Tom Majewski - Chief Executive Officer Ken Onorio - Chief Financial Officer.

Troy Ward - KBW Steven Bavaria - Private Investor Greg Mason - KBW.

Ladies and gentlemen, thank you for standing by. Welcome to the Eagle Point Credit Company Second Quarter 2015 Earnings Release Conference Call and Webcast. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session; instructions will be provided at that time.

[Operator Instructions] Please note that this call is being recorded. I would now like to turn the meeting over to your host for today's call, Tom Majewski, Chief Executive Officer of Eagle Point Credit Company. Please go ahead Mr. Majewski..

Good morning everyone, and welcome to the Eagle Point Credit Company second quarter earnings call. This is Thomas Majewski and I am the Chief Executive Officer of Eagle Point Credit Company. I am joined this morning by Ken Onorio who is the Company's Chief Financial Officer.

I would like to ask Ken to provide a discussion regarding forward-looking statements..

Thank you, Tom. This is Ken Onorio speaking. The matters discussed in this call include forward-looking statements that involve risks and uncertainties that may cause the Company's actual results to differ materially from those projected in such forward-looking statements.

For further information on factors that could impact the Company and the statements contained herein, please refer to the Company's filings with the Securities and Exchange Commission. Each forward-looking statement made during this call is based on information available to us on 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. Yesterday we made our semi-annual report available in the portfolio section of our website.

Our semi-annual report includes the Company's unaudited financial statement as of and for the period ended June 30, 2015, and is transmitted to our stockholders. The Company has also published a Q2 investor presentation on the website.

The Investor Presentation can be found in the Investor Relations tab, presentation section under the heading Q2 2015 Investor Presentation. I would now like to hand the call back over to Tom..

Great. Thank you, Ken. Ken and I plan to address seven topics with our call participants today. Number one is the Company's second quarter financial results and investment activity during the second quarter. The second is a brief update regarding our Q2 preferred stock offering.

Number three is the summary of the cash flows received on investments so far in the third quarter, Management's estimate of the July NAV and other portfolio highlights. The fourth is an update on the broad CLO market and recent loan market developments. The fifth is an update regarding a senior –hire at our advisor.

The sixth is an update regarding our SEC filing, regarding a potential bond offering. And the final item will be an advanced notice of a future conference call that we'll be setting to discuss specific examples of tax treatment of CLO Equity Holdings.

To begin on the first agenda item, I'd like to draw your attention to the Company's second quarter 2015 results. During the period from April 1, 2015 through June 30, 2015, the Company had net income of approximately $6.4 million or $0.46 per common share. This compares to $3.8 million or $0.27 per common share of net income in the first quarter.

The Company's second quarter net income of $6.4 million was comprised of total investment income of $10.2 million, and a net gain on investments of $0.1 million, offset by total expenses of $3.9 million. Expenses in the quarter included $0.5 million approximately of interest expense related to our Series A term preferred stock.

Net investment income for the second quarter was $6.3 million or $0.46 per common share of stock, representing an increase of 16.2% or $0.07 per common share compared to the first quarter.

As we look at the drivers of the quarter-over-quarter improvement, net interest income was aided by starting the quarter with a substantially fully invested portfolio and transitioning into generally higher yielding negotiated CLO equity investments.

This was partially offset by that approximately $0.5 million of interest and amortization expense related to our Series A preferred stock. As of June 30, 2015 the Company's net asset value was approximately $257.2 million or $18.62 per share of common stock.

As of June 30, the Company's closing price for the stock was $20.23 per share, reflecting an 8.65% premium to NAV on such date. As of August 25, the Company's closing stock price was $19.69 per common share.

The June 30 net asset value reflects an accrued liability for the Company's common distribution of $0.60 per share, which was paid on July 31, and included a net gain on investments for the quarter of approximately $0.01 per common share.

During the first half of the year, the non-annualized total return on equity of the Company generated by its portfolio, net of expenses, was 3.9%. For the same period total return to common stockholders inclusive of reinvestment of dividends at prices obtained by the Company's dividend reinvestment plan was approximately 6.39%.

Earlier this month in a publication on July 31, 2015, or earlier last month, I apologize, JPMorgan estimated that the average non-annualized total return for 244 CLO 2.0 equity tranches, that the bank tracks, was 2.8% during the first half of the year.

