Sound Point Meridian Capital, Inc.

Good morning, ladies and gentlemen, and welcome to the SoundPoint Meridian Capital's second fiscal quarter ended September 30, 2025 earnings conference call. At this time, all lines are on listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require needed assistance, please press star zero for the operator. This call is being recorded on Thursday, November 13, 2025. I would now like to turn the conference over to Julie Smith, Head of Investor Relations. Please go ahead.

Ladies and gentlemen, thank you for standing by. SoundPoint Meridian Capital refers participants on this call to the investor webpage at www.soundpointmeridiancap.com for the press release, investor information and filings with the Securities and Exchange Commission, and for a discussion of the risks that can affect the business. Downpoint Meridian Capital specifically refers participants to the presentation furnished today on the form 8K with the SEC and to remind listeners that some of the comments today may contain forward-looking statements and, as such, will be subject to risks and uncertainties which, if they materialize, could materially affect results. References made to the section titled Forward-Looking Statements and the Company's Earnings Press Release for the Period ended September 30, 2025. which is incorporated herein by reference. We note forward-looking statements, whether written or oral, include but are not limited to down-point Meridian Capital's expectation or prediction of financial and business performance and conditions, as well as its competitive and industry outlook. Forward-looking statements are subject to risks, uncertainties, and assumptions which, if they materialize, could materially affect results, and such forward-looking statements do not guarantee performance. and Sound Point Meridian Capital gives no such assurances. Sound Point Meridian Capital is under no obligation and expressly disclaims any obligation to update, alter, or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. In addition, historical data pertaining to the operating results and other performance indicators applicable to Sound Point Meridian Capital are not necessarily indicative of results to be achieved in succeeding periods. I will now turn the call over to Ujjval Desai, Chief Executive Officer of SoundPoint Meridian Capital.

Thank you to everyone joining us today and welcome to the SoundPoint Meridian Capital earnings call for the fiscal second quarter ended September 30, 2025. We would like to invite you to download our investor presentation from our website, which provides additional information about the company and our portfolio. With me today is our Chief Financial Officer, Kevin Gerlitz, and his successor, Dan Fabian, And after our prepared remarks, we'll open it up for questions. We are pleased to report results for the second fiscal quarter ended September 30, 2025. For the quarter, we generated net investment income or NII of $11 million or 54 cents a share and recorded a net realized loss of 5 cents per share on exited investments. We paid distributions of 75 cents per share during the quarter. The shortfall in NII relative to common distributions was primarily driven by continued spread compression within the CLO collateral portfolios and lower participation in loan accumulation facilities during the quarter. Net asset value, or NAV per share, ended the quarter at 16.91, down from 1850 as of June 30th. During the quarter, we deployed approximately $9.2 million across two warehouse investments, purchased three new issue equity positions with an amortized cost of $14 million and weighted average gap yield of 15.3%, and purchased 12 new equity investments in the secondary market with an amortized cost of $31.6 million and yield of 14.2%. We also sold two equity investments with an amortized cost of $4.5 million and refinanced the liabilities of seven equity investments. We ended the quarter with one active loan accumulation facility and two unfunded equity commitments totaling $3.5 billion. As of quarter end, our CLO equity portfolio's weighted average gap yield was 12.0% versus 12.9% in the prior quarter, reflecting continued loan repricing throughout the quarter. Our portfolio remained highly diversified, 94 CLOs managed by 27 managers, with exposure to over 1,600 loan issuers across more than 30 industries on a look-through basis. We believe our diversified strategy enhances dividend stability and downside protection through evolving market conditions. With that, I'll now turn the call over to Kevin for a more detailed review of our financial highlights for the quarter.

