ECC - NYSE

Greetings, and welcome to Eagle Point Credit Company's Second Quarter 2023 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Peter Sceusa with ICR. Thank you. You may begin.

Thank you, 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 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 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 2023 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. The 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.

Great. Thank you, 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 portfolio. The company had a solid second quarter. Our recurring cash flow in the second quarter was 27% larger than our recurring cash flows in the first quarter. We also continue to proactively manage our CLO equity portfolio by taking advantage of attractive secondary market opportunities. CLO equity investments purchased during the third quarter -- pardon me, during the second quarter had a weighted average effective yield of 20.8%. And as of quarter end, our CLO equity portfolio had a weighted average remaining reinvestment period of 2.7 years. As we have stated in the past, we believe keeping our weighted average remaining reinvestment period as long as possible is one of our best defenses against future market volatility. For the second quarter, our net investment income totaled $0.32 per share before the impact of some reclassification realized losses. We continuous -- we continue to actively manage our portfolio, and we deployed $29.7 million in net capital into new portfolio investments during the quarter. We received recurring cash flows on our portfolio during the second quarter of $53.7 million or $0.90 per common share, a $0.27 increase from the prior quarter and exceeding our aggregate common distribution and expenses by $0.21 per share. Cash flows in the second quarter improved as the mismatch between 1-month and 3-month LIBOR and SOFR continue to compress. Along with our regular monthly common distribution of $0.14 per share, we declared additional variable supplemental distributions of $0.02 per share for aggregate monthly distributions of $0.16 through the end of the year. Inclusive of the July 31 distributions, we've now delivered cash distributions of $19.19 per share to our common stockholders since our 2014 IPO. NAV per share as of June 30 was $8.72. Since the end of the quarter, we estimate our NAV at July month end to be between $9.08 and $9.18 per share a 4.7% increase from quarter end. We also continue to prudently raise capital through our at-the-market program and issued approximately 4.3 million common shares at a premium generating a NAV accretion of about $0.12 per share. These sales generated net proceeds of nearly $44 million. We've continued to access our ATM program in July, issuing approximately $3.8 million of additional common shares at a premium and generating net proceeds of approximately $38.5 million. At the end of July, we have $83.6 million of cash on our balance sheet, thanks in part to our strong July cash flows, providing us with ample dry powder to deploy into new investments over the coming weeks. And all of our financing remains fixed rate and unsecured, giving us protection in a rising rate environment. Investors should take comfort that we have no financing maturities prior to April 2028. As of June 30, the weighted average effective yield of our CLO equity portfolio was 15.23%, which is a slight reduction from 15.83% at the end of March. However, new CLO equity we purchased during the second quarter had a weighted average effective yield of 20.8%, which should help bolster the portfolio's weighted average effective yield prospectively. Additionally, the weighted average effective yield -- expected yield of our CLO equity portfolio based on market value increased to 27.5% as of June 30. As I previously mentioned, during the quarter, we deployed $29.7 million of net capital into secondary CLO equity, CLO debt, loan accumulation facilities and other investments. We believe many of the primary CLO equity IRRs available in the market today do not represent an attractive value at the moment, and we continue to focus our investment efforts on the secondary market. Recently, we've seen at least an 800 basis point pickup in yields from comparable secondary opportunities versus primary opportunities. And as a result, we've continued to opportunistically deploy our dry powder principally into the secondary market. As of June 30, our CLO equity portfolio's weighted average remaining reinvestment period stood at 2.7 years and that's a modest reduction from 3 years at the end of 2020. Despite the passage of 6 months through our proactive portfolio management, the warp on our CLO equity portfolio was just reduced by 4 months. We believe this continues to drive the portfolio's outperformance relative to the broader CLO equity market. We remain focused on finding opportunities to invest in CLO equity with generally longer remaining reinvestment period to enable our portfolio to navigate through volatility whenever it occurs. I would also like to take a moment to highlight Eagle Point Income Company, which trades under the symbol EIC. EIC invests principally in junior CLO debt. For the second quarter, EIC generated net investment income of $0.49 per share, once again, exceeding its regular common distribution for the quarter. And additionally, we recently raised EIC's monthly common distribution by 13% to $0.18 per share beginning in October. EIC has performed very well throughout the rising rate environment and remains very well positioned to continue generating strong net investment income. After today's call for ECC, we'll be hosting a call for EIC at 11:30 a.m. and invite you to join that call. You can find more information at the company's website, eaglepointincome.com. Overall, we remain very active in managing our portfolio and keep a close eye on the broader economy. After Ken's remarks, I'll take you through the current state of the corporate loan and CLO markets. I'll now turn the call over to Ken.

