ECC - NYSE

Greetings, and welcome to the Eagle Point Credit Company Second Quarter 2022 Financial Results Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, with ICR. Please go ahead, sir.

Thank you, operator, 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 that 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 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 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 Form N-CSR, half year 2022 financial statements and our second quarter investor presentation with the Securities and Exchange Commission. The financial statements in our second 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, Chief Executive Officer of Eagle Point Credit Company.

Thank you, Peter, and welcome, everyone, to Eagle Point Credit Company's Second 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 and our investment portfolio. The company's portfolio did exactly what it was supposed to do during the second quarter. It continued to generate robust cash flows. While the prices of many securities in the market and our portfolio fell during the quarter, we believe the sell-off was principally driven by the Fed's quantitative tightening program, not an issue with fundamentals. During the second quarter, we opportunistically deployed capital in both the secondary and primary markets where we saw value, and we believe the price of loans at quarter end, which was roughly $0.92 on the dollar priced in far more defaults than we’ll actually occur. Indeed, from quarter end through August 12, loans have rallied back about 3 points to roughly $0.95 on the dollar. And while there are uncertainties in all investments, our CLO equity portfolio with multiple years left on our weighted average remaining reinvestment period is designed to thrive in periods of volatility. For the second quarter, our net investment income and realized gains totaled $0.43 per share, exceeding our regular common stock distributions for the quarter. We actively managed our portfolio of deploying $82.4 million in net capital into new CLO equity and debt investments during the quarter in both the primary and secondary markets. We had strong recurring cash flows from our portfolio in the second quarter, and we received $47.8 million or $1.12 per share, which was $0.43 per share above our total expenses and common -- regular common distributions paid during the quarter. All of our financing remains fixed rate and is unsecured. This protects us in a rising rate environment. Further, we have no financing maturities prior to April 2028 at this point. This is as management has consistently sought to maintain a long-term balance sheet to give us stability in times of market uncertainty. NAV per share ended the second quarter at $10.08. Since the end of the quarter, we estimate that our July NAV of between $10.79 and $10.89 per share, reflecting an increase of approximately 8% at the midpoint of that range. We also continue to raise capital prudently through our at the market program and issued approximately 2.3 million common shares at a premium to NAV, generating an accretion of $0.03 per share for all shareholders. We also tapped the ATM to issue approximately 43,000 Series C preferred shares and even 1,500 Series D perpetual preferred shares. Together, these sales generated net proceeds of a little over $30 million for the company during the quarter. We raised our common distribution by 17% to $0.14 per month per share in April, and we continued that increased distribution rate with some recent declarations through the end of 2022. Earlier today, we also declared a special distribution of $0.25 per common share, which will be paid to shareholders in October. As of June 30, 2022, the weighted average effective yield of our overall portfolio was 16.71%, largely unchanged from the 16.78% at the end of March. Our portfolio's weighted average effective yield was aided by strong cash flows, our ability to put new investments in the ground at attractive levels, few corporate borrowers defaulting and highly muted levels of loan repricing. As I mentioned, during the quarter, we deployed $82.4 million of net capital into new investments. We also converted 5 loan accumulation facilities into new CLOs. And across the 11 CLO equity purchases we made during the second quarter, the weighted average effective yield was approximately 18%. In July, we continue to find attractive CLO opportunities in both the secondary and primary markets, and we deployed about $11 million in net capital so far during the month. As of the end of the second quarter 2022, our CLO equities’ weighted average remaining reinvestment period stood at 3.3 years. This is an increase from 3.1 years at the end of March 31 and from 2.4 years back at the beginning of 2021. So despite the passage of 18 months, through our proactive portfolio management, the reinvestment period on our CLO equity positions actually increased meaningfully. Our thoughtful approach to CLO liability optimization during calmer times. Indeed, we have actively reset or refinanced over 100 CLOs at this point in preparation for more volatile environments like today is paying off for us handsomely. Many of our CLOs have been thriving during the recent market selloff. We believe few, if any, other CLO equity investors have executed so many resets and refinancings. As we manage the company's portfolio, we seek to keep the weighted average reinvestment period of our portfolio as long as possible. We would remind you also that rising rates are typically a positive for CLO equity and the proven playbook of CLOs with locked-in non-mark-to-market financing, longer than its assets remains unchanged. Our adviser and its investment team are deeply experienced and cycle-tested and with our portfolio of strong CLO equity weighted average remaining reinvestment period, strong cash flows, low defaults, lack of repricings, we're quite confident in the continued earnings potential for our portfolio and believe the company is well situated to continue generating strong NII in the back half of the year and beyond. I would also like to take a moment to highlight Eagle Point Income Company, our sister company, which trades under ticker symbol EIC on the New York Stock Exchange. For the second quarter, EIC generated net investment income and gains of $0.41 per share, and last week announced that it was raising its monthly common distribution by 12% to $0.14 per common share per month. With the rising rate environment, EIC remains very well positioned to increase NII over the coming months and years, given its exposure to CLO junior debt, which is heavily correlated with rising rates, perhaps even more so than CLO equity. We invite you to join our call at 11:30 a.m. today for EIC and also to visit the company's website at www.eaglepointincome.com to learn more. Overall, we'll continue to keep a watchful eye on our portfolio in the broader economy. After Ken's remarks on the financials, I'll take you through the current state of the corporate loan and CLO markets and share our outlook for the remainder of 2022. I'll now turn the call over to Ken.

