EIC - NYSE

Greetings. Welcome to the Eagle Point Income Company's First Quarter 2022 Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host Garrett Edson of ICR. You may begin.

Thank you, Shamali [ph] and good morning. Before we begin our formal remarks, we need to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from those projected in such forward-looking statements and projected financial information. 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, www.eaglepointincome.com. Earlier today, we filed our first quarter 2022 financial statements and our financial investor presentation with the Securities and Exchange Commission. Financial statements and our first quarter investor presentation are also available within the Investor Relations section of the company's website. Financial statements can be found by following the Financial Statements and Reports link, and the investor presentation can be found by following the Presentations and Events link. I would now like to introduce Tom Majewski, Chairman and Chief Executive Officer of Eagle Point Income Company.

Great. Thank you, Garrett, and welcome, everyone to Eagle Point Income Company's first quarter earnings call. We appreciate your interest in Eagle Point Income Company, or EIC as we call it. If you haven't done so already, we invite you to download our investor presentation from our website at eaglepointincome.com and I'll refer to it during a portion of my remarks. The first quarter was a great start to the year for EIC, but importantly, we want to note that the rising rate environment is setting the stage for our portfolio to generate significant additional income through our investments in floating rates CLO junior debt. For the quarter net investment income and realized gains were about $0.33 per share. Our recurring cash flows were about $5.1 million, which is 38% increase from the fourth quarter of 2021, driven primarily by newly purchased CLO investments and a reset payment from one of our CLO equity positions. In April, we raised our monthly common distribution by 4% to $0.125 per share per month. Due to our strong performance in 2021, we were able to pay a special distribution of $0.20 per common share back in January. We seek to raise capital from time-to-time through our at-the-market offering program. We issued approximately 112,000 common shares at a premium to NAV during the quarter. We also tapped the ATM to issue approximately 122,000 of our Series A preferred shares during the quarter. Together these sales generated additional net proceeds of a little less than $5 million during the quarter. Our NAV as of March 31st was $16.52 per share, a modest reduction from where it stood at the end of the year. Between January and April, three months LIBOR increased from about 20 basis points to a little over 100 basis points. Today, that rate stands at roughly 150 basis points and we believe the significant increase in LIBOR is a significant positive event for our CLO junior debt, and should continue to increase the company's net investment income beginning in the second quarter of 2022 as 100% of the CLO debt investments that we hold our floating rate. The coupon rates on our CLO debt recently reset in April at today's new higher rates. This should add to our NII on an ongoing basis and able to cover our monthly common distributions on a sustainable basis. Along with this rising rate environment, our proactive management of our portfolio allowed us to increase our allocation to CLO equity, which has further assisted of the company in increasing its cash flows and net investment income. While we continue to keep a close eye on the U.S. economy given persistent inflation and supply chain concerns, we expect to continue to deploy capital at attractive levels and believe the company is positioned to do quite well over the coming months. In short, we see multiple paths to continue to grow the company's net investment income. There were no syndicated loan defaults during the first quarter and as a result, the trailing 12-month default rate remained at or near historic lows finishing March at 19 basis points. We continue to expect relatively few corporate defaults in the coming quarters. Indeed, as of a recent data, less than 3% of the loan market is trading at prices below $0.80 on the dollar. We consider that an indicator of potential default and that number is quite low. As long-term focused investors, we seek to construct our portfolio to manage through periods of dislocation. In strong markets, we focus on positioning our portfolio for the next downturn and in choppier markets, we seek to reinvest and build par and build NAV for all shareholders. We continue to try lengthening our weighted average reinvestment period of our CLO debt and equity portfolios whenever possible. We'd like to remind you that CLO BB debt has historically withstood multiple economic downturns experiencing long, low default rates over the long period of time. While past performance is never a guarantee of future results, we believe the performance of our portfolio over the last few years has clearly validated CLO BB debt as an attractive and resilient asset class. I wanted to take a moment to introduce someone new to our calls. Today I'm joined by Lena Umnova. Lena joined Eagle Point back in 2015, and she is our Chief Accounting Officer. I'll now turn the call over to Lena who will walk us through the financials in a little more detail.