Thanks, Ujwal, and hello, everyone. As Uthval mentioned, for the quarter ended September 30th, 2025, we delivered net investment income of $11 million or 54 cents per share. For the quarter ended September 30th, we recorded a net realized loss of $925,000 and an unrealized loss on investments of $27.4 million. Total expenses during the quarter were $9.2 million. The gap net loss for the quarter was $17.2 million, or a loss of $0.84 per share. Moving to our balance sheet, as of September 30th, total assets were $541.3 million, net assets were $346.2 million, and our net asset value stood at $16.91 per share. The fair value of our investment portfolio stood at $535.2 million. while available liquidity consisting of cash was approximately $3.7 million at the end of the quarter. As of September 30th, the company had outstanding debt that totaled 35% of total assets. During the quarter, we declared monthly cash dividends of 25 cents per share, payable at the end of October, November, and December. Based on our share price as of September 30th, this represents an annualized dividend yield of 17.3%. On November 5th, we announced monthly distributions for calendar Q1 2026 of $0.25 per share, unchanged from our previously announced Q4 2025 monthly distributions. As of October 31st, 2025, our estimated net asset value for common share was $16.17 per share. Finally, on November 5th, in connection with my planned retirement, the Board of Directors appointed Dan Fabian, to succeed me as Chief Financial Officer of the company, effective December 31st, 2025. Dan joined SoundPoint Capital Management earlier this year as Global Chief Financial Officer and brings more than 20 years of experience in the global asset management industry. I am confident that Dan's leadership and expertise will be a tremendous asset to the company. I'll now turn the call over to Dan for a brief introduction.

thank you kevin and hello everyone as kevin just mentioned my name is dan fabian and i currently serve as global chief financial officer at soundpoint capital management where i lead our global finance team comprising of tax fund accounting evaluations as well as our risk and core technology functions prior to joining soundpoint i served in a number of senior positions in asset management most latterly as President and Chief Operating Officer at Alcentra, where I directed firm-wide operations spanning across six credit investment strategies. I'm excited and look forward to working closely with the leadership team and board of Sandport Meridian Capital and stepping into this role to support the company in the years ahead. I now turn it back to our CEO, Ujjval, to provide an update on the CLO market.

Thanks, Dan. Before opening up for questions, I want to give a quick update on the overall market environment for corporate loans and CLO equity. The US leveraged loan market is expected to maintain steady new issue supply over the next 12 months, supported by a gradually improving M&A pipeline and renewed large cap sponsor activity. Primary institutional issuance rebounded to $404 billion in Q3 2025, the highest quarterly total on record, as deal flow normalized following mid-year disruptions. Recent large financings, including Day Force's $5.5 billion term loan, B, backing Thoma Bravo's $12.3 billion LVO, signal a more active pipeline of buyout and corporate transactions heading into 2026. While isolated credit events, such as the first branch group's bankruptcy, have attracted market attention, we view these developments as idiosyncratic rather than systemic. Overall, credit fundamentals remain healthy, supported by steady corporate earnings, conservative new issue leverage, and continued access to refinancing capital. The broader loan market continues to demonstrate resilience, with default rates still below long-term averages and robust investor demand anchoring secondary pricing. In the CLO market, AAA spreads are poised to tighten further as incremental demand builds from an expanding investor base. In addition to traditional bank and insurance buyers, new vehicles such as CLO ETFs have become meaningful participants attracting sustained inflows and growing total assets above $36 billion across more than two dozen funds. This broadening demand base continues to underpin robust pricing for senior CLO tranches and supports expectations for additional spread tightening in 2026. Meanwhile, the path of interest rates remains uncertain, with market expectations pointing toward a range-bound SOFR environment in the near term. Table-based rates are constructive for both sides of the CLO capital structure, supporting continued demand for AAA tranches while sustaining higher cash flows for equity investors. Through active rotation, we have increased structural optionality in the SPMC portfolio, positioning it to benefit from future refinancing opportunities. Approximately 70% of the portfolio will exit its non-call period by year-end 2026, providing optionality to refinance debt at lower spreads. A reduction in debt costs may significantly offset the loan spread tightening senior to date and increase the equity arbitrage into 2026, which we view as a welcome development and reprieve from the challenge technical environment we have experienced in 2025. With that, we thank you for your time and would like to open up the call for Q&A. Operator.

Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. If you would like to withdraw from the portally process, please press star then the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any case. Your first question comes from the line of Gaurav Mehta from Alliance Global Partners. Please go ahead.

Thank you. Good morning. I wanted to ask you on the loan investment opportunities. Can you discuss what you guys are seeing in the market for primary and secondary opportunities?

I got thanks for the question. Just to clarify, you're asking about the underlying loan market.

The opportunities that you're seeing in the market to deploy capital both in primary and secondary markets.

OK, sure. So So I think as we discussed in the past, we have been a lot more focused on investing in the secondary market this year. The primary market arbitrage for CLO equity has been challenged because as we have discussed, the loan spreads have tightened significantly. The liability spreads have also tightened, but not as much. And so the arbitrage has been a little bit constrained this year. And so our focus has been mostly on the secondary side. And we have And we continue to invest heavily in the secondary and have picked up very interesting paper in the market. The primary market arbitrage is slowly getting better, still not quite there. And, you know, I think as the loan market continues to, the pipeline in the loan market continues to improve as a result of M&A activity in the loan market, we think that should provide some stability to spreads. We have seen spreads, you know, the tightening in spreads has stopped now on the loan market side. And so as new issues come on board, that should certainly help improve the environment for new issue equity. But so far this year, you know, the focus has mostly been on the secondary side. And we are, you know, we do see good value in the equity markets and, you know, still solid yields can be obtained.

uh in in the secondary market uh less so in the primary okay thanks for that color uh second question on your uh comments around refinancing opportunities i think you mentioned more than 70 percent of the portfolio has refinancing opportunities so you know do you think that that that's enough to offset the the yield compression that you're seeing in the market and should we expect the yields to remain stable because of that refinancing within your portfolio

Well, I think we posted in our presentation a table that you can see that shows the change in spread in the portfolio in the last 12 months. About 36 basis points has been lost. And then if you look at on the liability side, the 70% of the portfolio That is a resettable in the next 12 months. The savings on that is about 41 basis points on that portion, assuming of course that the market stays where it is, which is a big assumption. It could go tighter, could go wider, but as using today's market conditions, you see a 40 basis points tightening in our liability cost on 70% of the portfolio so that you know more or less offsets most of that change. It's not going to be perfect obviously, But but there is significant optionality there. Which you know, obviously we have to wait for the non copiers to be over for us to to to to get that savings. We have done quite a few resets already this year. And you know, there's still a lot left for next year.

OK, so so assuming market remains stable that that 41 basis points and saving that can take you back to where the spreads were in September 24.

I mean, not not not on its own, not quite. 41 is on 70% of the portfolio, so that just doing the math, it's like high 20s versus 35 basis points change. So it's, you know, it's it should be close, but not, you know, there are a lot of variables, obviously, so we're not going to predict where things are going to go from here. But that optionality certainly makes a significant dent in the spread tightening we've seen on the portfolio side.

OK, thank you. That's all I had.

Okay, great. Thanks.

Your next question comes from the line of Miki Schlin from Clear Street. Please go ahead.

Yes, good morning, Ujjval. I'm a little confused about the comments. I want to make sure I understand. At the beginning, you said, I think you said that the supply of capital would keep the loan market imbalanced and you expect, you know, pressure on spreads, loan spreads to continue, but then later on, I think you said it stopped. So let me just back up. How would you describe the balance of supply and demand in the loan market? And what is your sort of medium term outlook for loan spreads? Sure.

