pretty attractive levels. So unfortunately, there's a lag. Whenever there's a disruption in CLO equity, we do the best we can. We don't overpay just to act, but the market sellers kind of acquiesce and the market kind of comes to them a little bit. And that's a tried and true thing in the CLO market. So four to six weeks, typically what happens. Now, that said, CLO double Bs have a little more, they come back to life a little quicker in terms of activity. And they move around faster. There's shorter, weaker hands in there. You know, the good and the bad news, while lots of folks like us and some of our public competitors are The good news is we're stable hands. The bad news for us is the other guys are stable hands and not a lot of forced sellers. There were a couple in COVID who had ACR issues or repo stuff, but by and large, equity is in pretty sticky hands. CLO debt moves around a little more. So the other spot, we did put some money into the ground. This quarter has been in CLO double Bs. I mentioned we largely completed our rotation back in kind of February, which was great. We bought a bunch of stuff in the 80s and 90s. and sold it in the high 90s to even par area, sometimes maybe even above. But we got back in a little bit in COO BBs, and certainly anything we purchased in April would nearly certainly be up today. So we'll continue to deploy. We've got a stable hand. We've got the right balance sheet to be in this market. And we're, I don't want to say aggressively, but we're keenly looking forward to keep expanding the portfolio in discounted areas. You will see a little pickup in BBs. We might actually sell them before the end of the quarter, but on an interim basis, when equity was still quiet, we did pick up some BBs.

I appreciate the color. That's great. And then next one, another one, just looking at the $75.5 million of recurring cash distributions that you received since April 30th. And I think you mentioned in your prepared comments here that, um, additional cashflow is expected, um, in May and June. Curious if you could just, you know, quantify that to any degree, because I guess as I understand it, you know, the majority of the cashflow you receive is usually front end weighted in the quarter.

Um, yeah, it's the vast majority even. So, you know, it's a few million bucks more. Like if you look back to the earnings script or even probably the press release from Q1, um, You know, we would have told you how much we received by January 31st or something like that, and then look at the total quarter. It's a little, you know, it's 5% more in that kind of context. Check the numbers to be sure, but that's a similar pattern you'd expect to see. The good thing we've got is we do have some resets and some other new issue investments that we did in Q1 that won't make first payments until July. So those payments tend to be oversized, which is good. And they're not, you know, they're a zero this quarter. They weren't scheduled to pay this quarter, but kind of the first payment date proverbially July 15th. So we'll continue to have more stuff coming our way. But if you look back to Q1 or Q4 and kind of piece together the scripts, you can see it's, you know, a couple percent more cash.

Yep, makes sense. And then last one, you talked about just the spread compression that you're battling over the past 15 months or so. And if I look at slide 19, your deck, that's certainly different. apparent. However, when I look at like the longer term trend, you know, your slide points out that over the past 10 years, maybe a little bit more, the average spread has been higher, you know, about 55 basis points over that longer term average. So wondering if you could just from a bigger picture perspective, talk about, you know, what's happened, I guess, really kind of looking at that chart from kind of, you know, post GFC to today that has resulted in the higher spreads relative to that pre-GFC period.

