ECC - NYSE

The conference call will start momentarily. We thank you for your patience. Greetings, and welcome to Eagle Point Credit Company Inc. First Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. A reminder, this conference is being recorded. I would now like to turn the conference over to your host, Darren Dowerty. Thank you. You may begin.

Thank you, operator, and good morning. Welcome to Eagle Point Credit Company's earnings conference call for the first quarter of 2025. Speaking on the call today are Thomas Majewski, Chief Executive Officer, and Ken Onorio, Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that can involve risks and uncertainties that may cause the company's actual results to differ materially from such projections. 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 or projection of financial information made during this call is based on the 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. Earlier today, we filed our first quarter 2025 financial statements and investor presentation with the Securities and Exchange Commission. These are also available in the Investor Relations section of the company website eaglepointcreditcompany.com. A replay of this call will also be made available later today. Tom?

Thank you, Darren. Good morning, everyone, and thank you for joining us on the call today. The company started off 2025 with a strong part of the first quarter. We priced three new issue majority CLO equity investments. We reset nine positions in our portfolio, lengthening the reinvestment periods to five years, and we refinanced seven CLOs. The second part of the quarter saw a downturn in markets globally driven in large part from the uncertainty caused by the anticipation of tariff announcements. The prices of nearly all broadly syndicated loans and CLO securities fell in March. The company's portfolio is in an advantageous position and is designed to thrive in periods of volatility. Indeed, with a weighted average remaining reinvestment period, or WARP, of 3.5 years, our CLOs are well positioned to capitalize on this volatility. Our CLO equity portfolio's WARP is more than 1.1 years above the market average, and as a result of our team's efforts to reset many of our CLOs in our portfolio over the last year plus. Indeed, during 2024 and the first quarter of 2025, 45 CLOs in our portfolio were reset. The company generated net investment income and realized capital gains of $0.33 per share for the first quarter of 2025, consisting of $0.28 of net investment income and $0.05 of realized capital gains. The realized gains were principally driven by trading activity selling appreciated securities as part of a strategy to rotate from CLO debt into CLO equity.

Our NAV as of March 31st was $7.23 per share. This is a 13.7% decrease from $8.38 per share at year-end. The decline was driven predominantly by the drop in prices of nearly all CLO securities in the market, including those in our portfolio. That drawdown did continue into April as well. While our NAV may decline in environments like these, it is important to remember that the prices of CLO equity securities will generally move more than middle market loans held by many BDCs. We view the drawdown in our portfolio as a short-term market price fluctuation and not indicative of concerns specific to our portfolio. In fact, in our view, the market price of CLO equity significantly undervalues the reinvestment optionality within CLOs during periods like these. We believe the opportunities to purchase discounted loans today within our CLOs will benefit the company in the medium term just as it did in 2020 and in other periods of volatility. We substantially completed our planned portfolio rotation from CLO debt into CLO equity and other investments prior to the start of this most recent bout of volatility. During the first quarter, sales and paydowns of CLO debt in our portfolio totaled $48.5 million, and the company generated $0.05 per share of realized gains. The new investments we've deployed these proceeds into are expected to generate more net investment income for the company in the coming quarters. Recurring cash flow from our portfolio remains strong in the first quarter. We collected $79.9 million of recurring cash flows or $0.69 per share. This exceeded our quarterly aggregate common distributions and total. This compares to $82 million or $0.74 per share for the fourth quarter of 2024. The slightly lower recurring cash flows were principally driven by loan spread compression. Some fluctuations in cash flow are expected from quarter to quarter, due to new investments, in addition to semiannual paying bond positions in some of our CLO portfolios. Approximately 18% of our CLO equity portfolio based on fair value are new investments or recently reset CLOs and are scheduled to make their initial payments in subsequent quarters. During the first quarter, we deployed over $190 million into new investments. New CLO equity purchases during the first quarter had a weighted average effective yield of 18.9%. During April, we received recurring cash flows from our portfolio totaling approximately $75.5 million. We expect additional collections in May and June. A number of the CLOs in our portfolio are scheduled to make their first payments until the third quarter, which should bolster cash flows in future periods. For the first quarter, we utilized our at-the-market program to issue $66 million of common stock at a premium to NAV. This resulted in NAV accretion for shareholders of $0.02 per share. We also issued approximately $22 million of our 7% Series A and B convertible perpetual preferred stock as part of our continuous public offering. We believe the 7% distribution rate on this perpetual preferred stock represents a very attractive cost of capital for the company.