Thanks, Tom. For the second quarter of 2023, the company recorded net investment income, net of realized losses of approximately $3 million or $0.05 per share. This compares to NII and realized losses of $0.32 per share in the first quarter of 2023 and NII and realized gains of $0.43 per share for the quarter ending June 30, 2022. The second quarter of 2023 included the effect of a $0.22 per share of realized losses as a result of the write-down of amortized cost to fair value for certain late and live CLO equity investments. Please note, since the fair value of these investments had already been previously reflected in the company's NAV and is a reclass for accounting purposes between an unrealized and realized loss. There was no meaningful impact to NAV as a result of the write-down. Excluding the write-down, our second quarter NII less realized losses would have been $0.27 per share. For the second quarter, when unrealized portfolio appreciation is included, the company recorded GAAP net income of approximately $6.5 million or $0.11 per share. This compares to GAAP net income of $0.35 per share in the first quarter of 2023 and a GAAP net loss of $2.35 per share in the second quarter of 2022. The company's second quarter GAAP net income was comprised of total investment income of $31.7 million and net unrealized appreciation on certain liabilities held at fair value of $4.7 million, offset by total net unrealized appreciation on investments of $1.3 million realized losses of $16.1 million, total expenses of $12 million and distributions on the Series D preferred stock of $0.5 million. Additionally, for the second quarter, the company recorded an other comprehensive loss of $6.9 million representing the change in fair value on the company's financial liabilities attributable to instrument specific credit risk. The company's asset coverage ratios at June 30 for preferred stock and debt calculated pursuant to Investment Company Act requirements were 307% and 455%, respectively. These measures are comfortably above the statutory requirements of 200% and 300%. Our debt and preferred securities outstanding at quarter end totaled approximately 33% of the company's total assets less current liabilities. This is within our target range of generally operating the company with leverage between 25% to 35% of total assets under normal market conditions. Moving on to our portfolio activity in the third quarter through July 31, the company received recurring cash flows on its investment portfolio of $48.1 million. Note that some of our investments are expected to make payments later in the quarter. As of July 31, we had $84 million of cash available for investment. Management's estimate of the range of the company's NAV per share as of July 31 was $9.08 to $9.18, reflecting a 4.7% increase from June 30. During the second quarter, we paid 3 monthly common distributions of $0.14 per share and 3 monthly variable supplemental common distributions of $0.02 per share for aggregate monthly common distributions of $0.16 per share. Additionally, we have declared aggregate common monthly distributions of $0.16 per share for the remainder of 2023. I will now hand the call back over to Tom.