Hi, Mickey. So I think what I was talking about was the year to date, we have seen a significant imbalance in supply and demand for loans. And that's what I was talking about. So it was a for sort of what happened in the first nine months of the year. And that resulted in effectively not much new supply of loans, but significant demand for loans from CLOs and other investors. And that resulted in significant spread tightening in the loan market, as you've seen in every single market, credit equities everywhere else. What's changed recently is there's been a lot more activity in the new issue loan market. and from talking to various sources, capital markets folks, bankers, there seems to be an increased pipeline of M&A activity that the banks expect early next year. So if that pipeline materializes, then that should result in a lot more loan supply. And that's what I'm talking about, the dynamic where if you have that loan supply, that then brings the supply demand into balance, and that's certainly helpful for us. So that's kind of what we feel is going on in the loan market. And because of that, we think the spread tightening in the loan market has certainly paused. Obviously, there is a scenario where the market continues to be super benign and the demand for loans continues to outpace supply and loan spreads tighten further. But if that happens, obviously, that should bode well for our liabilities as well. And because they both markets go hand in hand, and so we can then monetize that tightening by tightening our liabilities further. But what we are showing in the table I talked about earlier is basically the kind of static picture of where the portfolio is today. And based on the market conditions today, if we were able to reset those liabilities, that's the savings I was talking about, the 40 basis points on 70% of the portfolio.

Okay, I understand that that's helpful. One follow-up question, if I can. For a couple of quarters now, NII per share for your fund is running about 20 cents below the distribution, which was raised not too long ago. Could you walk us through what factors the board considered in keeping the dividend stable? Sure.

So I think the NII, so there are, you know, obviously various factors here. The NII drop has been because of stress compression in the underlying portfolio, which we talked about, and so that has been the main driver for that to change. I think where we are, and again, this is the point of that table, is that the liabilities can be tightened, which then boosts our dividend yield once we can do the liability reset, right? So what we don't want to do is have kind of a knee-jerk reaction to one side of the equation, which is spread tightening on the asset side, because it goes hand in hand with spread tightening on the liability side, but with slight bit of delay. And so that's what we're trying to manage to that, to make sure that we don't just react to one side. The other side of the equation is very important too, obviously, in maintaining our arbitrage. And we are, as the table shows, every quarter we're going to make a meaningful dent in reducing that cost, assuming the market stays where it is today, And so that's what we are, we're effectively on a projected basis, we feel very comfortable keeping the dividend where it is, and that's why the board decided to keep it at 25 cents a month. We're, you know, we're not that far behind in terms of our sort of dividends paid out versus yield earned, and you can see that from our presentation. We're about running about 30 cents behind on a cumulative basis. So, you know, we can certainly, catch up a chunk of that once the liability tightening can be accomplished through resets.

I understand. So it's really more of a timing thing. Those are all of my questions this morning. I very much appreciate you taking them. Of course, Mickey. Thanks.

Your next question comes from the line of Eric Zwick from Lucid Capital Markets. Please go ahead.

Thank you. Good morning. Most of my questions have been asked and answered at this point, but just looking at page 10 and those estimated cost savings, you mentioned expectations for, you know, continued investor interest could cause further compression. You know, maybe just to kind of look at it from a different perspective, you know, in the past when interest rates have gone down, we've typically seen some spread widening, and if you believe this over, curve uh and you know expectations for fed fund cuts we could see you know base rates coming down further which could potentially maybe erode the opportunity for you to um you know realize some of those cost savings particularly out maybe later in 2026 so um you know just how much confidence do you have in your ability to extract the cost savings there to offset the um you know kind of live or asset side compression that you've already seen