This continuous offering provides the company with a material advantage over our competitors, and we are unaware of any other publicly traded entity focused principally on investing in CLO equity. Having such a program. During the first quarter, we paid $0.42 per share of cash distributions to our common shareholders across three monthly distributions of $0.14 per share. Earlier today, we declared common regular monthly distributions for the third quarter of 2025 also of $0.14 per share. I'd also like to take a moment to highlight Eagle Point Income Company, which also trades under the New York Stock Exchange. It trades under symbol EIC. EIC primarily invests in junior CLO debt securities. We'll be hosting an investor call for EIC today at 11:30 AM. And we invite you to join us and visit eaglepointincome.com to learn more. After Ken's remarks, I'll take you through the current state of the loan and CLO market. I'll now turn the call over to Ken.

Thank you, Tom. Thanks, everyone, for joining our call today. For the first quarter of 2025, the company recorded NII and realized gains of $38 million or $0.33 per share. This compares to NII less net realized losses of $0.12 per share in the fourth quarter of 2024 and NII and net realized gains of $0.29 per share in the first quarter of 2024. The company's first quarter GAAP net loss was $97.5 million. This was comprised of total investment income of $52.3 million and realized capital gains of $5.3 million offset by total net unrealized depreciation on investments of $122.3 million and net unrealized appreciation on certain liabilities held at fair value of $9.6 million, financing costs and operating expenses of $20 million, and distributions and amortization of offering cost on temporary equity of $3.2 million. As a reminder, temporary equity refers to our multiple series of perpetual preferred stock. Additionally, the company recorded other comprehensive income of $7.1 million for the first quarter. The company's asset coverage ratios on March 31st for preferred stock and debt calculated pursuant to investment company act requirements were 244% and 492% respectively. Our debt and preferred securities outstanding as of March 31st totaled approximately 41% of the company's total assets. This is above our target leverage range of 27.5% to 37.5% at which we expect to operate the company under normal market conditions, largely due to the recent drop in the value of our portfolio. Consistent with our long-range financing strategy, all of our financing remains fixed rate and we have no maturities prior to April 2028. In addition, a significant proportion of our preferred stock financing is perpetual with no set maturity date. I will now hand the call back over to Tom for his market insights and updates.