Thanks, Tom. For the second quarter of 2022, the company recorded net investment income and realized gains of approximately $18.5 million or $0.43 per share, which is above our second quarter regular common distribution level. This compares to NII net of realized losses of $0.30 per share in the first quarter of 2022 and NII in realized gains of $0.32 per share for the second quarter of 2021. When unrealized portfolio depreciation is included, the company recorded a GAAP net loss for the second quarter of approximately $101 million or $2.35 per share. This compares to a GAAP net loss of $0.53 per share in the first quarter of 2022 and GAAP net income of $1.26 per share in the second quarter of 2021. The company's second quarter GAAP net loss was comprised of total investment income of $29 million and realized capital gains of $1 million, offset by total net unrealized depreciation of $119 million and expenses of $11 million. The company's asset coverage ratios at June 30 for preferred stock and debt calculated pursuant to Investment Company Act requirements were 269% and 398%, respectively. These measures are comfortably above the statutory requirements of 200% and 300%. Our leverage at quarter end was approximately 37% of the company's total assets less current liabilities. This is slightly above our range of generally operating the company with leverage between 25% to 35% of total assets under normal market conditions. As of July 31 and as a result of higher valuations, the company's leverage has returned to within the target range. Moving on to our portfolio activity in the third quarter through July 31, the company received recurring cash flows on its investment portfolio of $38.8 million. This compares to $47.8 million received during the full second quarter of 2022. The reason for the reduced July amount is due to the loss of the LIBOR, SOFR floor benefit as well as 1-month versus 3-month rate mismatch. A reminder that some of our investments are expected to make payments later in the quarter. As of July 31, we had $51 million of cash available for investment. Management's estimated range of company NAV per share as of July 31 was $10.79 to $10.89 with the midpoint of the range, reflecting an increase of approximately 8% from the end of June. During the second quarter, we paid 3 monthly common distributions of $0.14 per share. We have also declared monthly common distributions of $0.14 per share for the remainder of 2022. In addition, today, the company declared a special distribution of $0.25 per share payable in October of 2022. A reminder, in order for the company to maintain its direct tax status it is required to distribute effectively all of its taxable income within 1 year of its tax year-end. Based on preliminary estimates, our taxable income for the tax year ended November 30, 2022, is anticipated to exceed the aggregate regular distributions paid to stockholders with respect to such tax year. I will now turn the call back over to Tom.