Even in the current credit market where there is relatively little credit expense, we believe there is a wide dispersion of performance among CLO equity securities. We believe the Company's outperformance, net of expenses is largely a result of our advisor's investment process.

During the second quarter, the Company made five new CLO equity investments, two new loan accumulation facility investments and several additional follow-on loan accumulation facility investments. The Company also purchased several small CLO debt positions, in each case in conjunction with a CLO equity purchase.

Three of our loan accumulation facilities were monetized and their CLOs priced and closed during the quarter. The total amount of net capital invested during the second quarter was $25.1 million, and for the first six months of 2015, was $69.3 million.

As of June 30, 2015, the weighted average expected yield on the Company's CLO equity portfolio inclusive of newly added investments was 16.47%. This compares favorably to 15.21% as of the prior quarter end. We highlight that the weighted average effective yield of the Company's CLO equity investments includes a provision for future credit losses.

Overall, we remain very pleased with the Company's portfolio. Additional information regarding the Company's portfolio and the underlying loan obligors can be found in the Company's quarterly investor presentation, which is available on our website.

The presentation includes meaningful portfolio level information, which we believe will be helpful for stockholders in their continued evaluation of the Company. We encourage everyone to download and read through the presentation. We plan to continue providing this information on a quarterly basis going forward.

In addition, beginning with the May 2015, portfolio information, the Company began providing certain look-through information regarding the senior secured loans underlying the Company's CLO, equity and loan accumulation facility portfolio on a monthly basis. The latest information as of July 31 is now available on the Company's website.

Please note, commencing with the August month end information, the Company will combine disclosing its estimated NAV along with this portfolio information.

For convenience purposes, previous estimated monthly NAVs along with current estimated NAVs disclosed by the Company will be summarized and presented in a tabular format which will also be available on our website, again, commencing with the August results. Your attention is drawn to page 4 of the quarterly Investor Presentation.

On this page, we provide position-by-position details of GAAP earnings, cash flows, and other important investment level metrics. You will note that we included both the Q2 GAAP earnings and the Q1 GAAP earnings for each investment. We also included the cash received in Q2 for each investment.

The reason we included the Q1 GAAP earnings is so that you can compare the Q2 cash flows to the Q1 GAAP earnings. You'll see the ratio of cash received in the second quarter to income accrued during the first quarter is 256%. In general, our CLOs make distributions in the first few weeks of each quarter.

These distributions are largely related to the performance of the investment in the prior calendar quarter. When evaluating the components of our cash flow, we highlight that several of the CLOs in our portfolio had not yet reached their first payment date as of June 30, 2015.

It is also worth noting that several CLOs did make their first quarterly payments during the second quarter. In many cases a CLOs first equity distribution is larger than its expected run rate equity distribution. For this reason among others the ratio of cash to income was higher in the second quarter compared to the first quarter.

On page 3 of our quarterly Investor Presentation, we breakout cash flows from those CLOs making their first payment versus those making their second or later payments, as well as cash flows from other sources. I would now like to hand the call back over to Ken, to handle the next agenda items..

Thanks, Tom. This is Ken, speaking. In May the Company priced an offering of 1.6 million shares of Series A term preferred stock. Liquidation preference of other stock is $25 per share.

Shortly after our last quarterly call, the Company announced in early June that the underwriters partially exercised their overallotment option primarily called the greenshoe, whereby they purchase an additional $218,000 share.

After getting effect to the greenshoe, the total net proceeds to the Company from the offering was approximately $43.4 million. The series A term preferred stock began paying monthly dividends at 7.75% per annum on June 30, and trades on the New York Stock Exchange under the symbol, ECCA.

As of August 25, ECCAs closing stock price was $24.96 per share. Moving to the third agenda item, I would now like to provide an update on the portfolio following quarter end. As of June 30, the Company had net cash of approximately $26.6 million on its balance sheet.

This amount largely represents remaining uninvested proceeds from preferred stock offering. The Company has previously communicated that it estimated the proceeds from the preferred stock offering will be fully invested within two to six months following the offering.

I am pleased to report that earlier this month the Company has fully invested the offering proceeds. In addition to making certain portfolio level information available on our website on a monthly basis, we also publish a monthly unaudited management estimate of the Company's NAV on your website.

