Eagle Point Income Company Inc.

Greetings and welcome to Eagle Point Credit Company's first quarter 2020 financial results call. At this time, all participants are in a listen-only mood. 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. Please note this conference is being recorded. It is now my pleasure to turn the conference over to your host, Mr. Gara Edson with ICR. Thank you. You may begin.

Thank you, Rob, and good morning. By now, everyone should have access to our earnings announcement and investor presentation, which was released prior to this call, which may also be found on our website at EaglePointCreditCompany.com. Before we begin our formal remarks, we need to remind everyone the matters discussed on this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from those projected in such forward-looking statements and projected financial information. 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 Securities and Exchange Commission. Each forward-looking statement and projection of financial information made during this call is based on information available to us as of the date of this call. We disclaim any obligation 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 first quarter 2020 financial statements in our first quarter investor presentation with Securities and Exchange Commission. These materials are also available on the company's website. Financial statements can be found by following the financial statements and reports link, and the investor presentation can be found by following the presentations and events link. I would now like to introduce Tom Majewski, Chief Executive Officer of Eagle Point Credit Company.

Thank you, Garrett, and welcome everyone to Eagle Point Credit Company's first quarter earnings call. If you haven't done so already, we invite you to download our investor presentation from our website, which provides additional information about the company, including about our portfolio and underlying corporate loan obligors. For today's call, I'll provide some high-level commentary on the first quarter and recent events and then turn the call over to Ken, who will walk us through the first quarter financials in more detail. I'll then return to talk a bit more about the macro environment, our strategy, and provide updates on our recent activities. And, of course, we will open the call to questions from participants. Before we begin, we certainly hope that you and all of your families continue to remain safe and healthy during these quite challenging times. I also especially want to thank our entire Eagle Point team and note how proud I am of them. Our team has been working incredibly hard over the past two months and done an absolutely tremendous job as our operations have transitioned to a 100% remote environment. As a result, we've been able to consistently and proactively manage our portfolio of CLO securities through what has been a very challenging economic environment. When we last spoke to you in late February, COVID-19 was a serious concern in the market, but there were, at that point, relatively few cases reported in the United States. When we look back to past pandemics, SARS, MERS, Ebola, among others, While many people in certain regions of the world were impacted by these illnesses, the United States was fortunate to have largely been spared. This time, as we know, nearly everyone around the globe has been impacted by the COVID-19 pandemic, including the United States. The lockdowns and economic reaction was sudden and at times unforgiving as we headed into an immediate recession and are now just beginning the long process of reopening the domestic and global economies. We went into the pandemic with cash on our balance sheet leverage within our targeted band, and no short-term financing maturities. While we did not specifically predict the COVID-19 pandemic, our management team has been at this long enough to know how to manage the company, anticipating that there would be bouts of extreme volatility from time to time. The prudent approach that we used to managing the company allowed us to be on the offense during the time when others were forced sellers. When we evaluate how our portfolio is doing today, Our investments are performing in line generally with how we would expect in such a market. Overall, despite the severe drop in loan prices in March, March was one of the worst months on record in the loan market, and rapid downgrades from the rating agencies in late March and early April, the vast majority of our portfolio of securities continue to make payments as scheduled in April. We've had cash on our balance sheet available to invest at all times this year. the company has remained in compliance with its applicable 1940 Act coverage limits on all measurement dates. To put things more simply, in a market like this, when we look at both the left and right sides of our balance sheet, we see what we'd like to see. During the first quarter, the company received recurring cash flows from our portfolio of $0.90 for weighted average common share, our net investment income and realized capital losses were $0.33 for common share, So far in the second quarter through May 14th, we've received recurring cash flows from our portfolio of $20.1 million with a few investments scheduled to pay later in the quarter. We've discussed on repeated occasions that when determining our common distribution level besides gap earnings, we also evaluate the cash flow we receive from our adjustments and the estimates for taxable income during each year. We've consistently highlighted that it is taxable income that sets a functional floor on our common distributions. As the economic environment became increasingly challenged, our advisor and board comprehensively reviewed the level of our monthly distribution against the backdrop of what we expect taxable income, gap income, and cash flows to be for the foreseeable future. We also considered the benefit of growing our cash balance to allow the company to continue to be on the offense in these volatile markets. After careful deliberation, we made the prudent decision in light of the ongoing COVID-19 pandemic to adjust our monthly common distributions to $0.08 per share for the second quarter of 2020. That's a monthly distribution. Earlier this month, we declared common distributions for the third quarter $0.08 per month effective for the third quarter. Despite the extreme price movements over the past couple of months for CLO securities, the vast majority of CLOs outstanding have continued to make payments as scheduled. According to research from Deutsche Bank, 84% of CLOs that were scheduled to make payments in April did so. In our equity portfolio, roughly 92% weighted by the value of our holdings of our portfolio that were scheduled to make payments in April paid