Eagle Point Income Company Inc.

Greetings and welcome to the Eagle Point Income Company's fourth quarter and year-end 2021 financial results. 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. Please go ahead.

Thank you, Stacey, and good morning. 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 certainties 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 the 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 of protection 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, www.EaglePointIncome.com. Earlier today, we filed our form NCSR, our full year 2021 audited financial statements, in our fourth quarter investor presentation with Securities and Exchange Commission. Our statements and our fourth quarter investor presentation are also available within the investor relations section of the company's website. Financial statements can be found by following the financial statements and reports link, and the investor presentation can be found by following the presentations and events link. I would now like to introduce Tom Majewski, Chairman and Chief Executive Officer of Eagle Point Income Company.

Great. Thank you, Garrett, and welcome everyone to Eagle Point Income Company's fourth 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, which I'll refer to in a portion of my remarks. The fourth quarter was another solid one for EIC, capping off really what was an excellent year for the company. Net investment income and realized gains for the fourth quarter, excluding non-recurring items, once again exceeded our common distributions. We raised our monthly common distribution three times during 2021, and given our strong performance and outlook for the investment portfolio, on the 14th, we announced another increase of 4% in our common distribution to 12.5 cents per common share beginning in the second quarter. Due to our strong performance during the year, we were also able to declare a special dividend of 20 cents per common share, which was paid earlier this year. We completed our first preferred stock offering and our first follow-on common stock offering during the fourth quarter. Combined, the company raised nearly $45 million of additional capital that we deployed into new CLO junior debt and certain CLO equity investments, and we believe this capital will help further increase our net investment income over time. Our NAV as of December 31st was $16.76 per share, which is a slight reduction from the end of 2020, due in large part to the one-time expenses from the offering and the special distribution. Excluding those events, we would have seen NAV increase for the year. Even with those unusual events factored in, we generated a gap return on equity of 7.96% during the year. The strategy we announced last summer to introduce long-term leverage to our balance sheet and tweak our portfolio mix by slightly increasing our allocation to CLO equity has helped the company increase its net investment income. As we continue to deploy capital at attractive levels, and with the potential for interest rates to rise meaningfully this year, we believe the company is positioned to do quite well. In the broader market, the U.S. economy is holding firm, though inflation and supply chain issues do continue to be present. We nearly certainly are soon to be in a rising rate environment, with many now forecasting multiple rate increases from the Fed this year. As LIBOR and SOFR move up, the earnings on our CLO debt portfolio is expected to increase as 100% of the CLO debt investments that we hold are floating rate. In short, we see multiple paths to continuing to generate additional net investment income for our portfolio. In terms of corporate loan defaults, Only five broadly syndicated loans defaulted in all of 2021, which is remarkable when compared to the 68 different loans that defaulted in 2020. As a result of this strong performance, the trailing 12-month default rate hit a near all-time low during the year, finishing 29 basis points at the end of December. We continue to believe that we're in the early stages of the next economic expansion, and we expect relatively few corporate defaults in the coming quarters. As long-term focused investors, we seek to construct our portfolio to manage through periods of volatility and dislocations. In strong markets like we're in right now, we focus on positioning our portfolio for the next downturn whenever it may occur. While we don't anticipate that happening anytime soon, we continue to try and lengthen the weighted average remaining reinvestment periods of our CLO debt and equity portfolios and maintain a prudent amount of unsecured term leverage in the company's capital structure. We would like to remind you that CLO BB debt has historically withstood multiple economic downturns, experiencing very low long-term default rates. While past performance is never a guarantee of future results, we believe the performance of our portfolio over the past couple of years has clearly validated CLO BB debt as a very attractive and resilient asset class. I'll now turn the call over to Ken, who will walk us through the financials in a little more detail.

Thanks, Tom. For the fourth quarter, the company recorded net investment income and realized gains of approximately $1 million or $0.14 per share. Net investment income and realized gains per share for the fourth quarter is net of non-recurrent expenses of $0.23, which includes offering costs of $0.21 per share related to the issuance of the company's Series A term preferred stock and $0.02 per share related to estimated estimated excise expense, and accelerated at-the-market program costs. Excluding these non-recurring items, NII and realized gains would have been 37 cents per share. When unrealized portfolio depreciation is included, the company recorded a GAAP net loss of approximately 1.6 million, or 24 cents per share. The company's fourth quarter net loss was comprised of total investment income of $3.7 million and net realized gains of $0.2 million offset by unrealized appreciation of $2.6 million and total expenses of $2.9 million. As of February 11th, net of pending investment transactions, the company has approximately $7.2 million of cash and revolver capacity available for investment. As of December 31st, The company's net asset value was approximately $115 million, or $16.76 per share. Management's unaudited estimate of the company's NAV as of January 31st was between $16.89 and $16.93 per share, with the midpoint of the range slightly up approximately 1% from our NAV as of December 31st. During the fourth quarter, we paid three monthly distributions of 12 cents per share. Last week, we were pleased to announce a 4% increase in our common distribution to 12.5 cents per month beginning in April. Just a quick reminder, in order for the company to maintain its RIC tax status, it is required to distribute effectively all of its taxable income within one year of its tax year end. For our tax year end, ending December 31st, 2021, we estimate taxable income will exceed the aggregate amount distributed to common stockholders for the same time period. As a result, the company paid a special distribution of 20 cents per common share on January 24th to stockholders of record as of December 23rd, 2021. The company's final taxable income and the actual amount required to be distributed in respect of the tax year ending December 31st will be finally determined when the company files its final tax returns. I will now turn the call back over to Tom.

Great. Thanks, Ken. That was very thorough. We are really pleased with our 2021 performance and our portfolio's current construction, as well as our recurring cash flow generation from the portfolio. Excluding non-recurring items, we once again out-earned our common distribution for the quarter and went on the offense in the fourth quarter, both for our recent capital raises and and investments of that capital into deployment of that capital into new investments. And we believe that sets the stage for additional recurring cash flow and net investment income growth. The performance and the confidence we have in our portfolio has led us to once again raise our monthly common distribution starting in the second quarter. There were three key attributes that we identified around CLO BBs when EIC first went public in 2019, and they ring as true today as they did then. Certainly the potential for lower credit expense as reflected by the very low default rates of double B rated CLO securities over the past 20 years. The potential for higher returns when compared to similarly rated corporate securities. And then the benefits that floating rate CLO debt offers in markets with rising interest rates. Certainly that last point particularly relevant today. And to the extent short-term rates rise, our CLO debt portfolio will see its coupons rise in tandem. Combined with the portfolio tweaks that we've made to give us a bit more exposure to CLO equity, we remain quite confident that EIC is well-positioned to generate compelling risk-adjusted returns and value for our shareholders. We thank you for your time and interest in Eagle Point Income Company. Ken and I will now open the call to any questions.

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. Once again, if you would like to ask a question, please press star 1 on your telephone keypad. Gentlemen, there are no questions at this time.

I would like to turn the floor over to Tom for closing remarks.

Great. Thank you very much, everyone. We appreciate your time and interest in Eagle Point Income Company. If anyone has further questions, Ken and I will be available throughout the day today. Thank you.

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