Earlier this week we published an estimate of July NAV of $18.65 per share of our common stock, which was a slight increase to June's NAV per common share. As of August 25, the Company's common stock price of $19.69 per share reflected 5.6% premium to our estimated July NAV.

Those investments that have reached their first payment date are generating cash flows with which we are pleased. In the third quarter through August 21, the Company receives cash flows on its investment portfolio totaling $14.6 million or $1.06 per share of common stock.

This compares to $20.1 million of total cash flow received during the second quarter. This decrease was driven by fewer investments making their generally outside initial distributions in the third quarter compared to the second quarter. As an additional reference point, cash flows received during the first quarter was approximately $9 million.

Of the loan accumulation facilities in our portfolio as of quarter end, both are accumulating loans at a normal cost towards conversion into CLOs. So far in the third quarter, the Company has invested in three new loan accumulation facilities. Tom, will now provide us with an update on the CLO and bank loan markets..

Great. Thank you, Ken. This is Tom, speaking again. Our fourth agenda item is to share an updated on the CLO and bank loan markets. According to data published by S&P Capital IQ through August 21, 2015, there have been 133 CLOs issued this year in the United States.

This represents slightly over $71 billion of issuance volume, which compares to $82.7 billion of volume through the same day in 2014. Origination volume in the senior secured loan market has been lower this year than last year.

Based on information by LCD, there was approximately $142.5 billion of institutional term loans issued during the first half of 2015. This compares to $241.3 billion issued during the first half of 2014.

When evaluated in conjunction with the over $836 billion of existing loans outstanding as of August 14 according to S&P CAPITAL IQ, our CLOs continue to have a large market in which to invest and reinvest. A number of factors have impacted the loan market this year.

These factors include lower supply as well as macro factors globally and some loans specific factors. According to data from Credit Suisse, the average price of senior secured loans are on January 1, 2015, was 96.28%. As of June 30, that average was up to 96.72, however as of August 201, that average fell back to 95.67.

During the second quarter of 2015, according to Data provided by S&P capital IQ, the annualized prepayment rate in the loan market was approximately 28%. In the past we have observed increase in volatility in the equity and credit markets. Last week alone, the S&P 500 lost over 6%.

The loan market experienced volatility at the same time as the equity markets. While the Credit Suisse leverage loan index will stay 52 week low on August 24, at a level even lower than the low of December 2014, when we saw a dramatic sell-off in high yield, the loan market today largely remains highly bifurcated.

The primary drivers in the drop and loan index have been loans in the energy and metals and mining sectors over the past three months. Commodity price declines have also pressured loans in these sectors over that period. Although ex-energy metal loans have had some price volatility, this volatility has been lower relative to energy in metal loans.

While volatility in the loan market and broader global markets may cause interim unrealized mark-to-market activity on our portfolio, we have selected this portfolio of CLO securities that we believe is well positioned to maximize long term returns even in choppy market conditions.

Moving on to our fifth agenda time, we wanted to introduce you to one name that you may begin to hear more about from us in the coming months. Earlier this year, our advisor, Eagle Point Credit Management, hired Nauman Malik to be its General Counsel. Nauman joined the firm from Dechert where he's served on the legal team representing the company.

Nauman has strong experience in matters involving the company and our advisor beginning from their inception. He has been a very welcome addition to our team..

This is Ken speaking. For our sixth agenda item, we wanted to acknowledge our recent filings and press release related to a potential bond offering. On August 11, we filed an amended N2 with the SEC regarding a potential bond offering.

On August 13, the Company issued a press release indicated that we have received a ratings letter from Egan-Jones Rating Company indicating that offerings of unsecured notes of up to $50 million would attract a rating of [A minus] [ph].

Because we are still in the registration process, we will not be commenting further on the potential offering on this fall. Additionally, no assurances can be given that we will ultimately complete in offering.

For our final agenda item and as a follow-up to the effective yield of accounting prices issue we discussed on the first quarter earnings call, the company will be arranging a conference call in early September to provide a work through and discussion pertaining to a generic illustration of the potential tax treatment of an investment in CLO equity.

The purpose of the call is to provide some color on the potential tax versus GAAP treatment over the life cycle of a generic CLO equity investment. The Company recognizes that the accounting and tax treatment for CLO equity investment do have their complexities, and in overview on the topic may prove helpful to more participants.