Let me share some updates on what we see in the loan and CLO markets and I'll share a bit more about our portfolio. Starting off with loan performance, the S&P UBS Leveraged Loan Index generated a total return of 0.6% during the first quarter. After two positive months, during March, the index experienced its first negative monthly return since 2023. The decline in the loan index reversed and as of May 23rd, the index is now up 1.8% for the year. During the first quarter, there were only three leveraged loans that defaulted. And as of March 31st, the trailing twelve-month default rate stood at 82 basis points, which is well below the long-term average of 2.6% and certainly below most dealer forecasts. Our portfolio's look-through default exposure as of March 31st stood at 40 basis points. Bank research desks have revised their 2025 forecast for default rates upward, with many estimates now between 3% and 5% for the year. We continue to believe this represents an overly pessimistic outlook, especially in light of how many bank estimates significantly overstated corporate default risk in both 2023 and 2024. During the first quarter, approximately 5% of leveraged loans or roughly 20% annualized prepaid at par. Many loan issuers have been proactively tackling their near-term maturities and the maturity wall of the market continues to get pushed out further and further. As part of many of these repayments, however, borrowers issue new loans at tighter spreads. This has been driving the spread compression that we've talked about for the past few quarters. Looking to our portfolio, the weighted average spread of our CLO's underlying loan portfolios stood at 3.36% as of March 31st. This compares unfavorably to 3.49% as of year-end and 3.74% as of March 31st, 2024. Spread compression has been a meaningful headwind to the CLO equity market over the past year. While a significant majority of the loan market was trading at a premium to par on January 31st, 2025, thankfully, as of May 23rd, less than 20% of the loan market is now trading at a premium. While it will likely reappear at some point in the future, for now, spread compression is largely behind us. Indeed, we are starting to see increases in some of the spreads of our CLO's loan portfolios. The weighted average AAA spread within our CLO equity portfolio tightened by about three basis points during the quarter to 137 basis points. This was primarily driven by our reset and refinancing activity. While CLO debt spreads in the market have widened over the past sixty days, still over 36% of the CLOs in our equity portfolio have AAA spreads wider than 140 over, with some as wide as 200 basis points over so far. This means that even in the current market, some of our portfolio still has the potential for reset and refinancing upside. We are focusing on these CLOs and expect to complete multiple resets and refinancings in the coming weeks and months. In terms of new CLO issuance, we saw $49 billion issued during the first quarter of 2025. Combined with the $64 billion of reset activity and $41 billion of refinancing activity, the total issuance volume reached $153 billion during the quarter. Significantly above the $88 billion from the first quarter of 2024. This activity was concentrated at the beginning of the quarter as market volatility led to wider CLO AAA spreads and a subsequent slowdown in the latter part of the quarter. We continue to deploy significant amounts of capital throughout the quarter, placing a greater emphasis on secondary market opportunities given the dislocation during the latter part of the quarter. CCC concentrations within our CLO equity portfolio stood at 4.9% as of quarter-end. This compares favorably to the broader market average of 6.2%. Similarly, the percentage of loans trading below 80 within our CLOs stood at 2.9%. This is also more favorable than the market average of 4.6%. Further, our CLO equity's weighted average junior OC cushion stood at 4.6% at quarter-end. This is also significantly better than the market average of 3.7%. By all three of these measures, it's very clear that our portfolio is a much higher quality portfolio than the broader market. This doesn't happen by accident. It's a direct result of our advisor's time-tested proactive investment process. Looking at the company's capital structure, we continue to maintain 100% fixed rate financing, with no maturities prior to 2028. This provides us protection from any future rise in interest rates and locks us into an attractive cost of capital for years to come. Before wrapping up, I'd also like to touch on our current market outlook. Defaults remain low, and we're not seeing signs of fundamental weaknesses in many companies. Indeed, revenue and EBITDA of many borrowers continues to grow. The spread compression that we observed this past year plus has largely abated, and we're seeing CLO refinancing and reset activity pick up again in May as markets stabilized. We've continued selectively with resets, and this should lead to lower CLO financing costs within our portfolio of CLO equity. Macro factors, particularly global tariff policy, will remain in focus for some time. While macro uncertainty nearly always brings price volatility to the CLO market, our view is that in credit, the rumor is worse than the news. And that loan prices will move more than the actual default rates in the market. Every loan that doesn't default pays off at par. And that's how today's discounted reinvestment opportunities ultimately translate into good returns for ECC in the medium term. In closing, we continue to focus on enhancing our net investment income and cash flow. Our proactive investment approach, particularly our focus over the past year on resetting and refinancing CLOs, as well as rotating from CLO debt to CLO equity, has been effective. Indeed, our resulting CLO equity portfolio has a significantly better WARP and weighted average OC cushion than the broader market. We believe the company is well positioned for continued strong performance going forward. 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?

Thank you. At this time, we'll be conducting a question and answer session. You may press star two if you'd like to remove your question from the queue. Before pressing the star keys. One moment please while we poll for questions. Our first question comes from Mickey Schleien with Ladenburg Thalmann. Please proceed with your question.

Hey, good morning, everyone. Tom, you mentioned that the dislocation in the markets feels temporary. But CLO NAVs have been weak now for several quarters, which is obviously disheartening. Meanwhile, I see that your estimated yields at fair value are almost 20% and they're even higher in terms of cash yields. So other than some clarity on the administration's tariff policy, what do you think it's gonna take for the market to recognize what's seems to be relatively stable background for CLO cash flows?