Thanks Tom. For the first quarter, the company recorded net investment income and realized capital gains of approximately $2.3 million or $0.33 per share. When unrealized portfolio depreciation is included, the company recorded GAAP net loss of approximately $0.8 million or $0.12 per share. The company's first quarter net loss was comprised of total investment income of $4.1 million and de minimis net realized gains are set by unrealized depreciation of $3.2 million and total expenses of $1.7 million. During the first quarter, we paid three monthly distributions of $0.12 per share. Additionally, the company paid the previously declared special distribution of $0.20 per share on January 24th, 2022 to stockholders of record as of December 23rd, 2021. This special distribution was related to the estimated access of the company's net taxable income over the company's aggregate regular distributions made during the 2021 tax year. Earlier this year, we were also pleased to announce a 4% increase in our common distribution to $0.125 per month, which commenced in April. Last week, we declared monthly distributions to $0.125 to all common stockholders through September month end. As of March 31st, the company had outstanding warrants from the revolving credit facility and preferred stock, which totaled approximately 34% of total assets less current liabilities. This is within our target leverage ratio range of 25% to 35%, which we expect to operate the company under normal market conditions. The company's assets coverage ratios at the quarter end for preferred stock and credit facility, calculated in accordance with Investment Company Act requirements were 292% and 116% [ph], respectively. This measures are comfortably above the statutory requirements of 200% and 100% [ph]. As of March 31st, the company's net assets value was approximately $115.6 million or $16.52 per share. Moving on to our portfolio activity in the second quarter to April month end, managements' unaudited estimate of the company's NAV as of April 30th was between $16.19 and $16.23 per share, with the midpoint of the range down 1.9% from our NAV as of March 31st. As of April month end, net of pending investment transactions, the company had approximately $8.5 million of cash and revolver capacity available for investments. I will now turn the call back over to Tom.

Great. Thank you, Lena. We've had a really good start to 2022 and our portfolios current construction in this world of rising interest rates and we believe we're very well-poised to generate increasing cash flow moving forward, which will be beneficial to our NII and our ability to continue distributing strong high amounts of cash to our shareholders. Due to our principally fixed rate financing with the EIC A preferred stock, the benefits of the increases in interest rates is even more magnified for the company because we're lending out at a floating rate and we're borrowing at a set fixed rate. The three key attributes why we remain excited to be managing a CLO-rated debt focused fund today ring true -- as true today as they did three years ago when EIC first went public. The potential for lower credit expense as reflected by the low default -- historic default rates of BB rated CLO debt over the last 20 plus years, the potential for higher returns compared to similarly rated corporate securities, and the benefits that BB rated CLO debt offers in markets with rising interest rates like we're in today. Combined with our current portfolio construction that provides us with a little more exposure to CLO equity and the current rising rate environment, we remain confident that EIC is well-positioned to generate compelling risk adjusted returns in value for our shareholders. Since late March, the price of many risk assets, equities, junk bonds, et cetera, they've all fallen, even investment-grade bonds are down significantly for the year. And while loans and CLOs continue to perform well, from a price perspective for much of April, as of May 20th, the year-to-date return on the Credit Suisse Leveraged Loan Index is negative 2.6%. This reflects a 2.7% increase -- decrease in the price of loans since the beginning of May. From a historical perspective, CLO security valuations have generally had at least some correlation to the Credit Suisse Leveraged Loan Index, as the value of the underlying loan portfolios is a factor in CLO valuations and the way traders think about buying and selling CLO securities. At the same time, we don't believe the CLO market gives ample consideration to the more attractive reinvestment opportunity that's presented for CLOs within the reinvestment period when times when loans prices are falling. This is how the market behaves. We think the market doesn't give enough credit to that, but that's a bit of the reality of the world that we work within. Although results will vary on an investment-by-investment basis and past performance is not indicative of future results, the value of many of the investments in the company's investment portfolio typically would be correlated to moves in the Credit Suisse Leveraged Loan Index. And while the price of loans and many CLO securities may have fallen in May, due to the locked-in nature of financing of CLOs, we find periods like these actually often spur very attractive medium term returns for CLO security investors. We thank you for your time and interest in Eagle Point Income Company. Lena and I will now open the call to any questions.

And there are no questions at this time. Therefore I will now turn the call back over to the Thomas Majewski for closing remarks.

Great thank you very much. We appreciate everyone's time and interested in Eagle Point Income Company. We certainly believe that the rising rate environment, all of our CLO debt securities, our floating rate investments, we believe the company is well-positioned to continue to grow its net investment income over the coming months and quarters. To the extent anyone has follow-up questions, Lena and I will be available throughout the afternoon to field your calls. Thank you so much for your interest and time today.