The illustration will show that over the life cycle of a typical CLO, GAAP and tax income will approximately be equal. Details related to the conference call will follow shortly..

Thanks Ken. To offer some brief concluding remarks, I would like to thank everyone for their continued interest in Eagle Point Credit Company.

Our near term goal for the company is to continue to grow the company’s net investment income, giving effect to our now fully deployed preferred stock proceeds, we expect net investment income to grow compared to the second quarter under current market conditions.

Our advisor has a number of attractive investment opportunities in various stages of diligence and negotiation, and we will continue to be opportunistic for the remainder of the year particularly during this choppy market periods. That concludes management's presentation of Eagle Point Credit Company second quarter update.

At this point, we will open the call to questions. And Ken and I will be happy to address any questions that the listeners may have..

[Operator Instructions] Your first question comes from the line of Troy Ward of KBW. Your line is open..

Good morning and thank you for taking my questions this morning.

Tom, can you just talk about where you view your target leverage, obviously you got some moving parts coming up maybe on the liability side, but can you speak to your targeted leverage range both including and excluding the preferred equity?.

Thanks, Troy. Good morning. You’ve asked a very good question.

There are a couple of limits that – as a 40 Act RIC the company is subject to, those limits relate to both preferred and debt at a high level or any indebtedness that the company issues is subject to a 300% asset coverage ratio and any preferred stock that we issue inclusive of debt is subject to a 200% asset coverage ratio.

So those are the statutory limits that we plan to - that obviously will be very much working within. We haven’t put a formal number out as to exactly gearing target for the company.

One of things that we think many other income equity companies do well, or some of them do well, is issue some debt, get that capital deployed, maybe they have a revolver, use that, then raise equity to pay that down and continue a slow and measured cycle.

While the exact details and composition of our balance sheet obviously we’ve done the preferred, we are in registration for the bond offering, we would expect the ratios to be well within the statutory limits.

This is not something where a meaningful amount of leverage is needed frankly and if anything we really look at it purely for the – opportunistic addition of value that it can create. As we look at the preferred, well we think that’s a very attractive investment unto itself. It is 7 year very stable capital for the Company.

So we think that’s very accretive to the common. We haven't put a firm number on where we would expect the gearing but probably the one thing we can say is simply well less than the broad leverage guidelines..

Great. Thanks for that color Tom. And then on the Slide 4, where you talked about the portfolio information and the specific cash flow received quarter-over-quarter that’s very helpful.

And you touched on, there is three one of them in here, equity 1, 5, and 13 that had – a very high cash received and you talked about that – seem like those turned on this quarter so maybe was a five month period instead of a three month period and that accounts for that.

But on the couple of the other ones, specifically speak about equity number 22, it’s a 2014 vintage but there was no cash received.

Can you just explain what’s going on in some of this – maybe some of these others that are on the other side of the spectrum where, maybe there are not receiving as much cash as it looks like maybe the average is, why is that?.

On the number 22, that was actually the position we used as the GAAP example in the last quarter. So that one was sold prior to the payment date, so that one was in the portfolio for a portion of the period but we sold it prior to its payment date; that CLO did make a payment but it was after it was gone.

We included it here to have the interest accrued foot to our financials. But that one we wouldn’t have expected to receive any other payments at a high level. And then looking at the –.

Equity number 27 – like number 27 and 28, where it’s – there are cash flows are pretty small. .

The cash flows are pretty small, but the income - it’s still much greater than the income accrued. Those are going to be either smaller positions in the portfolio or newly acquired positions.

Looking at their - they are both 2014 vintages, let me come back perhaps later by the end of this call, to everyone with those specifics but it’s – the ratio is really what we think is most important what we are accruing versus what the cash flows coming in are..

Okay. And then just one final one. Just remind us the thought process of when you potentially call CLO and how that relationship is with the end of the re-investment period. As we can see the column here that there is - becoming more getting out of their call period but still have a couple of years left in their reinvestment period.

Is it likely that it's called before the end of the reinvestment period or more likely it’s called after the end of the reinvestment period?.

Very good question. It depends a lot on the price of loans and our outlook for the market for loans and the market for the secondary CLO equity on that day. We can sell any of our positions at any time by market conditions permitting of course.