Great. Thank you, Ken. I'll now provide an update on the loan and CLO markets. The Credit Suisse Leveraged Loan Index generated a total return of 3.12% during the second quarter and 6.33% for the entire first half, as loans performed quite well. The index has continued its positive momentum through July and is on pace to have its best full year return since the financial crisis. The asset class continues to show its resilience to market volatility and ability to generate strong returns in multiple macroeconomic environments. During the second quarter, we saw about 15 leveraged loans actually default. And as a result, at quarter end, the trailing 12-month default rate stood at about 1.71%, which is up from the prior quarter, but still well below long-term historic averages. Most bank research desks have modestly raised their expectation for the default rate to end up between 3% and 4% by the end of 2023. Despite the increase in defaults during the second quarter, about 4% of leveraged loans or roughly 16% annualized repaid at par, which is comparable with the first quarter. This provides our CLOs with valuable par dollars to reinvest in today's discounted loan market and to partially offset losses from defaults. With a significant share of high-quality issuers continuing to trade at discounted prices for their loans, CLO collateral managers remain well positioned to improve underlying loan portfolios through relative value credit selection in the secondary loan market. Given ongoing market conditions, the percentage of loans trading over par continues to be minimal. And with the Credit Suisse leveraged loan index price at around 93.5% as of June 30. As a result, repricing activity in the loan market remains quite subdued. We continue to observe sizable refinancing activity as loan issuers tackle their 2024 and 2025 maturities in an effort to further push out their maturity wall. As part of this, they're continuing to offer lenders like our CLOs, a higher spread and OID on newly issued refinance loans. As a result, this provides our portfolio with numerous opportunities to build par and increase our weighted average spread, which in turn increases the excess spread we receive on our CLO equity portfolio. On a look-through basis, the weighted average spread of our CLO's underlying loan portfolios was unchanged from the prior quarter at 3.67%. This measure of our portfolio has increased 9 basis points in the last 15 months. CCC concentrations within our CLOs stood at 6.3% as of quarter end and the percentage of loans trading below 80 within our CLOs is about 6%. Our portfolio's weighted average junior OC cushion was 4.53% at quarter end, which gives us room to withstand downgrades and losses. And remains well above the market average OC cushion of about 4.2%. This is by design. In our -- in the CLO market, we saw about $22 billion of new CLO issuance in the second quarter of 2023 and $56 billion for the first half. And this is on pace to eclipse the $100 billion mark once again. We believe a significant majority of this volume, however, was backed by captive CLO equity funds, which are generally less return sensitive than investors like Eagle Point. Reset and refinancing activity in the CLO market has picked up slightly. And while the market gives the in-the-money nature of our CLOs financing some credit, frankly, we believe the market doesn't give it full credit. And this represents embedded hidden value in our portfolio. We believe the weighted average AAA spread in our portfolio of the CLOs that we have equity in of 123 basis points is about 72 basis points in the money today. As we have consistently noted, it's an environment of loan price volatility, where we believe CLO structures and CLO equity in particular, are set up well to buy loans at discounts to par with a very stable financing structure and using par paydowns from other loans and outperform the broader corporate debt markets over the medium term as they have done multiple times in the past. To sum up, we generated net investment income in the quarter of $0.32 per weighted average common share. We saw a significant increase in cash flows in the second quarter and we expect cash flows to be robust in future quarters. We remained active in the quarter in terms of sourcing and deploying capital investments with attractive yields, principally in the secondary market. We continued our existing regular monthly common distributions and variable supplemental distribution through the end of the year. We further strengthened our liquidity position during the quarter generating $0.12 per share of NAV accretion through our ATM program and have ample cash on our balance sheet as of July to deploy into new attractive investments. We continue to maintain 100% fixed rate financing. We have no maturities prior to April of 2028. We have no secured debt or repo financing whatsoever. This gives us very stable financing and protection from any further increase in interest rates. We believe the company's investment portfolio continues to be in strong shape given its weighted average remaining reinvestment period, strong OC cushion and consistent recurring cash flows. We remain pleased to return extra cash to our investors in the form of special or variable supplemental distributions. And we'll remain opportunistic and proactive as we manage our investment portfolio with a long-term mindset. We thank you for your time and interest in Eagle Point Credit Company. Ken and I will now open the call to your questions.

[Operator Instructions]. Our first question comes from Paul Johnson with KBW.

Yes. Good morning. I hope you can hear me okay. As far as this quarter goes on just the marks for the portfolio, were there any onetime items, I guess, that drove the realized losses in this quarter? Or is that just kind of a result of paid off, CLO equity positions that you guys have?

Do you want to take that, Ken?

Sure. So, are you referring to the $0.22 or the overall portfolio?

Yes. Correct. I mean I'm just looking at the $16.1 million or so, the realized loss this quarter.

Yes. Sure. So that -- the $0.22 is an accounting reclassification where we are walking down amortized cost to fair value for a handful of late-in-life CLOs. So it's a reclassification from unrealized loss since it was already reflected in our fair value in previous quarters, and it's being reclassed to realize loss. So we are basically pushing out loss through earnings, moving it from below the line to above the line. So that is an accounting classification with no meaningful impact to NAV. It's just a reclassification that we have to do for temporary impairment accounting. When we have CLOs that are late in life without any sort of meaningful chance of recovery into profitable or cash flowing investments.