Great. Thank you, Ken. Let me take the call participants through some of our thoughts on the loan and CLO markets. The Credit Suisse Leveraged Loan Index fell 4.35% in the second quarter, bringing it to a negative return of 4.45% down for the first half of the year. While no one likes to see marks down, loans performed very well when compared to high-yield bonds and frankly, even investment-grade rated bonds, both of which fell about 14% in the first half. We believe loans were oversold at June 30, and indeed, they've rallied back about 3% since the beginning of July through August 12. Corporate defaults remain low with only 2 companies defaulting during the second quarter of 2022. At quarter end, the trailing 12-month default rate stood at 28 basis points at or near historic lows and the percent of loans trading below 80, something we consider to be a good leading indicator of defaults, remains low at less than 3%. Despite nearly all loans trading at discounts, during the second quarter, 3.6% loans of loans repaid at par. And this provides very attractive opportunities for our CLOs to reinvest those par dollars in today's discounted loan market. Given the market conditions and the percentage of loans trading at above par is essentially 0. As a result, repricing activity in the loan market is also essentially 0. And on a look-through basis, the weighted average spread of our CLO's underlying loan portfolio has increased by several basis points since the beginning of the second quarter. In the CLO market, we saw $40 billion of new issuance in the second quarter with CLO debt spreads widening, reset and refinancing activity has slowed significantly. We saw only $3 billion of resets and less than $1 billion of refinancings in the second quarter. And while CLO security valuations faced mark-to-market drawdowns during the first half of 2020, we believe short-term mark-to-market movements, frankly, is the largest risk for the CLO equity class greater than the risk of an ultimate loss of capital. It is an environment of -- with loan price volatility where we believe CLO structures and CLO equity, in particular, are set up well to buy loans at discounts to par without any risk of their financing structure, using par repayments from other loans and ability to outperform the corporate debt markets over the medium term as they have done in the past. To sum up, NII and realized gains once again exceeded our regular common distributions. We raised our common distribution by 17% to $0.14 per share per month back in April and have recently extended that higher distribution rate through the end of the year. We declared another $0.25 special common distribution, which we paid in October. The new CLO equity investments that have gone into the portfolio during the second quarter had a weighted average effective yield of about 18%, and we continue to source and deploy capital into investments with quite attractive yields. And of course, we continue to make 100% fixed rate financing with no financing maturities prior to 2028. This protects us from any further rising rates and locks us into what we believe will be a very attractive cost of capital for many years to come, and we are actively managing our portfolio, looking for relative value opportunities within the CLO market seeking to get access to the best CLOs or create them, all of which we believe will help drive additional net investment income over time. It was a solid second quarter for Eagle Point despite the mark-to-market drawdown across most asset classes. Our portfolio continued to generate robust cash flows. And as we continue to navigate this market environment, we'll remain highly opportunistic and proactive with respect to our investment portfolio while seeking to continue paying consistent monthly cash distributions to our shareholders and generating attractive risk-adjusted overall returns for those same shareholders. We thank you for your time and interest in Eagle Point. Ken and I will now open the call to your questions. Operator?

Our first question comes from the line of Mickey Schleien with Ladenburg Thalmann.

Tom, we're starting -- the results certainly have been quite good from a cash flow perspective this year. But we're starting to see some decline -- early signals of decline in credit fundamentals with the downgrade to upward grade ratio climbing a lot the last 2 months. And OC Cushions starting to decline a little bit. With that in mind, what's your thesis on CLO equity cash flows going into next year?