Yeah. No, that's a really good question, CSC. The long-term average there is 315 bps. The 10-year average is 370 bps. And you can see the viciously painful spread compression from the last three years. I have a version of the chart the team gave you. It has a red arrow there. We didn't publish that one, but I don't like it. So broadly, you know, what gave rise to the, I think your question is something to understand the 315 versus 370? Exactly, yep. Not just mathematically, you obviously get the math, just why. So if you look at the drivers into that 315, if you ran an average ending in 2007, that's going to be a two-handle average even. So things get going on then, right? you had bank... So in the olden days, pre-financial crisis, we'd sell AAAs at LIBOR plus 25. And we'd get excited if we'd get a LIBOR plus 24 print. You know, that was like a high five. And banks would buy that kind of stuff. Insurance companies would buy... And banks were funding at LIBOR minus back then. So... they would say, well, this is great. They'd even go and buy a credit default swap from a monoline insurer, pay that guy five basis points. So take his L plus 20 bond, hedge it to a guy for, let's say, five bips. So he's getting now L plus 20. But if you're funding at L minus 20, which is where a lot of major banks funded at that time, you did great. You're locking in that 40 basis points spread. Until kaboom, 2008, you don't fund at LIBOR minus 20 anymore. Now you're funding at LIBOR plus 200 and you're losing. So we had some in the like 05, 06, 07, we had a period of time of unusually cheap funding for CLO AAAs, which then brought loan spreads way, way in versus look at where it got to in 02, 03. And then roll the clock back to the pre- into the 1990s, you know, ancient history. Other than the next question person in the queue, probably not a lot of people even remember those days. That was just when banks bought loans. I mean, syndicated loans used to be called bank loans or par loans. They were just held to banks, sold to banks. There was kind of two prices, you know, L plus 225 and L plus 275. And those were the two prices of loans, but it all just went to banks directly without the structured market. So, So we've had a fundamental, a really long answer here, sorry, but a fundamental re-racking of the funding cost of loans. It used to be you could get the AAAs where 80% of your capital structure, you get it done at LIBOR plus 25. Now you're getting 65% of your capital structure done at SOFR plus 140. So... I think that's more here to stay because the spread on loans is driven by where buyers can buy loans. And the number one buyer of loans is the CLO market. And as long as our AAA guys charge us what I think is a usurious 140 over, the yield on loans is going to stay. The spread is going to stay in the context where it is right now would be my expectation. So we provide this data. We're a data-rich firm, and we like to share this data. I think the relevant measure to look at is really the last 10 years. Please don't extrapolate. I pray we don't have to extrapolate the 23 onward trend. You know, it feels like loan spread compression is largely paused right now. It will resurface at some point. And you can see it did like between 20, look between 20, what is that, 15, 16, 17. It went from 391 to 348. You listen to some of these calls, we would have lamented the same thing back then. That's what we've been facing right now. The good news is there's not a lot of defaults. Many of our CLOs have net built par even through this stuff. But the markets move around, and I think I feel comfortable that the 10-year average doesn't really move that much heretofore, unless we see a significant change in CLO debt costs, in which case this could come down.

Yeah, no, that's very helpful, and I appreciate the commentary and historical perspective, because you're right, it does seem – and that was kind of the – Ancient history, even. Yeah, post-GFC. Something had changed, and it seems like lenders are requiring more, and the borrowers are paying more. But you're right, the kind of tenure, it seems like we've kind of entered a new period, and it'll revolve around that tenure more. average of 370-ish or so.

That's my expectation. I mean, I'd love to see AAAs come in a ton. In my opinion, those guys, you know, they get, I mean, they get pretty darn rich buying this stuff. I'm considering not one of them that failed to repay P&I. But in any event, I digress.

No, that's great. I appreciate it. Thank you so much. That's all I have today.

Okay, very good.

If you have any other questions on the numbers, feel free to follow up later today, Eric. Thank you. Our next question is from Stephen Bavaria with Inside the Income Factory.

Please proceed with your question.

So, Steve, you're the caller who remembers loans in the 1990s.

Hey, listen, I introduced loan ratings at Standard & Poor's back then. They thought I was nuts, like, we don't do that. And it's a good thing they listened to me finally. It took a couple of years.

It all worked out. I think they make a few bucks doing that these days.

They do. I wish they'd paid me more of it, but that's okay. I'm doing fine here. Hey, you know, all of us who are income investors love your dividend, your distribution at 20 plus percent. And, you know, in our wildest dreams, we'd love to think that your total returns are going to be that much over time as well. But what I'm curious about is, You know, in a real bank, I mean, you know, I say CLOs are virtual banks, but at J.P. Morgan and other places, they can reserve in advance, you know, for projected loan losses. I don't think CLOs can do that, and I don't think you can do that as a closed-end fund. So you're, if I'm right, you're required to pay 90% or so of your taxable income as you move along. But I assume... since you can't create a reserve for loan loss in that like banks can, and a lot of the losses creep up probably when individual CLOs are actually, you know, when they wind down, is there a permanent sort of back ending of loan loss that you can't take, you know, you can't consider in calculating your required distributions that's going to sort of continually make it almost seem like a bit of an annuity as opposed... You know what I'm asking? I know exactly where we're going.