So Eric, thanks for the question. I think, look, it's, um, uh, it's really hard to predict where the market is going to go. Um, and you know, we're, uh, we're not sort of experts in predicting rates right now, but, uh, you know, there, there's certainly pressure on rates from both sides, um, given the inflation dynamic as well as, uh, labor market conditions. So, um, we, we leave that, uh, as is, but in terms of the impact on, um, the, on our, our markets, um, clearly. What we're saying is that if the market stays where it is, certainly we can maximize these savings here. If the market goes wider, you have two things going on. One, the optionality to reset these liabilities is a go-forward optionality. So if we can't reset them immediately, we will be able to do them next time the market tightens. So it just creates timing, but it's not a one-off option. That's one thing. The second thing is that if liabilities do not tighten from here, you know, in that scenario, the assets will cheapen as well. And if that happens, we will be able to take advantage of that in two ways. One, our underlying portfolios, the portfolio managers that manage the CLOs we invest in, we believe are top tier managers who are very actively managing their portfolios. And to the extent there is any volatility, they can take advantage of cheaper assets to build power and improve the deals. And then, you know, as you know, we ourselves trade our portfolio quite actively and take advantage of any market volatility, any dislocation we see. Historically, as I'll say, you know, in the last sort of since inception of the CLO market, CLOs tend to do quite well, CLO equity in particular, when there is volatility because of the optionality in the structure. And the reason why CLOs have had a challenging time this year is because of lack of volatility, because of you know, spreads have gone one way. So if there is any volatility, I think that certainly can be a helpful fact in the medium to long term. Certainly will mean that, you know, our resets will get delayed a little bit if spreads widen out. But I think it's more of a short-term impact. We're much more concerned on medium-term improving the outlook for the portfolio.

That's helpful, and I appreciate the commentary. So it sounds like, you know, you're confident in the longer term. arbitrage opportunity still exists and there just may be some kind of short term dislocations in terms of maybe assets repricing faster than you have the ability to liabilities. But over time, the opportunity remains, which is good to hear. So that's all I have today. Thank you for that.

Yeah, I think that the reason why this mismatch exists is because assets can reset, loans can reset you know, in six months, while COLA liabilities are non-called for two years. So that's six months versus two years. That's the timing of this match. And of course, it's very hard to predict where that goes going forward. But I think there are a lot of tools that we have that can be used to make sure that over a medium to long term, the portfolio does well, notwithstanding short term kind of fall that you will see from market movements. Understood. Thank you. All right. Thanks, Eric.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by the number one on your touchtone phone. If you are using a speakerphone, please make sure to lift your handset before pressing any case. Your next question comes from the line of Timothy D'Agostino from View Riley Securities. Please go ahead.

Hi, thank you for taking the question. Just one for me on net asset value per share. Seems like there's a pretty substantial decline in the quarter. Looking at the balance sheet, obviously you added the preferred B line and the repo, but I guess can you just provide more color on kind of the drivers behind that decline quarter over quarter? Thank you.

Sure. So the decline, again, all roads lead to the same fact, which is that spreads have tightened in the underlying loan market, and liability spreads haven't tightened as much. So if you think about a portfolio of CLO equity that's already in the ground existing portfolio, if loans reprice, the income component goes down. And that reduction is not matched by any liability tightening because that's still months away. what happens is that you get less income for equity, and that is then, that means there's less sort of yield. Again, assuming liabilities stay where they are, you end up with less yield. And that means the NAV of the portfolio keeps dropping because the CLO equity is marked based on discounting future cash flows at a required market yield, which hasn't really changed this year. So the yield for CLO equity is still more or less what it was at the beginning of the year. but the cash flows have dropped. So that results in the mark to market sort of of these equity positions dropping. And we've seen that sort of, you know, again, just rough math. If you have a 30 basis points or let's say 36 basis points in the last year of spread reduction in the portfolio, that 36 basis points, you know, because of the leverage in the CLO structure means 400 basis points of drop in income per year, and that can result in 10%, 12% of drop in the equity price. And so that's what we have seen. That's offset by the income we generate in the portfolio itself, but the NAV is going to be impacted. So it's all linked to the same factor, and that's why the NAV is down in the last quarter.

Okay, great. Thank you so much.

course.

Thank you very much. There are no further questions at this time. I would like to turn the call back to Ujjval Desai, CEO, for closing comments. Sir, please go ahead.

Great. Well, thank you, everyone, for listening in today. Appreciate your support and your questions, and we look forward to seeing you again next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.