In general we think the optimal time just to call a CLO, or the optimal life cycle for a generic CLO is typically around a five year life which would suggest calling a CLO roughly one year after the end of the reinvestment period.

However there is a lot of factors that would go into the decision on that day and some of the pieces of the puzzle would include our loans at a premium. In February of 2007 loans were trading at 101, that would be a great time to call. Obviously February 2008 loans were not trading at 101, that might be a factoring your call decision.

The other analysis we would have to do in each case is, determine whether it made sense. Let’s say it was approaching that end of the logical lifecycle, does it make sense to sell a CLO or does it makes sense to call the transaction.

And there could be situations where sometimes more seasoned CLOs trade at relatively tight yields and it might make sense to actually sell at a premium to NAV on those days. So, long answer short it’s about five - one year after the end of the reinvestment period but subject to market conditions at that time.

And one other piece of information just to go back to your earlier question, those two investments down at the bottom 27 and 28, those are both relatively small positions in the portfolio.

So the income that they are generating is certainly in line with the expected yields we would have had and obviously we are getting cash flows of a little less than double or a little more than double but those are both smaller, non majority positions in the company’s portfolio..

Okay, great. Thanks for the color..

[Operator Instructions] Your next question comes from the line of Steven Bavaria, a Private Investor. Your line is open..

Hi Tom and Ken. My question probably relates a little to the last one. Your page 4 is really valuable showing the accrued income and the cash received.

And Ken mentioned that over time, and I assume that means if you hold them – hold the CLO to its final maturity, the GAAP income and the taxable income which I guess is similar to the cash received, would pretty much equalize, which tells me I guess that in the early years you are getting a lot more taxable income, your GAAP is kind of smooth over the period sort of average.

So that in the final years your taxable – your taxable and cash income would go down because the leverage is being reduced as the CLOs are paying down. And therefore what your GAAP income at the end if you held them to the end would actually exceed the cash received.

And I am wondering if that’s correct in general, is that the time that you would be trying to call the CLO and end it prematurely so as to minimize the number of years where you’re taxable and cash income would be less than your GAAP income.

And if that’s the case would that then mean you'd be kind of writing back your GAAP income and increasing it in some sort of – as you wound down the CLO prematurely?.

Yes. Thanks, Steve. Let me add a couple of points to that. Although I will ask that we pick up this up in early September once we've published a more detailed tax example. As Ken mentioned earlier, in aggregate, absent one or two very small differences, total taxable income and total GAAP income on a CLO equity investment is generally equal.

The difference are key fact as you point out is the GAAP income is recognized on a smooth basis with allowances for credit losses and LIBOR floors going away over time and multitude of other factors which the tax income recognition requirements generally don’t permit.

So a big variable in the taxable income in any given year is are factors of - if there are meaningful losses realized within a given CLO. In general right now there are relatively few defaults in the loan market. So the losses realized within CLOs are quite low and in some cases CLO are realizing net gains.

So there is right now in many cases GAAP income – taxable income exceeds GAAP income. However, it’s important to understand as well that there are some non-cash items that impact taxable income, which often get overlooked, but are in some cases non-trivial. One of the most notable ones is amortization of OID on the debt that CLO issues.

Many cases the junior tranches of a CLO securitization, the junior debt tranches will be issued at dollar prices below par and that discount is accreted over as an expense, a non-cash expense, over an [expected] [ph] life expectation within a CLO. So in that case you'd have an amortization of an expense for tax which is a non-cash item.

So that’s all else equal a good fact. It’s obviously money that was spent, but it’s a non-cash deduction.

But in general you would think that you would expect to see that the GAAP income be less than the taxable income upfront and then those two eventually look to equalize and potentially flip a little bit the other way right at the end of the life of the CLO.

This will be a lot clearer when we can get back on the line and walk through with real numbers in front of us. But certainly that the tax basis would also be a factor in the determination of a disposition. The first analysis would be, does this make sense to part with this investment yes or no.

And then the second analysis would be, does it make sense to sell this or call this and we would make that choice at that time and tax would be an important consideration that we would look at.

But the number one takeaway is that over the life cycle of a CLO equity investment are one or two minor differences related to non-deductible issuance, equity issuance cost.