I understand the question. The thoughts were masters to three things. Gap. Everyone loves gap income. No one gets fired for having too much gap income. PACs. As you point out, we've got to pay out, I think it's actually 98% of our taxable income within a year. So we have, you know, I think of it as essentially all of our taxable income has to be paid out. And cash. And you can't pay any of that stuff without cash. So when we think, you know, if I could have only one master, it'd be cash, because as long as we keep generating cash, the whole model works. And indeed, we continue to generate, you know, tons and tons of cash. So, again, our portfolio generates in the high 20s cash on cash, so that's good. And to the point of loan loss reserves, so a bank, I mean, J.P. Morgan published $900 million of loan loss reserve or some number like that recently I saw, or hundreds of millions of dollars. While we don't have a specific... So, I'm going to talk about GAAP for a minute, and then I'm going to come to tax. So, for GAAP... we kind of do have a loan loss reserve and that our effective yields have a provision for future losses. So if we ran our yields, assuming no loans ever defaulted, our effective yields would be much higher. I don't know how much higher, but a bunch higher. So that assumes that the portfolios start to fall, they ramp, it seems like very low defaults at the beginning, but they ramp up reasonably quickly. Not a lot of these loans are first period defaults in the large corporate loan market. But there is a default assumption in our yields. So that's very important. That's unlike a BDC who can't use an effective, doesn't use effective yield for their loans. We actually do. So from a GAAP basis, and that's why GAAP income is less than cash income. Even though this is recurring cash flows from the interest column of the CLO, GAAP requires us to take a reserve. So there is a reserve there. Now, sometimes we get it wrong, and we have had some write-downs once in a while on end-of-life CLOs, generally relatively minor. They're already caught in the NAV. It's not like something's marked from 40 to 0. It's probably marked at 1 and then written from 1 to 0 in the extreme case if our projections were off by a non-trivial amount, but that's relatively infrequent. But so for GAAP, the easiest way to think of it is the difference between Cash income, recurring cash flows and gap income is kind of a, or investment income, gross investment income is the difference between recurring cash flows and gross investment income is our reserve for loan losses. So we do take that for gap. Now for tax, they don't care about any of that. Tax is basically on a cash basis for losses. So there have been years where the majority of our distributions have been treated as a return of capital. And that's because there were a lot of realized losses in CLOs. Now, it doesn't mean the CLOs took net losses per se. A collateral manager could have bought a loan at par. It traded down to 90. He or she sold it for 90 and bought another loan at 89 on the same day. And if he or she was correct, that works out to be a one-point gain when that 89 loan pays off at par. The nice thing is it actually helps shelter your taxable income. Now, next year, you've got to pay the piper when, let's say, that loan pays off at par next year, and now you've got an 11-point gain, which you pick up as taxable income. But there is tax losses. There's no reserve for taxes, no reserve for losses in tax. So we have all these different things, and we do a lot of things here pretty good. Ken and I look at each other every time someone asks us about projecting taxable income. It's close to impossible, I think, in that Let's say we have perfect information. Our tax year ends November 30th. Let's say we have perfect information of where we are on November 15th, which we would never actually have. If collateral managers sold a bunch of loans down to rotate into other loans, that could change our taxable income profile materially right at the end of the tax year. So it's hard. We make our best estimates. we have the outside tax preparers give some mid-year estimates to kind of give us a flavor of where things are going, but we could have big portfolio rotation in November, which takes away a lot of taxable income or at the same time, a lot of stuff bought at discounts right now could all pay off and spike our taxable income. So it's, it's, it's frustrating. It's, it's, um, it's the laws. Obviously we're, we have to work within that. Um, But GAAP, cash, and tax are our three different masters. GAAP does allow a loan loss reserve. Tax doesn't. Cash is what pays the distributions. And, you know, at the end of the day, while we love all numbers to be high except for taxable income, you know, cash is the number one thing I like to make high.

Thanks.

Due to time constraints, we do not have time for additional questions. At this point, I'd like to turn the call back over to Thomas Majewski for closing comments.

Great. Thank you very much, everyone. We appreciate your time and interest in Eagle Point Credit Company, and we do invite you to join Eagle Point Income Company's call later today at 1130 if you are available. Thank you very much.

This concludes today's conference call. You may disconnect your lines at this time, and we thank you for your participation.