Sure. Well, a couple of things there. A little bit of OC movement up or down or a handful of rating movement up and down, those are not going to be meaningful impacts on CLO equity cash flows onto themselves. The biggest thesis that can impact CLO equity cash flows are repricings, rates, a tremendous degree of downgrades or defaults that could impact those C tests. And then one of the other little things that's popping up a little bit as a basis between 1-month and 3-month rates, be it SOFR or LIBOR right now, which is, frankly, nontrivial of all the things going on right now, probably the biggest thing going in the wrong direction. To frame it, if a loan gets downgraded, it gets downgraded. The coupon is what it is. Unless there were so many CCCs, that the excess CCCs were enough to trigger a downgrade or OC test diversion like the ratings migration doesn't move -- doesn't really move the needle on payments. The best news I can say is the percent of loans trading below 80 remains very low, I guess, maybe the 2 best thesis of information, trading below 80 remains around 3%. So that's very good. I mean that's -- the market is pretty good at pricing near to medium term defaults below 80. At the same time, spread compression in terms of loans getting repriced in our face is also essentially nil with basically no loans trading at premiums. We did flash the -- in the press release and in your remarks as well, Ken, the July collections on our portfolio, which were down from the second quarter, and we should hit that head on. And Ken touched on it in his remarks, but just to expand on that further. One of the things right now -- look, lots of people talk about the slope of the yield curve and things like that. What we deal with here at Eagle Point is the 1- to 3-month slope of the yield curve, 5, 10, 20 years is all interesting, but doesn't impact our cash flows. And one -- we kind of had 2 things move against us into the third quarter. The most notable, though, is the steepness of 1-month versus 3-month LIBOR versus SOFR was quite steep and the collections that we got in July, which don't affect the second quarter, but they already happened, so we can talk about them were hurt and that loans can choose basically any periodicity with which to pay 1, 2, 3 or 6 months, maybe other options as well. And with -- when 1-month and 3-month rates are within 10 basis points, which is typically where they are, we don't usually see companies electing the 3-month rate, just the burden of filling out a borrower's compliance certificate is so great. They'll pay the few extra basis points. Once again, to be 50 basis points, a good Treasurer or CFO at a company who's going to proactively elect to move their loan to that 1-month rate, be it LIBOR or SOFR. And we saw that play out a little bit in the collections in Q3 based on the spread of rates back during the second quarter. Typically, I mean, this has happened once before probably when we go back and remember here, I think at the beginning of 2018, we had this happen for a little bit when there were some changes in the tax law regarding corporate repatriation of offshore money. So we typically see these things for a little while. And with this period of rapid rate increase from the Fed, which certainly helps overall our floating rate investments, we do get a little bit of mismatch. So we hear you on the warnings on some of the red flags, I'd call them maybe more caution flags than red flags. The market pricing of loans of less than 3% below 80% is a definite positive indicator. And our cash flow change quarter-over-quarter was largely due to the basis between 1-month and 3-month rates.

And Tom, just to make sure I'm on the same page with you on that mismatch. The CLO debt liabilities are typically priced at 3-month LIBOR or SOFR, and that's the mismatch you're referring to. Is that right?

Correct. So the CLO -- certainly the vast majority of CLO debt is priced off of a 3-month rate, be it LIBOR or SOFR depending on which deal, but let's keep those as equal for the moment. Loans are all over the place and can pay off of 1-month LIBOR, 3-month LIBOR, 6-month LIBOR, prime or those same benchmarks for SOFR. And so that creates the mismatch. And whenever you see -- again, people talk about like the 2, 10 curves, we think about the 1-month, 3-month curve here, that's probably the biggest driver for whether or not companies will elect at shorter rate.

One follow-up, Tom. We've all seen that the economy has already slowed in the first half of this year and the forecast for the rest of this year and next year are pretty weak. There's a lot of concern that the only way the Fed's going to get inflation down is to reduce consumer demand even more, which would imply more weakness. So how exposed are CLOs to the consumer either directly or indirectly? And how are managers dealing with that risk?

Yes. So I mean, at the end of the day, we are a consumer-led economy. One of the stats that crossed the Wire today was the amount of housing contract cancellations, either people walking away from their earnest money or who knows what they're negotiating. As rates are going up, it is definitively impacting consumer behavior in a number of ways. At the end of the day, the vast majority of our borrowers have direct or indirect consumer exposure. Against that, certainly, the way the markets feel is that it's more the air getting let slowly out of the balloon than some sort of large scale or rapid correction. And I think we're seeing that by and large companies are quite well positioned to handle slowdown. So at least a modest to moderate slowdown. It doesn't appear like it will be a sudden shock. Perhaps real estate agents felt a sudden shock with the drop in closings. But by and large, it's been a more gradual trend. One of the things of the strength -- from the strengths of the market leading up to 2019, and then the mid-20 to late '21 period of strength where companies were able to -- many companies were able to refinance their maturities out to '25, '26, such that we probably have about 10% maybe less of our portfolio -- of our underlying loans maturing prior to 2025. So companies have plenty of runway. We always have some degree of consumer exposure. It's not avoidable. Against that, by and large, companies are in better shape with maybe a little more leverage than they'd like. No one's ever said companies have too little leverage, but perhaps it's a little more than they'd like, but with more runway and in general, more cash on their balance sheets.

Our next question comes from the line of Paul Johnson with KBW.