as scheduled. The principal reason for the small percentage of CLOs in our portfolio not making payments was an increase in CCC-rated loans within those portfolios. Indeed, beginning in late March, the rating agencies took a very rapid action and downgraded or placed on negative watch almost a quarter of all corporate loans outstanding. Some of the downgrades were multiple notches. I don't believe there has been such a rapid and far-reaching set of rating actions in the loan market ever before. To make matters worse, many of these actions were taken just as CLOs were reaching their quarterly payment determination dates. And that sort of begs the question, how do these downgrades impact us? Once a CLO's concentration of triple C rated loans exceeds 7.5%, in a typical CLO, the portion over 7.5% requires a temporary haircut in the numerator of a CLO's over collateralization test. If a lot of loans get downgraded, which is what happened earlier this year, we could end up with more than 7.5% triple C's in some of our CLOs. If the haircut for CCC-rated loans gets too big, the CLO could temporarily fail their OC test and distributions of interest that would normally be paid to the equity get diverted to repay senior debt within the CLO. While we prefer that our CLOs continue to make equity distributions, if a CLO is failing its OC test, The only substantive consequence to us is the use of what would have been our distribution to instead repay senior debt on that payment date. When an OC test is failing, a CLO does not go into any sort of lockup mode, nor are there required forced sales of loans. For CLOs in the reinvestment period, which nearly all of our holdings are, the collateral managers can continue to actively manage the CLO's portfolios even if OC tests are failing. While the price of loans has fallen and triple Cs have increased, the tri-linked 12-month default rate for syndicated loans has moved up less than 1% at the end of April versus where it stood at the end of 2019. Quite a few of the companies that defaulted recently, frankly, were companies that many considered to be near default even prior to COVID-19. Much of the market, including us, anticipate a further increase in corporate defaults in the months ahead. When evaluating a CLO, however, the loan default rate is only part of the equation. Equally importantly are the loan repayment rates and the reinvestment opportunity set. Indeed, since the onset of COVID-19, billions and billions of dollars of syndicated loans continue to be repaid in full or in part at par. CLO collateral managers can take those par dollars and reinvest them in loans at discounted prices, which are available today. In markets like these, they can also easily make par building trades, selling one loan and buying a different loan at a lower price that they perhaps consider to be mispriced or misunderstood by the market. We believe the low cost of financing embedded in CLOs and the value of the reinvestment period is undervalued by many in the CLO market. Indeed, Across our CLO equity portfolio, the weighted average senior AAA spread is approximately 117 basis points over LIBOR. To help quantify just how in the money that is, as of May 19th, the JPM-CHLOE index indicates that the market spread, or discount margin is the technical term, for AAAs is 198 basis points over LIBOR. So our CLOs, AAAs, are roughly 81 basis points in the money today. The financing provided by the AAAs and other debt classes in our CLOs do not have mark-to-market triggers. That means that if the price of loans fall, which they have, the holders of our CLO debt can't demand that we put in more equity capital or force our CLOs to sell loans simply based on the price of the performing loans. At quarter end, our equity portfolio's weighted average remaining reinvestment period stood at 2.9 years. This allows our CLOs to continue to be on the offense during these challenging markets. We are in a very challenging and volatile environment, but we believe the market does not fully appreciate the value of the right side of our CLO equity portfolio's balance sheet. We believe our portfolio can withstand a prolonged recession and likely thrive in it. This is not because we're blind to default, but because we better appreciate the value that can be created through reinvesting. Members of our team have been through difficult market environments before, the 2000 to 2002 tech telecom cycle, the 2008 financial crisis and several other mini-cycles in between. Past performance is obviously not a guarantee of future results, but there are important distinctions between the economic situation then and now. Nevertheless, as we look back on what occurred in the 08-09 cycle, CLO equities saw a 57% drawdown during the worst of the crisis in 2008. But for the ensuing three-year period from 2009 to 2011, CLO equity generated an IRR of nearly 80%, well above the returns from many other asset classes. Further, our company's cash position and long-term oriented balance sheet has allowed us to be on the offense in this volatile market. Over the past few weeks, we have been able to make acquisitions of both majority and minority equity at very attractive levels. You'll see these appear in our Q1 portfolio and additional investments, which will appear in future quarterly schedules of investments. To provide a few other brief updates, our NAV fell to 612 a share as of March 31st, and we estimate that it increased back to between 623 and 633 net of common distributions per share at the end of April. During the first quarter, we issued 1.1 million shares of common stock via our ATM program for net proceeds of 16.3 million, and that allowed us to capture about 15 cents per share in NAV premium through those sales during the first quarter. Also during the first quarter, we deployed 26.2 million of gross capital into new investments. Of the new CLO equity investments that they made, they had a weighted average effective yield of 47.4% at the time of investment, with several made deep into the March lows in the market. During the first quarter, we received 14.6 million in proceeds from the sale of investment. And while it now seems like ages ago, we actually did reset one CLO and refinanced one CLO back in the first quarter. we do expect refi and reset activity to be muted for the foreseeable future. Overall, we believe we were well positioned going into this cycle. We've had cash to be on the offense, maintained compliance with our asset coverage ratio on all measurement dates, and have over six years before a single dollar of our debt is due to be repaid. After Ken's remarks, I'll walk you through the current state of the corporate loan and CLO markets and then provide some further insight into where we think we'll be transpiring over the balance of 2020. I'll now turn the call over to Ken.