The total GAAP income and tax income over the life is the same is or approximately equal and that it’s important to recognize and you'll see this when we publish the example that it has – there are some non-cash deductions even in these benign credit markets along the way in a CLO..

Thanks..

[Operator Instructions] Your next question comes from the line of [Philip Cauhana from Gambrel Capital] [ph]. Your line is open..

Thanks for the call and the excellent investor education detail and you guys always do a great job. I just had a high level question around two key performance indicators that are often spoken about by your management team and others, such as that Oxford Lane for example, those being income or yield and then NAV.

I heard earlier on the call you mentioned that in the near term and perhaps the medium term that the goal is to focus on income generation and that certainly makes a lot of sense. However, you're also reporting and commenting on NAV quite a bit, as is Oxford Lane and perhaps others out there.

And it seems that some investors are very focused on where the stock trades relative to the NAV per share? This seems to be a fairly new asset category encapsulated in this format in a closed-end fund and RIC.

And I can certainly understand why investors would focus on NAV because there are so many other formats out there such as this one that has assets where it does make a lot of sense to focus on net asset value and what premium it is going to pay on it? What I am getting to is that, if I understand the accounting behind all this, and it all claims before we understand it.

But I am listening very carefully to the past couple of conference calls, and the past couple of questions. The way GAAP and taxable income developed haste each other and how they interact with NAV is something that plays out over not weeks, not months, not quarter, but years for a CLO, for a given CLO.

If that is correct in my assumption, some of the tax you held on to the CLO didn’t trade.

What does the industry have to do to focus on these KPIs and get the investor education where it needs to be around NAV versus income generation, does that question makes sense?.

Yes. It’s certainly a pretty macro question. But we agree with certainly all the points you raised there. I am not even care where to begin. Let’s see….

Well, I guess, maybe to focus it down, because it’s an unfairly broad question.

But how important is NAV to you in the near term and in the longer? I understand that in the long run, by the time you wrap-up the CLO, whether you called it, whether it’s because you sold it, or it’s just ran off a natural life? It got to generate value and on an accounting basis it will.

But its - so much of that cash flow is front-end loaded and then you sort of almost – it’s an over simplification in term of straight lining the GAAP treatment. That NAV seems to be very misrepresentative, as a key performance indicator early on in the life of the [spring] [ph] and that’s sort of I am trying to wrap my arms at.

It almost seems to be a very – if not very useful on the best day, on the worst day even misleading because these cash flows can be so stronger upfront and the depreciation, the straight lining essentially is depressing NAV, while you are sitting there waiting to experience credit losses, does that make sense?.

Yes. I know you're going with it. Let me throughout just take a couple of things….

Sure..

Around this and there is probably not just yes or no answer to your question or a single item. A couple of important things. First, we certainly look to maintain a stable NAV for the company. There is one additional factor which you didn’t include in the list of factors of net asset value and that’s unrealized gain or loss on the portfolio.

We do mark our portfolio every month as an advisor and the company and its board formally approves the balance sheet and NAV on a quarterly basis. But to kind of increase investor transparency we're providing a management estimate on a monthly basis which you can see on the website. We want to keep that stable certainly wherever possible.

Obviously there is no assurance of what can happen there. And one of things if you look in the - certainly in the semi-annual report, I believe there is a $0.40 per share unrealized mark-to-market loss which is….

Balance sheet….

It's on the balance sheet rather which is in the semi-annual report. And that number is on a per share basis unchanged from the prior quarter. So in the second quarter that would suggest it was a meaningful realized or unrealized mark-to-market move. But in prior quarters frankly that there was a somewhat of draw down on the NAV.

So the components of our NAV reflect the amortization of the cost of the investment over time. We're treating the cash flows in excess of the GAAP income as a return of capital for GAAP. But then regardless of that there is we believe a market price or approximate market price for each security and that’s another driver that goes into NAV.

So if NAV were to go up or down by any amount next month on to itself that wouldn’t give me a downward - would pick NAV moving up or down $0.50, I am just picking that number arbitrially there is no rationale for it.

Seeing the NAV go up $0.50 would please, but necessarily excite us and similarly seeing it move down $0.50 on to itself wouldn’t give cause for concern. The things that we focus on as an advisor and looking at the CLO equity investments, is that the cash is coming in as you pointed out very, very heavily frontloaded.