I don't know. Here's the short answer on that. The cash flows have been stable for CLO equity since I've been doing this for 25 years, give or take, 30, you know, 30 in total in the markets, 25 in CLOs largely. The cash just keeps coming. I mean, we saw this in COVID. You know, in the financial crisis, you know, half of CLOs missed a payment. Some missed two. Many did worse than that. The cash just keeps coming. I've looked over our track record. I think going back to 2015, and the average cash, you know, versus the value of the portfolios on an annualized basis, this is I think, firm-wide, not just ECC. Between 25% and 30%. The cash just keeps coming. So that's the first thing. So at least historically, the money keeps coming at the end of the day. That's what we're here to because we're here to generate. Now the prices of CLO securities move around more than I, in my opinion, the real fair value suggests, but marks are the marks, and this is the price of securities. You've seen other public CLO funds have similar mark to market trends and the first quarter. In April as well, which was another down month. Without opining on our specific portfolio, you know, feel credit markets are generally stronger in May and, you know, trending in the right direction. Obviously, the month's not over yet, so it's too soon to call what's gonna happen. In our portfolio. But I'll say, in general, the tide has turned. And if you look at, like, the JPMorgan double B index, the Chloe index just as a market indicator, you can see that's up a bunch from the lows in May. So we view situations like this as an opportunity on a two-pronged basis. First is we can buy stuff cheaper. To be candid, we can't buy enough. Volumes lighten in situations like this, but we have been able to buy some things. At cheaper prices. So we like that. And then within our CLOs, this is the time when they really can shine. And, like, if you will get the total return on our NAV from January 1, 2020, to January or December 31, 2021, so I get the change in NAV. The, you know, proverbially investing the day before COVID, you could see just how well it did. And that's a function of what I think the market underappreciates is the reinvestment optionality. Okay. Spread let's, you know and if we were to having this call on April 15th, and I'm kinda glad we weren't, you know, spread the gapped out a bunch. But loans were down. CLO equity was down. CLO debt was wider. Our CLOs have locked in financing for the next up to twelve years. At yesterday's spreads. I mean, we've got CLO, triple A spreads, as low as 115, maybe even lower in the book. And we can keep reinvesting. Within each CLO and making relative value trades. It's hard to do that in strong markets. The biggest thing that was a drawback, you know, with the benefit of hindsight over the last fifteen plus months, frankly, has been spread compression. Not defaults and things like that. People always ask about defaults. The challenge over the last fifteen months really ending, you know, proverbially April or March 1 was loan spreads tightening. And you can see a weighted average spread in our loan portfolio is down with 35, 40 bps Ken, something in that context. And we've done our part to lower the right side of our balance sheet, but we haven't done it as we've done more actions than probably anyone in terms of resets and refinancing. That said, we still gotta keep doing more. And the good news is we have an active pipeline of it because we still got a lot of stuff above triple A is wider than the market, including as wide as 200 over. We're still gonna be keeping resetting, lowering the right side of our balance sheet. Right now, essentially, no loan borrowers resetting or repricing their financing of anything. We're seeing collateral managers start to get spreads up in portfolios, which is good. Against that, while dealers talk about, you know, 3%, 4%, 5% default rates, you know, the show me the data. I mean, it's just not there. There are some loan modification exercises going on LMEs. Sometimes that creates winners and losers in a loan. And then, you know, in many cases, many of our CLOs have actually built par over the last year. Which is great, suggesting their net winners in LMEs. Not everyone, of course, but some and I think many are. But this is the vagary of the market. And I appreciate I made the direct comparison to BDC middle market loans. Loans were down a bunch. Middle market loans probably didn't move as much as the broader syndicated market. I'll leave it to others to decide what's right and wrong there. I appreciate that our NAV moves differently than others, you know, more than others, I guess, would be the way to put it. But what I hope you see and you can look back over years and years of our public data up markets, down markets, sky is sunny, sky is raining, the cash just keeps coming. And that's at the end of the day. What we're here to create. And keep doing.

Yeah. I agree, Tom. And, you know, thanks for your insight. It's always helpful. And, appreciate your time this morning.

Very good. Thanks so much. And if you have any follow-up questions on the numbers, feel free to give us a call later. Thank you, Mickey.

Our next question is from Randy Binner with B. Riley Securities. Please proceed with your question.

Oh, okay. Good morning. Thank you. I had a couple. Yeah. Good morning, Tom. I had a couple, but, yeah, I obviously appreciate the commentary and the solid result. The first is on the resets and refis, I initially, I thought that was, you know, like, nine resets and seven refis was a lot. But I think I heard in your commentary that it could kinda keep that pace for the next couple of quarters. So just wondering if we get a little more color there on if that level of activity is something we should kinda plan on in this, you know, given moving in the market and interest rates are what's driving that? And is it did I hear it right that it would stay at this level?

