Eagle Point Income Company Inc.

Today your conference will begin shortly. Thank you for joining us and your conference will begin shortly. Thank you. Thank you. Greetings. Welcome to Eagle Point Income Company's first quarter 2021 financial results call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. I'll now turn the call over to Garrett Edson of ICR. Garrett, you may begin.

Thank you, Rob, and good morning. Before we begin our formal remarks, we need to remind everyone that the matters discussed in 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 the 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 of data forward-looking statements unless required by law. A replay of this call can be accessed for 30 days via the company's website, www.eaglepointincome.com. Earlier today, we filed our first quarter 2021 financial statements and our first quarter investor presentation with Securities and Exchange Commission. Financial statements and our first quarter investor presentation are also available within the investor relations section of the company's website. Financial statements can be found by following the financial statements and reports link, and the investor presentation can be found by following the presentations and events link. I would now like to introduce Tom Bajewski, Chairman and Chief Executive Officer of Eagle Point Income Company.

Thank you, Garrett, and welcome everyone to Eagle Point Income Company's first quarter earnings call. We appreciate your interest in Eagle Point Income Company, or EIC. If you haven't done so already, we invite you to download our investor presentation from our website at eaglepointincome.com. I'll refer to several parts of that presentation during my remarks. For today's call, I'll provide a high-level commentary on some of our first quarter and recent portfolio activity, then we'll turn the call over to Ken, who will take us through the first quarter financial results. We'll then end with a question and answer session from any investors. Continuing our momentum from the second half of 2020, The company started 2021 with another solid quarter. Our portfolio is performing well and all of our holdings are current on their interest payments. We have no assets whatsoever on non-accrual. Net investment income for the quarter exceeded our distributions in the first quarter, and we also had some additional realized gains. Our NAV for the first quarter increased very modestly. In the broader market, Corporate default rates are falling rapidly, and the U.S. economy is growing at levels not seen in decades. Three-month LIBOR remains quite low at around 15 basis points, which, considering most CLO securities have a floor of zero, is nearly as low as it can functionally go for us. If and when LIBOR moves up, that increase will increase the earnings on our CLO debt portfolio, and everything in our portfolio is floating rate, and we believe that would then flow through to NII for the company. Our positive momentum accelerated in April. All the positions in our portfolio continued to pay current. And based on management estimates, April NAV increased by about 3% from the end of March. Due to our strong recent financial performance and our continued confidence in the company's future prospects, we were pleased to announce our second distribution increase last week. Beginning in July, our stock will now pay a monthly common distribution of $0.09 per share up from $0.085 a share that we paid during the second quarter. During the first four months of 2021, less than five companies defaulted on their loans, according to market data. The trailing 12-month default rate continues to fall and stood at 3.15% at the end of March. It declined further to about 2.61% at the end of April, which is below the long-term average default rate. It's truly an amazing turnaround from where we were just one year ago. Looking for signals related to future defaults, at the end of April 2021, only 1% of the loan market was trading below 80% of par. Below 80 prices are a common benchmark to evaluate loans that are stressed. While we still expect some defaults in the coming months, most dealer research desks are now forecasting a 2% to 3% default rate in 2021, down from earlier projections of 3% to 3.5%. As liquidity has been considerably strengthened for many borrowers and the economy grows at a rapid clip, we see a path to potentially more optimistic default outlook for the balance of the year. Put in other words, perhaps defaults will be even lower than the banks are suggesting. As long-term focused investors, we seek to construct our portfolio to manage through periods of dislocation, we believe we remain well positioned to generate solid cash flows and attractive returns for our investors. If the market continues to tighten, we have room for further appreciation in our portfolio as a fair number of our positions remain priced at discounts to par. So, if spreads tighten, those prices will go up. We continue to be optimistic with respect to deploying across attractive CLO junior debt and equity investments, and will realize gains when value can be optimized. We would also like to remind you that CLO debt has managed on multiple occasions, particularly CLO BB debt, to withstand the worst of economic cycles, experiencing low long-term default rates. While past performance is obviously not a guarantee of future results, we believe the performance of our portfolio throughout the pandemic has again validated CLO BB debt as an attractive and resilient asset class. I'll now turn the call over to Ken.

Thanks, Tom. For the first quarter of 2021, the company recorded net investment income and realized gains on investments of approximately 1.9 million or 32 cents per share. When unrealized portfolio depreciation is included, the company recorded gap net income of approximately 1.6 million or 25 cents per share. The company's first quarter net income was comprised of total investment income of $2.6 million and net realized gains of $0.3 million, partially offset by total expenses of $1 million and unrealized mark-to-market losses of $0.3 million. As of April 30, net of pending investment transactions, the company has slightly more than $14 million of cash and revolver capacity available for investment. As of March 31st, the company's NAV was approximately $103.2 million, or $16.90 per share, which is a penny higher than our net asset value per share as of December 31st. Management's unordered estimate of the company's NAV as of April 30th was between $17.36 and $17.40 per share of stock. reflecting a further 3% increase in MEV versus the midpoint of equals range. During the first quarter, we paid three regular monthly distributions of $0.08 per share and increased our monthly distribution for the second quarter to $0.085 per share. Last week, we were pleased to announce our second increase to our monthly distribution. Beginning in July, our monthly distribution will increase by 5.9% to $0.09 per share. Now back over to Tom.

Thanks, Ken. We're very pleased with our portfolio's continued cash flow generation and appreciation since the onset of the pandemic last year. We once again comfortably out-earned our distributions for the quarter and even out-earned our new increased distribution rates. Positive momentum is continuing into the second quarter. The three key attributes why we remain so excited about managing a BB-rated CLO debt portfolio are ring as true today as they did back in 2019 when we initially went public. The potential for lower credit expense, as reflected by the low historic default rates of BB-rated CLO securities over the past 20 years, the potential for higher returns compared to similarly rated corporate securities, and perhaps most importantly today, the protection BB-rated CLO debt offers against rising interest rates. Certainly a lot of sentiment in the market today about rates moving up, More of it's been at the long end of the curve. Right now, the short end, certainly LIBOR remains at or near zero. To the extent that moves up, that's direct dollar-for-dollar benefit to the BB securities in our portfolio. We don't know when, but we're pretty sure on the if part. So stay tuned for that to happen as inflation continues to heat up and more and more focus comes into the short end of the curve. We thank you for your time and interest in Eagle Point Income Company. If there are any questions, Ken and I would be happy to field them.

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 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants who are 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. Once again, that's star 1. As a reminder, you may press star 1 to ask a question.

Thank you.

At this time, I'll turn the floor back to Tom Majewski for closing remarks.

Great. Thank you very much. Ken and I appreciate your interest today in Eagle Point Income Company and look forward to speaking to you in the future. Thank you. Thank you, everyone.

This concludes today's presentation.

You may disconnect your lines at this time, and we thank you for your participation.