One of my questions was already answered from Mickey's questions just on kind of the -- any sort of gap in the LIBOR reset. But I'm also curious just on the tax expense line, I missed just the undistributed income for your estimated undistributed income amount for the last quarter. But I know last year in the fourth quarter, you guys took a relatively large tax expense. I can't quite remember exactly what drove that, but do you guys expect to have a large tax expense again at some point this year?

It's Ken. So our current estimate, which we did as of May 31, which incorporates 6 months of activity in our underlying CLOs, did suggest that we'd have an undistributed amount as of 12/31. So the special that we declared today was an anticipatory of that undistributed amount. So we're going to refresh our estimate as of December 31. And also if there is undistributed income, it would be a combination of another special or rolling some of that into a spill over into -- 2022 spillover into 2023. So to be determined, we did -- our estimate, as we noted in our materials, did reflect that we would be under distributed based on our common distribution level, took a proactive step this morning to take some of that out prior to tax year-end, and then we'll do a refresh at 12/31. And the reason we're doing that is there's a lot of unknowns and there's a lot of volatility in the current marketplace. So I just want to be cautious before we take next steps on taxable income.

And then I'm just also curious, as far as your ATM access goes, the program, in terms of issuing any of the preferred through the ATM, I'm just curious -- I know you raised some in the prior months. During times, I guess, of market volatility, kind of like we saw back in June and early third quarter, are you able to issue those securities essentially at par value? Or are you essentially forced to take any sort of discount just to accommodate the market, obviously, for maturity and yield purposes?

Yes. So we are able to issue off the ATM, as you noted. We are subject to de minimis rules. So we are able to take a discount to par when we issue shares into the marketplace, but it's not going to be a significant discount.

And lastly, just a broader question. I know a majority of your obligors are typically investment grade or investment grade size type of borrowers, corporate borrowers. But just in the environment, I would imagine, and I'm just curious what you're seeing in terms of just sort of prepayment rates or average life of loans in this environment with rates as high as they are, potentially going higher with more Fed hikes, does that, I guess, slow down the rate at which any of your borrowers are prepaying early and essentially paying down their positions?

Sure. No. A really good question. In the second quarter, to frame things broadly, on average, loans prepaid at about 35% per annum. If you just divide that by 4, that gets you about 9% per quarter, give or take. That's on average. Sometimes it's higher, sometimes it's lower. The second quarter was quite low at 3.6% per annum. If you just take that 3.6% and multiply it times 4, not taking into account like the single monthly mortality or kind of detail -- more nuanced calculations, that's going to get you around 15% prepayments on an annualized basis. So that's very slow compared to long-term averages. So why are these companies paying off? These are not rate and term refis by any stretch. The things that are holding prepayments down, what we love, I mean, this is -- we're not going to see this too often, but high prepayments and low loan prices, that would be great, but theoretically challenged scenario. There's always some degree of M&A, strategic buying up other companies paying off the debt. Because all of the loans are floating rate, it's not really a rate question that's driving refinancings, it is sometimes a spread question, and that causes loan repricings, which we don't like. But with loans wider and wider and at lower prices, we're not seeing much in the way of -- we're not seeing really any of that. So the vast majority of that 3.6% without having gone line by line, I'll make a judgmental opinion that it is principally due to large strategics buying up companies that are otherwise in the loan market and repaying off their debt as part of the acquisition. And until we see loans rally a bunch, that rate is probably going to remain in this context, somewhere between, if I had to guess, 15% and 20% would be a reasonable prepayment rate, but on an annual basis. But the potency of that, if we're investing in loans at $0.95 on the dollar with those proceeds, that's obviously great.

Our next question comes from the line of Matthew Howlett with B. Riley Securities.

You look -- I thought the performance was tremendous in the quarter. The portfolio management was great. And I think you called it with the technical decline in prices, the rally back in July and August. My question is, in terms of -- if you wanted to get defensive, you thought maybe a hard landing was coming, what tools would you have to position the portfolio? Would you take down leverage? Would you raise cash, reduce your equity? Just sort of the -- or move up credit quality in your CLO, which I think are already there, but just curious on what tools you would take if you thought maybe a harder recession was coming along?