So I think we said nine resets that we focused principally. That was actually, I think, a late quarter for us. You know, kind of in, you know, latter part. You know, certainly March we were not particularly active. Yeah. Everyone's just kinda seeing what's going on in the world. So if I, you know, if I make a generic statement, you know, that nine feels like a two-month number, not a full quarter number. Okay. Got it. That said, you know, but and if you look back to our, you know, Q4 and Q3, you'd see much higher numbers frankly. That said, looking forward, we shared a number, what was it, in the thirties percent of our CLOs that have over 140. Yep. You know, we have it in the prepared remarks. It was thirty-something percent of our CLOs have triple A's over 140. You can see in our on our web on our presentation, you know, line by line, I'm on our website. The triple A spread on every single CLO where the equity ends, so you know exactly what we're talking about. We've got triple A spreads from 141 to 200. So we're gonna keep working on ripping those costs out as best we can. The market's a little slower now compared to the first quarter while it's back open. Yeah. Everyone, you know, it was a big bang. Everyone's still kinda behaving a little cautiously. But, yeah, I would certainly expect single-digit, maybe double-digit resets a quarter in current market conditions. Obviously, that can change very quickly. For the portfolio. One of the analogies I like to make when you look at the what's happened to us on the loan spread side, which has come down a ton, as I mentioned, we've got somewhere between 1,500 and 2,000 obligors underlying all our CLOs. Picture like a wall of sand, these little grains coming at you. There's so many so many so many. And we've got, you know, 150, give or take, CLOs we're kinda pushing boulders the other way. Ten times bigger than the sand coming out of. And it just takes unfortunately, long you know, we could get 40% of our loans, 60% of our loans to reprice in face very quickly. We can't reset all of our CLOs that quickly. What that does get us is kinda forced vintage diversification. And on February 15th, I didn't know if spreads would be wider or tighter on May 28th. I couldn't reset everything I wanted to on February 28th just because the market's not big enough. Now if spreads kept tightening, great, I would've said, oh, great. We'll refinance tighter today. It turns out they widened. But by virtue of the diversity of our portfolio, we still have things that we can do to keep creating value on the right side of our balance sheet. Going back to the earlier questioner's question, the biggest thing though is you just look at the trends and cash flows on the portfolio. These things just keep generating gobs and gobs of cash. These changes in prices are frustrating. My skin is perhaps a little thicker to it having done it for so long. But it's as we said very clearly, it's with we believe this is a short-term mark to market swing. Not any sort of fundamental issue with our portfolio, and the proof is in the pudding. With the cash that keeps coming off of it.

Alright. That's helpful. And then the other one I had was just kind of higher level, and it goes to the I think it was covered in your prepared remarks and the press release, but the you said you deployed nearly $200 million of new investments, but then the specific number of net capital into the CLO structures was $95 million. And I just not I'm not reconciling that number based on what we put into our model. Can you just clarify that? Like, what's the difference between the $95 million and the $200 million?

Sure. So the difference between the $200 million and the $95 million, it's gross versus net. As you recall, we have done a significant rotation program of CLO debt into CLO equity. So those sales would bring down the overall number to a net basis. As well as any other conversions of loan accumulation facilities or other assets that were sold off the balance sheet and redeployed into new investments.

Okay. Got it. Thank you. Appreciate it.

No problem. Our next question comes from Erik

Thanks. Good morning, Tom and Ken. Maybe I'll start just with a follow-up to that last question. On deployments. In the press release, you indicate since April 30th, deployed $4.2 million of net capital. Which seems like a relatively slower pace compared to the $95 million that was just referenced in the first quarter, and I realized April was a fairly volatile month in the market. So curious if that slower pace of deployment grows into the net numbers, so maybe the gross number was larger. But just curious kind of what you saw in April that resulted in the slower net deployment and if it was market related, has that maybe not resolved yet, but lessened so that deployment in May and June will potentially be at a higher level.