We had already marked these down as the takeaway. This is simply a balance sheet geography.

Got you.

Or [indiscernible] balance sheet geography.

Got you. I understand it can be complicated, especially late in the life of these things. I mean, then just in general, I mean, what was kind of the driver of the marks this quarter? I mean, I know loan prices were up. It sounds like the portfolio is turning pretty well. You guys explained kind of the reclassification here. But were there any other kind of items that you could see just conserving from kind of the top-down that drove the decline now in the quarter.

No significant portfolio specific items, if anything, yields widened during the second quarter. So while cash flows increased, the market yield, the market demand or the yield demanded in the market for CLO equity unambiguously widened during the second quarter. And so that has the reflect of reducing the secondary sale value of our portfolio. So we've been always very, very proactive and accurately marking our portfolio. Sometimes it's up, sometimes it's down on a marked basis, what you'll see if you look back going back quarters to 2014, regardless of the markets going up or down, the cash flow has historically continued unabated. What we saw, though, during the second quarter was simply a yield widening market-wide, nothing specific to our portfolio. That trend has certainly reversed itself in the third quarter and frankly, all -- and all the capital deployed during the second quarter into CLO equity has done quite well in July, and NAV was up between 4% and 5% in the month of July based on our estimates, and that's net of the distribution, the regular and supplemental distributions paid to the shareholders during the month.

Appreciate that. And then I guess, you mentioned on the call, a big pickup and yield differential between what you're seeing in the secondary markets versus the primary I'm just curious why there is, I guess, such a big difference in secondary opportunities today? And are you guys seeing enough of those to sort of, build a pipeline? Or do you -- would you rather see, recovery in the primary issue market?

Yes. So the big driver right now holding back or why is the primary arbitrage not so good or out of whack with a secondary market opportunity for CLO equity right now for a number of reasons, the CLO AAA market is out of sync with the loan market to some degree. And we have to buy loans on the same proverbially the same day as you issue CLO AAA debt. And that right now is a little bit out of balance. While the risk retention rules were repealed in the United States or overturned back in 2018, a small number of collateral managers still have access to captive capital. And in our belief, based on all the CLOs issued in the first half, new issue CLOs first half of 2023, the vast majority were taken and placed into these captive funds. We used the, , less return sensitive. We're trying to be polite. I'll admit when we say that. But there's a handful of issuers that have access to that capital. The math is unambiguously -- I can't imagine there's any controversy amongst market experts that is such a gap between primary and secondary. These things have occurred from time to time in the past sometimes secondary is cheaper, sometimes primary cheaper. They don't usually -- they're not usually this pronounced and they don't usually -- historically, they've not been persistent. They do continue for a period of time. I think we're probably turning the corner and that differential is reducing, but it's still going to be there for a little while. There's not enough buyers of AAA CLO paper in the world right now for certainly large ticket primary new purchases. And to the extent there are not new issued AAA spreads will stay wide. In many cases, another example is secondary CLO AAAs trade type to primary CLO AAAs. And why is that the CLO AAA market for new issue is often dominated by investors who can take $100 million, $200 million, $300 million chunks of CLO AAA versus the secondary market might trade between $5 million and $50 million bite sizes. And just the dynamics of the market. There's not a deep enough bid in many cases, to get together a syndicated AAA across smaller investors. So those markets kind of stuck dealing with a smaller number right now of large ticket buyers, but a few of them are not actively buying. So it's just -- there's more supply than demand, so the AAA stay wide. These situations have occurred from time to time. But again, in my experience, they haven't persisted for extended periods of time. This one is amongst the longer periods, frankly. That said, there's somewhere between $800 billion plus of U.S. CLOs outstanding. A big chunk of that is in the form of CLO equity. We have no shortage of investment opportunities in the secondary market. We remain very selective in the things we go after, but there's no shortage of opportunities in the secondary market as well.