Certainly, raised cash through issuing a stock at a premium, that's always an easy one and then maximizing our remaining reinvestment period would be the other. We wouldn't seek to move out of equity into CLO debt or anything like that. And frankly, equity with ample reinvestment period is typically the best performing investment over the medium term in times of difficult economics. The -- while CLO equity billions of dollars trade every single month, the ability for us to move up and down in quality or tiering or portfolio style while keeping majority blocks in the secondary market, let's say, I wanted to get rid of 5 of the riskiest guys and buy 5 more of our favorite conservative guys, unfortunately, the market doesn't really allow us to do that. It's just not -- our market is active and robust, but it's not that sophisticated and not that liquid. So we wouldn't do much on repositioning the existing securities, but with the added statement of every security in our portfolio, we put in with the expectation that there will be choppy times, and we typically wouldn't move on a reactionary basis to shorter-term trends or even medium-term trends. But with the #1 thing of keeping as much reinvestment period as possible and what I'll say is, of the collateral managers who are certainly our largest exposures, in our opinion, every one of them has a real strong neck for delivering superior returns to the equity class, which on the surface sounds like CLO management 101, but you'd be amazed at how many CLO collateral managers perhaps think a little more towards the debt holders and a little less towards the equity holders than they should, we are the owners overall, the residual holders. So we think they should be working for us. And thankfully, a fair number of them do that. But the group of portfolio managers that we've selected within our CLO portfolio is a curated group of folks that we believe everywhere -- we believe everyone is certainly recession tested in the past and has the DNA and resources to manage our CLO successfully through choppy period. That said, going back to the better part of how you started your question, when loans were at $0.92 on the dollar, if you just use $0.50 recovery, which is very low for loans, that's a very conservative number, that suggests 8 points -- that would suggest the market was kind of pricing in 16% defaults over the next 2 years. You can talk to the -- I am unaware of a person so bearish in the credit markets as to be predicting a 16% default rate over the next 2 years. And frankly, a lot of that sell-off was technical, not fundamental. Our default is going to go up, yes. It can't really go any lower - we’re at 2 now, it's hard to go much lower than that. So we will see a pickup for sure. But the market we were in, certainly at the end of June and even where we are right now, even at 95%, assuming we got a very conservative 50% recovery, still kind of predicting a 10% default rate over the next 2 years, which with only 3% of loans trading below 80% is certainly very, very different than what the market is predicting.

Yes, I mean clearly, the most of I see ever is 1.5% or 2% at the most, and it just seems unbelievable. And I love the slide that you guys put in about the CS leverage loan market. It just looks high -- the market -- the industry looks resilient. I mean, over recessions of cycle. It always seems to come back. And it sounds like you've taken the portfolio put in a position with the reinvestment periods and the managers. I'm glad how you just described it that really can be positioned to take advantage of the prices tin oday's market.

Yes, sir. I mean the par prepayments are great. That's easy. I mean it's just opening the mail and go buy stuff at 92% or 95%, that's easy. The really good ones that make relative value trades, selling 96%, buy at 94%. If you're right on that trade, that's a 2-point gain. And that's the kind of stuff where the folks that we've partnered with, in general, have a very good track record of delivering upon that. We are not of a view, we're looking at a hard recession here, hard landing kind of -- it feels like the Fed has been letting the air out of the balloon reasonably nicely, frankly. While it's not -- we don't ever like to be down, it's better to be up. What the market, in our opinion, doesn't price in when we -- when our CLO equity is valued, frankly, in my opinion, the market doesn't fully value the in-the-money nature of the debt spreads on our CLOs. And Ken, would you remind me -- I think we have the weighted average AAA spread in our portfolio. Do we have that in there?

I'll find it.

Yes, somewhere in the back.

This is the weighted average spread to the AAA bonds that you issued upon?

Yes, in our portfolio. It's in the portfolio. Further up I think. We're just looking through some pages here. Here we go. Let's see. So it's on Page 26 of the deck. The weighted average AAA spread in our portfolio is 113 over either LIBOR or SOFR. Just to frame it, CLOs today are pricing between 200 and 230 over. So that's just 1 class, but it's representative and you think of CLOs as roughly 10x geared. We have financing that, give or take, 100 basis points in the money, 10x levered. The market does not price that in fully, in my opinion, when valuing CLO equity. So we think --

It's about 3.5 years?