Yeah. So it's frustrating. So the marks are down. We've got cash. Show me the trades, unfortunately. What happens in the CLO market and this happened during COVID, this happened during the regional bank crisis. This happened or turmoil, pardon me, this happened during the energy, you know, blip in 2015. Prices drop and volume grinds to a halt in the CLO equity market. Where it grinds comes very you know, slows significantly, let me say. Let me correct my statement. That kinda stinks. So while we have ample cash and can be on the offense, we were you know, working in a market where sellers hadn't everyone agrees what the where they buy something, sellers hadn't agreed to sell there yet. So we got a little bit in the ground, kind of four to six weeks after a big bang event. That big bang event measured on April 2nd, 2025, this year for us. Start to see things open up again. And literally today, I'm watching the Bloomberg. So, you know, lots of CLO equity actually trading today. I think we'll be bidding on a bunch of stuff that's up for auction today. While the prices in general are up from the April lows, there's still I'd call them pretty attractive levels. Unfortunately, there's a lag. Whenever there's a disruption in CLO equity, we do the best we can. We don't overpay just to act, but the market sellers kind of acquiesce and the market kinda comes to them a little bit. So and that's a tried and true thing in the CLO market. So four to six weeks, typically what happens. Now that said, CLO double B's have a little more they come back to life a little quicker. In terms of activity. And they move around faster. There's shorter, weaker hands in there. You know, the good and the bad news while lots of like us and some of our public competitors, you know, the good news is we're stable hands. The bad news for us is the other guys stable hands and, you know, not a lot of forced sellers. There were a couple in COVID who had ACR-ish issues or repo stuff, but by and large, equities and pretty sticky hands. CLO debt moves around a little more. So the other spot, we did put some money into the ground, you know, this quarter. Has been in CLO double B. As I mentioned, we largely completed our rotation. Back in kinda February. Which was great. You know, we bought a bunch of stuff in the eighties and nineties. And sold it in the high nineties to even, you know, par area, sometimes maybe even above. But we got back in a little bit in CLO double B's. And certainly any we purchased in April would nearly certainly be up today. So we'll continue to deploy. We've got a stable hand. We've got the right balance sheet to be in this market. And we're, you know, we're I don't wanna say aggressively, but we're keenly looking to keep expanding the portfolio in discounted areas. You will see a little pickup in double B's. We might actually sell them before the end of the quarter, but on an interim basis, where when equity was still quiet, we did pick up some double B's.

I appreciate the color. That's great. And then next one, another one, just looking at the $75.5 million of recurring cash distributions that you received since April 30th. And I think you mentioned in your prepared comments here that additional cash flow is expected in May and June. Curious if you could just quantify that to any degree because I guess as I understand it, you know, the majority of the cash flow you're seeing is usually front-end weighted in the quarter.

Yeah. It's the vast majority even. So, you know, it's a few million bucks more. Like, if you look back to the earnings script or even probably the press release from Q1, you know, we would have told you how much we received by January 31st or something like that and then look at the total quarter. It's a little, you know, it's 5% more in that kind of context. I've checked the numbers to be sure, but that similar pattern you'd expect to see. The good thing we've got is we do have some resets and some other new investments that we did in Q1. That won't make first payments until July. So those payments tend to be oversized, which is good. And they're not, you know, they're a zero this quarter. They weren't scheduled to pay this quarter, but kinda the first payment date, proverbially, July 15th. So we'll continue to have more stuff coming our way. But if you look back to Q1 or Q4, and kind of piece together the scripts, you can see it's, you know, in a couple percent more cash.

Yep. Makes sense. And then last one, you talked about the spread compression that you're battling over the past fifteen months or so. And if I look at slide nineteen, your deck that's certainly apparent. However, when I look like, the longer-term trend, you know, your slide points out that over the past ten years and maybe a little bit more, the average spread has been higher about fifty-five basis points over that longer-term average. So wondering if you could just, from a bigger picture perspective, talk about you know, what's happened, I guess, really kinda looking at that chart from kind of, you know, post-GFC to today that has resulted in the higher spreads relative to that pre-GFC period.

Yeah. No. That's a really good question, GFC. The long-term average there is 315 bps. The ten-year average is 370 bps. And you can see the viciously painful spread compression from the last three years. I have a version of the chart the team gave me. It has a red arrow there. We didn't publish that one, but, ugh, I don't like it. So broadly, you know, what gave rise to the what I think your question is something I understand the 315 versus 370.

Exactly. Yep.