That makes sense. That's very interesting. And last question, kind of along the same point or sort of a segue, I guess, I'd say, but direct lending CLOs are something that we've heard about relatively recently. I'm not sure if these are things that you can potentially invest in or not. I'm just curious if there's any sort of trend that you've observed at all in terms of direct lending, CLO issuance, just obviously, with a lower kind of leveraged loan volume that's out there. That's the trend that you've noticed? Any sort of commentary you would have there, if any, would be interesting here?

Sure. So a long time ago, these were called middle-market CLOs and then a little bit of direct lending CLOs and I think the phrase of the day in the market, they're now called even private credit CLOs. And these are CLOs that look and feel a lot like the typical CLOs that Eagle Point Credit Company invest in, except they're typically to non-spot, non-bank-led deals that are led to private credit arranged deals. In many cases, the private credit world is getting bigger and bigger. And in many cases, we'll do $500 million to $1 billion loans. These are small little $50 million, $100 million loan. They're still quite sizable. But now in many cases, they're being arranged by private credit money managers versus investment banks. Over time, private credit has really done quite well from the fault and recovery perspective. So when we look back historically, you can see, if you look at the default rate and certainly any private credit manager will have some data or nearly certainly, we'll have some data that shows how private credit has outperformed broadly syndicated credit. And I think that's directionally accurate. The one thing that's missing in our opinion is, in the private credit market, there's not an ability or mindset of the collateral managers to reinvest cheap when defaults go up. So the classic example is through the financial crisis, where, according to many measures, middle market credit, as it was then called now private credit, had fewer defaults and higher recoveries than syndicated loans. Syndicated CLOs outperformed middle-market CLOs, not because they had better credit but because the collateral managers were able to reinvest at $0.60, $0.70 and $0.80 on the dollar. Middle market managers were lending at L+800 instead of L+600. 200 basis points is nice, 30 basis points of discount -- 30 points of discount is obviously much better. So one of the things we've really grappled with is while actually the arbitrage on private credit CLOs looks better than many syndicated CLOs today in terms of the potential equity IRR their long-term ability to actually outperform in times of market distress is less certain. We have a small number of what would be called middle market or private credit CLOs in the portfolio. There's one or two called Lake Shore in the portfolio, which would fall into that category. And there, we believe that collateral manager has a particular ability to pivot into the syndicated market should prices fall in the syndicated market significantly. So it's something we're open to. We certainly have the ability and wherewithal to invest in. It's something we keep a close eye on and keep close dialogues with the issuers. Many of the issuers in that space. We're not 100% convinced many of them have the DNA to really make CLOs perform in times of deep cycle in distress versus many of the syndicated managers that we partner with. And one of the examples we point out, if you look at ECC's NAV from let's say, December 31, 2019, roll it forward a year or two, while obviously, obviously, it went down in Q1 of 2020, our NAV ended up increasing materially somewhere between 25% and 30% if memory serves, although please check the numbers in the quarters measured starting from December 2019. So pre-COVID going through. And that's because of both our proactive management within our portfolio and reinvesting within our fund. And then similarly, many of the CLO collateral managers navigating through the distress and building par at deeply discounted prices in the syndicated market. So the data has kind of proven itself out time and time again, although we are becoming more intrigued by some private credit CLOs. We do look at the market, but it's an important thing for us to make sure the collateral managers involved in any CLO we're investing with have the wherewithal and DNA to know how to pounce in the secondary market for loans when it's really, really cheap and that's usually the best time to be buying is when everyone else is selling. And that's not really an option in the private credit market per se.

Our next question comes from Matt Howlett with B Riley Securities.

I'm just intrigued by the improvement in the excess cash flow, the $0.90 per share. And obviously, you mentioned the difference between a month and 3 months so far is compressed, and that's helped you obviously, you give the number in July. It's off to a good start. At some point, I mean, how much can that -- how much longer can I just run way above the dividend and GAAP NII is there -- I know you don't give a tax from them, but is it simple to be all kind of equate or do one have to go up, when does that go -- just walk through how much of this excess cash flow can continue.