About a little over 3 years, I think, in our portfolio on this portfolio. It's 3.4 at quarter end. And then even after the reinvestment period, obviously, that financing still stays in place and last for another typically 7 years. So people look at what's the liquidation value, what's the price of loans, a whole bunch of stuff. It's factored in a little bit with -- to the extent people use a DCF analysis looking at equity. But in my opinion, it is not fully valued and make CLO equity cheap to its fundamental value when you consider just how in the money, the debt on our portfolio is. I mean literally 100 basis points just on the AAAs and wider, frankly, as you work your way down the stack.

So if I hear you correctly, I mean your NAV, it goes up and down, but it's just really 1 measure to view the company, these other values, other value attributes in there?

I would argue, low NAV might even be better as long as our CLOs have plenty of reinvestment period because our prices would be down, and our reinvestment opportunity would be more in the money. If our CLOs were out of the reinvestment period, then I would tell you the opposite, we want them to be -- our NAVs and markets to be as high as possible. But with a long runway, what that factors in or frankly, we doesn't give enough credit to is the ability for the CLOs to keep reinvesting when -- in a cheap market with yesterday's financing.

And just a last quick question, I guess, is on the new issue market, you mentioned where LIBOR spreads are. I mean, you have that accumulation facility to get 5 on. How much -- I mean, what's your outlook for CLO equity in second half of the year, maybe next year, if you have your crystal ball? What do you think? How -- does it matter? I mean the industry, if it does really slow -- my guess is it will come -- be able to pick back up, given all the private equity capital raise. But I mean what does it just impact to ECC? Does it happen? Does it matter? I mean in this slow market, does -- you just go buy secondary stuff? I mean does it really matter to ECC shareholders how big the primary market is?

Not particularly. The bigger the primary market, in general, that suggests the more things are tightening. We have a very much of an all-weather strategy. When it's cheaper to buy used, we buy used. When it's cheaper to create new, we create new and sometimes we can do a little of each, which was the case in the second quarter. So -- but we're -- as our -- Eagle Point management as an adviser, and these are transactions that ECC participated in, by and large, we got several hundred million dollars of proceeds in the ground buying secondary majority positions in 2020. That's across all of Eagle Point as a house, inclusive of transactions in ECC. But when stuff was $0.20, $0.30 on the dollar, $0.40 on the dollar, you got to buy a lot of bonds to get -- or a lot of equity to get multi-hundred million dollars of proceeds in the ground. So when it's better to buy used, we just go buy used. That said, we can usually create new cheap to fair value when we're creating new, so we like that, too. But there's not a situation where we're bored. A, our refi and reset desk gets to take a little time off right now, and we've completed over the last few years, over 100 resets and refis. I don't believe any other investor has done that. We haven't done one in a few months, and I don't anticipate any time soon. But again, we've got 113 AAAs in a 200-plus market. So we did our job well, and now we're harvesting. And our strong expectation at some point in the next few years, spreads will rip tighter, and we'll look back at the deals that were done in the last year. Oh, my god, we can rip out that, we can rip out those costs and refi them or reset them cheaper again. So it is a pendulum, and we try and do the best we can when the pendulum is at either side of the swing.

Yes. And it looks you did the same thing to the corporate balance sheet as well with, I think, 28 is next majority by the --

Next, maturity. We've got the perpetual that we got done. We got a done earlier this year, fixed rate. I mean that's -- I was thrilled with that execution, shall we say. And those are -- that's a meaningful advantage for the company right now. I mean one of our competitors issued, I think, some debt or preferred with a 7 handle not too long ago, maybe with a shorter maturity. So that's a little bit of timing, but a little bit of intentional timing skill from our part of strike when the iron’s hot, it seems like a good time to issue fixed rate debt. Rates are going up and that we can get some center, now we won't. But we will, again, would again be our expectation.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Majewski for any final comments.

Great. Thank you very much for your interest. Both Ken and I appreciate the time and questions from everyone today. We're certainly living in interesting times, but hopefully, you have a good perspective of how we've set up the portfolio for days like these. We also invite you to join the Eagle Point Income Company call, which is today at 11:30 a.m. Thank you very much.