Yeah. Not just mathematical. You obviously get the math as why. So if you look at the drivers into that 315, if you ran an average ending 2007, I'm gonna that's gonna be a two-handle average even. So things got going on then. You had bank. So in the olden days, pre-financial crisis, we'd sell triple A's at LIBOR plus 25. And we'd get excited if we get a LIBOR plus 24 print. You know, that was like a high five. And banks would buy that kind of stuff, insurance companies would buy and banks were funding at LIBOR minus back then. So they would say, well, this is great. They'd even go and buy a credit default swap from a monoline insurer. Pay that guy five basis points. So take his L plus 20 bond, edge it to a guy for, let's say, five bips. So he's getting now L plus 20. But if you're funding at L minus 20, which is where a lot of major banks funded that time, he did great. You know, you're locking in that 40 basis point spread. Until, kaboom, 2008, you don't fund that LIBOR minus 20 anymore. Now you're funding a LIBOR plus 200. And you're losing. So we had some in the, like, 05, 06, 07. We had a period of time of unusually cheap funding for CLO, triple A's. Which then brought loan spreads way way in. Versus look where it got to in 02, 03. And then roll the clock back to the pre into the 1990s, you know, ancient history. Other than the next call or next question person in the queue, probably not a lot of people even remember those days. You know, that was just when banks bought loans. I mean, the syndicated loans used to be called bank loans or par loans. They were just held to banks. So the banks, there was kinda two prices, you know, L plus 225 and L plus 275. And those were the two prices of loans, but it all just went to banks directly without the structured market. So we've had a fundamental a really long answer here. Sorry. But a fundamental reracking of the funding cost of loans. It used to be you could get the triple A's where 80% of your capital structure. Now you're getting 65% of your capital structure done at SOFR plus 140. So I think that's more here to stay because the yield on whether spread on loans is driven by where buyers can buy loans, and the number one buyer of loans is the CLO market. And as long as our triple A guys charge us what I think is a usurious 140 over, the price that yield on loans is gonna stay or spread is gonna stay in the context where it is right now would be my expectation. So we provide this data just we're, you know, data-rich firm, and we'd like to share this data. I think the relevant measure to look at is really the last ten years. Please don't extrapolate or I'm afraid we don't have to extrapolate the 23 onward trend. You know, it feels like loan spread compression is largely paused right now. It will resurface at some point, and you can see it did, like, between 20 look between 20 what is that? 15, 16, 17. It went from 391 to 348. You listen to some of these calls, we would have lamented the same thing. Back then. That's what we've been facing right now. The good news is there's not a lot of defaults. Many of our CLOs have net built par even through this stuff. But the markets move around. And I think I feel comfortable that the ten-year average doesn't really move that much here heretofore. Unless we see a significant change in CLO debt cost, in which case this could come down.

Yeah. No. That's very helpful, and I appreciate the commentary and historical perspective because you're right. It does seem and that was kinda the ancient history even. Yeah. Post-GFC there. Something had changed, and it seems like lenders are, you know, requiring more and the borrowers are paying more. But you're right. The kind of tenure it seems like we've kind of entered a new period and it'll revolve around that ten-year average of 370-ish or so.

That's my expectation. I mean, I'd love to see triple A's come in. It's on I mean, in my opinion, those guys know, they get I mean, they get pretty darn rich on buying this stuff. I'm wondering if you guys could go ahead and help the rebate P and I. But in any event, I digress.

No. That's great. I appreciate it. Thank you so much. That's all I have today.

Okay. Very good. If you have any other questions on the numbers, feel free to follow-up later today, Eric. Thank you.

Our next question is from Steven Bavaria with Inside the Income Factory. Please proceed with your question.

So, Steve, you're the caller who remembers loans in the 1990s. Hey. Listen. I introduced loan ratings at Standard and Poor's back then. They thought I was nuts, like, we don't do that, and it's good thing they listened to me finally. Took a couple years. It all works out. I think they make a few bucks doing that these days.

They do. I wish they'd paid me more of it, but that's okay. I'm doing fine.

Here. Hey. You know, all of us who are income investors love your dividend, your distribution at 20% plus. And, you know, in our wildest dreams, we'd love to think that your total returns are gonna be that much over time as well. But what I'm curious about is, you know, in a real bank I mean, you know, I could say CLOs are virtual banks, but in at JPMorgan and other places, they can reserve in advance. You know, for projected loan losses I don't think CLOs can do that, and I don't think you can do that as a closed-end fund. So you're if I'm right, you're required to pay 90% or so of your taxable income as you move along. But I assume since you can't create a reserve for loan loss in that, like banks can, and a lot of the losses creep up probably when individual CLOs are actually, you know, when they wind down. Is there a permanent sort of back-ending of loan loss that you can't pay you know, you can't consider in calculating your required distributions that's gonna sort of continually make it almost seem like a bit of an annuity as opposed you know what I'm asking?