Sure. So the most popular thing, I think ever downloaded from our website is a PowerPoint thing we posted in maybe August of 2015 which tries to lay out GAAP tax and cash on a representative CLO equity investment. And if you haven't downloaded it, we'd encourage you to, if you have to click way back in the history of our website, but it's up there. Maybe someday will update the format, but the numbers are unchanged. GAAP cash and GAAP profit, tax profit and cash profit, minus some odd nondeductible things for tax over time, will equate in the life cycle of nearly any investment, including CLO equity. In our experience, they never seem to equate however, in any given year, which caused those mismatches there's been years we've had to pay large special distribution. There's been years where many of our distributions have been treated as a return of capital and not taxed from a tax perspective and everywhere in between. So there's sadly the -- I would struggle to see a scenario where they're ever back in line where they're in alignment in any given year, and that's been my experience over 20 years. And the flip side to your question, how much -- how in this persists. And what I would say is it's less of an increase in cash flow, although, obviously, it's a handsome increase and more of a return to normalization in theory. And really, the reality is until recently, when many people modeled the CLO, they just assume the same 3-month LIBOR for the assets and the liabilities. This is back before SOFR let me get to that in a minute. But the reality is loans at their rate now at SOFR, 250 days of the year, CLOs set their SOFR 4 days of the year. So there's always going to be a mismatch between the base rate on the asset side and the base rate on the liability side of a CLO. That's just a given, it's probably not given enough credit in the market. Then overlay the complexities that loans can pay off of 1 month, 3 months, 6 months SOFR they can even pay off a prime and sometimes there's other rates. So there's all kinds of rate stuff on the asset side. Our liabilities are set 3 months SOFR, maybe single quarter, once a quarter. The gap between 1-month and 3-month LIBOR and SOFR got really significant for a while. This has happened 2 times of note in -- to my memory, once was in early 2017, when all the tax rules were changing, maybe as 2018 around bringing offshore corporate money back into the United States and that kind of mucked up some money markets for a while. And then again, in a rapidly rising rate environment, as the short end of the curve got steep over the last 18 months. In many cases, we saw corporate CFOs moving from 3-month rates to 1 month rate. And the reality, and you have to then make a loan payment every single month, if you move to 1 month rate. That has a lot of pain to do that. You have to send a certificate and all this other work, which if you're going to save 3 or 5 basis points, it's probably not worth the company's time. But if you're going to say 40 basis points, it's worth your time. So what we saw is when the short end of the curve got steeper, many companies were going on electing 1 month LIBOR or so far. That's now undoing it at the short end of the curve flattens, and we're seeing more and more -- we're seeing even if they are paying 1 month the differential is much lower. So it's more a return to normal is my expectation that it is a short-term spike. A and then B, we're mindful that CLO equity is a decaying investment. And that if you invest $100 at the beginning or whatever you invest at the beginning, and our expectation, it's very unlikely your terminal payment from that CLO will also be that same $100 you've invested. And so we talked about generating very strong cash on cash approximately 25% kind of cash on value has been distributed on our CLO equity portfolio, some years better, some years worse over the long term. Now a portion of that cash flow is a return of capital. So when I look at our cash flow of $0.90 being $0.20-odd above distributions and expenses, that actually makes sense and that 20-odd sense of excess really should be thought of generically as a return of capital into our system or if a CLO forgetting about tax or GAAP just as like an amortizing loan for CLO equity that would be like the principal payment on your loan. You pay out, use the income portion to pay out expenses and distribution and then ideally seeking to reinvest repayment portion into new CLOs. So hopefully, we're back to more of a long-term normal state in the short term, short end of the curve. Which I think is kind of proving itself out and that then manifests itself quite nicely on a levered basis within CLOs. I hope to see the excess of cash flow -- cash flow will be comfortably in excess of our distributions and expenses on an ongoing basis.

Right. So in summary to the NII of $0.32, what you're saying, it sounds like that's tremendously understated with conservative sort of assumptions in that relative to the cash or just I mean that's not the way to kind of look at it, given that you said some of that return on capital of $0.20.

Not of the NII, of the total $0.90.

Right, of the $0.90. Yes.

Yes, exactly. Yes, yes. Obviously, we like the cash to be as high as possible. That's always the answer. But one of the things to kind of just get a general sense of is what is cash off the portfolio versus the expenses, a lot of which is preferred and debt coupons and distribution and then other expenses. And what we pay out in distributions to the common shares. I'd like to see it -- I'd always like to see that difference be as high as possible, but that there is a comfortable difference. There were 1 or 2 quarters in our history where they were kind of neck and neck, but by and large, if you look and if you -- we provide the historic cash flows, you can go back quarter-to-quarter. You can see, in general, it's been a quite healthy spread between cash received and expenses and actual recorded income. And that's effectively a return of capital on our CLO payments.

Got you. And then last question. The leverage obviously is right in the range that you guys -- that you target. But obviously, NAV as got a big bump up here in July. You've raised some money to the ATM. What's the appetite to the reopening in one of the preferred or maybe bond series I think they're trading around 7% yield. To call a yield to maturity or to even do a new issue. We're seeing 5-year debt get priced in the 7.5% range recently. What's the appetite to with the improvement in leverage in July to issue some more preferred or baby bonds?

Yes. Well, so we've, for a long time, targeted running the company between 25% and 35% total leverage, including unsecured debt and preferred to common equity. We're obviously in that band right now. We have done outside of the band once or twice. That band served us very, very well going into COVID. we've never reached -- we were never offside on the ACR, which is a very -- obviously, a very important measure of how we manage the company. And it's much more of an art than a science as to where -- why the 30% to 40% or 20% to 30%, you got to make a judgmental call, and we did a long time ago, and that's obviously served the company very well is we never had to interrupt distributions due to an ACR issue. First off, Unfortunately, I don't like -- don't like to disagree too much on calls. I will say, I think our -- the yields to maturity on our debt and preferred based on the last time we ran it was sadly a little lighter than 7, probably in the mid-8s last I look actually. So that's -- we issued 7.75 piece of paper off of EIC, not too long ago. And that did really well, and the deal was in the full shoe was exercised. So we're familiar with that mid- to high 7s kind of market. We kind of balance that with -- we'd like to keep whatever possible within the targeted leverage band. I'm also focused on our maturities. And right now, while the 5-year markets open, we have asked 1 or 2 bankers. What about a 7 or 10 year, and I don't think they've called us back yet. So one of the things, if we were to add another 5-year -- that gives us another 2028 maturity. So we think about that. Sadly, there are some rules around the OID rules for ATM issuance. So while the preferreds and I think even the baby bonds may be ATM eligible, I think it's really just the D, which is a perpetual that we can issue up the ATM. And we have actually done a tiny bit of that, but not a material amount sadly that market is not too deep. So we keep our eyes open for it. We are in touch with the bankers, I'd love to see a 7- or 10-year market reopen. I think you might see us be move more aggressively if there were attractive rates with a bit more tenor. That said, we may issue a 5-year as well at some point, but I'm mindful of managing our maturity wall.

Well, it certainly could be accretive if you're putting CLO equity on it and purchase yields around 20%.

Yes. The math is easy, honestly, the only -- the thing that -- that's a no-brainer by CLO BBs and be very accretive. The thing that gnaws at me is what if we -- it's obviously not a prediction, but what if we had another COVID in late 2017 or early 2018? And when ECC went into COVID, I don't remember what our shortest maturity was, I want to guess it was like 2026. We have please check the notes to be -- the tapes to be definitive. But we had no unsecured -- we had no secured debt and we had no maturities for multiple years. If I went into 2020 with a maturity in late '21 or even mid-'21, I would [indiscernible] now let's see what -- obviously, it all worked out, but we didn't know when the market was. So just as companies are mindful of their maturity wall, I like sitting where I sit, knowing the nearest deadline. We've got to deal with is 2028. And I don't want to [indiscernible] at stuff I think the ECCs as to 2031 and then obviously, the perpetuals are great. But I'm very mindful of keeping ECCs maturity wall as far out as possible.

[Operator Instructions]. At this time, there are no further questions. I would like -- I would now like to turn the call back over to Thomas Majewski for closing comments.

Great. Thank you very much for your time and interest in Eagle Point Credit Company. Ken and I will be available later today if folks have any questions you'd like to ask. And we look forward to speaking with you again next quarter. Thank you very much.