I know exactly where we're going. Yeah. No. I understand the question. Yep. But and see, yeah. The thoughts were masters to three things. GAAP, everyone loves GAAP income. No one, you know, no one gets fired for having too much GAAP income. Tax, as you point out, we've gotta pay out I think it's actually 98% of our taxable income. Within a year. So we have, you know, I think of it as essentially all of our taxable income has to be paid out. And cash, and you can't pay any of that stuff without cash. So when we think, you know, if I could have only one master, it'd be cash. As long as we keep generating cash, the whole model works. And indeed, we continue to generate, you know, tons and tons of cash. So we, you know, our again, our portfolio generates in the high twenties cash on cash. So that's good. And to the point of, you know, loan loss reserve, so a bank you know, I mean, JPMorgan, you know, published, you know, $900 million of loan loss reserve or some number like that recently I saw. Some, you know, hundreds of millions of dollars. While we don't have a specific route so let me this I'm gonna talk about GAAP for a minute, and then I'm gonna come to tax. So for GAAP, we kinda do have a loan loss reserve in that our effective yields have a provision for future losses. So if we ran our yields assuming no loans ever defaulted, our effective yields would be much higher. I don't know how much higher, but a bunch higher. So that assumes that the portfolios start to fall, you know, they rent with it seems like very low defaults at the beginning, but they ramp up, you know, reasonably quickly. A lot of these loans are first-period defaults in the large corporate loan market. But there is a default assumption in our yields. So that's very important. That's unlike a BDC, who can't use an effective doesn't use effective yield for their loans. We actually do. So from a GAAP basis and that's why GAAP income is less than cash income. Even though this is recurring cash flows from the interest column of the CLO, GAAP requires us to take a reserve. So there is a reserve there. Now sometimes we get it wrong, and we have had some write-downs once in a while on, you know, end-of-life CLOs, generally relatively minor. They're already caught in the NAV. It's not like something's marked from 40 to zero. It's probably marked at one and then, you know, written from one to zero in the extreme case. If our projections were off by a nontrivial amount, but that's relatively infrequent. But so for GAAP, the easiest way to think of it is the difference between cash income there are, you know, recurring cash flows, and GAAP income, is kind of a or investment income, gross investment income is the difference between recurring cash flows and gross investment income is our reserve for loan losses. So we do take that for GAAP. Now for tax, they don't care about any of that. Taxes, basically, on a cash basis. Or losses. So there have been years where the majority of our distributions have been treated as a return of capital. And that's because there were a lot of realized losses in CLOs. Now it doesn't mean the CLOs took net losses per se, a collateral manager could have bought a loan at a par and traded down to 90. He or she sold it for 90 and bought another loan at 89. On the same day. And if he or she was correct, that works out to be a one-point gain when all when that 89 loan pays off at par. The nice thing is it actually helps shelter your taxable income. Now next year, you gotta pay the piper when let's say that loan pays off at par next year, and now you got an eleven-point gain, which you pick up as taxable income. But there is tax losses. There's no reserve for taxes. No reserve for losses in tax. So we have all these different things, and it's that we do a lot of things here pretty good. Ken and I look at each other every time someone asks us about projecting taxable income, because it's close to impossible, I think. In that let's say we have perfect information. Our tax year ends November 30th. Let's say we have perfect information of where we are on November 15th. Which we would never actually have. If a collateral manager sold a bunch of loans down to rotate into other loans, that could change our taxable income profile materially. Right at the end of the tax year. So it's hard. We make our best estimates. We have the outside tax preparers give some midyear estimate to kinda give us a flavor of where things are going. But yeah, we could have big, you know, portfolio rotation in November, which takes away a lot of taxable income at the same time, a lot of stuff bought at discounts right now, could all pay off and spike our taxable income. So it's frustrating. It's the law. So, obviously, we have to work within that. But GAAP, cash, and tax are three different masters. GAAP does allow a loan loss reserve. Tax doesn't. Cash is what pays the distributions, and, you know, at the end of the day, while we love all numbers to be high except for taxable income, we, you know, cash is the number one thing I like to make high.

Thanks.

Due to time constraints, we don't have time go ahead. Tom. Thomas. No. Go on. Thank you. Due to time constraints, we do not have time for additional questions. At this point, I'd like to turn the call back over to Thomas Majewski for closing comments.

Great. Thank you very much, everyone. We appreciate your time and interest in Eagle Point Credit Company. We do invite you to join Eagle Point Income Company's call later today at 11:30 if you are available. Thank you very much.