We seek to get as much capital through these frontloaded cash flows off the table as early as possible in the life cycle.

One of the things we do to kind of break this out on page three of this – of the quarterly investor presentation is also show that cash flows from all the CLOs making other than their first payment and you can see that number has grown nicely.

This is on page three the second line grown nicely since Q4 and we'll continue to update that as it moves forward. We had a lot of payments – CLOs making their first payment in Q2 abnormally higher frankly. But some of that payment will now move into the next line and we already received over $14 million of cash in this quarter.

So looking at cash flow is a very important metric. Looking at junior OC cushion which is back on page four, on a deal-by-deal basis, you can see weighted average junior OC cushion is 4.96% on our CLOs and that reflects realized gains or losses in any par builder loss within each CLO.

So what we like to see is strong cash coming out of these and that OC ratios on any given CLO are either staying flat or in many cases growing.

What's lost on a lot folks is that the CLO portfolios while they are not per se trading vehicles, our vehicles where there is a dynamics portfolio and frankly in these choppy times when loans are down, as we talked about the CS index on the call.

While let say the average loan is down not every loan is and some loans are probably down more than they should be and others less.

And its making these sort of relative value trades would actually help us build junior OC cushion which helps in any given CLO, which then helps build reserves or when they inevitable cycle of credit expense does come which doesn’t seem to be in soon or near term. So there is not one specific metric to look at.

The things here we think about ultimately each investment on a total return basis and we take into account tax when we make those decisions. But we look to see this frontloaded cash flow. We look to see junior OC cushion being strong.

I think you'll find these deals have very good cushion maybe above market, I don’t know that definitively, but certainly I think it challenged to fund the loan market in terms of that cushion and then continuing our portfolio to generate more and more cash flow so far each quarter..

That’s very helpful. I appreciate the extra color..

No worries..

Thank you..

And we have another question from the line of Troy Ward of KBW. Go ahead caller, your line is open..

Hey, guys. This is Greg Mason. Just Tom, on your last question on the junior OC cushion, and part of this investor education here.

What would you say would be a danger zone for OC cushion and when do generally CLOs start trapping cash from an OC cushion standpoint?.

The last answer is easy, zero. So that’s the – if the OC test is failing, it’s at that point where distributions to the equity of a CLO would be diverted on a payment date to repay senior debt of the CLO. A couple of things around it. OC test are certainly very important, but they only matter four days of the year.

They don’t matter the other 361 and a quarter days of the year. In that they are only applicable really on determination dates. And I am speaking generally about CLOs, obviously the terms of any CLO may vary a bit. The day before and the day after the determination date collateral managers can keep reinvesting any principal proceeds that come in.

So certainly a good equity oriented CLO collateral manager will have essentially no principal cash in their collection account. Ideally at any time, but certainly on a determination date if the OC test were out of compliance.

That said, if a test were out of compliance cash that would have been – that was in the interest waterfall would go to repay principal on the senior most class. Of course, that’s probably the day you don’t want to be paying down, forget about our desire for cash flow which is obviously strong.

If we're at a point where OC tests are failing that’s probably a choppy day in the market and now you are repaying your least expense or financing which is probably LLC growth as an equity holder something you'd like less to do.

So as to the question is to what's a warning sign, probably there is not a bright line and its starts at things that don’t seem problematic at all, at a high number and then as they converge to zero they become more and more problematic.

It’s probably in the last point, so one point or less where things get really where you really have your guard up about what's going on in the CLO. At the end of the day what matters is the number is greater zero or not, so there is not an interim - OC test is a binary test.

I guess a couple I'll say, looking at some of the collateral managers that underlie our portfolio many of them didn’t miss a payment to the equity tranches in their deals through the credit cycle due to OC test failures, some did, but many did not. And well that’s not the only metric we look at, that’s certainly an interesting metric that we look at.

[BAway][ph] published a report a little while ago that showed the average CLO in kind of late '08, early '09 when off sides, the average '06 or '07 CLO went off side down their OC test file with a less than 1%.

So despite having a roughly 15% cumulative default rate in the market the OC test only went – did drop certainly, but not on average more than a point. So we look at that. And then finally this kind of goes to some of the value add we believe our advisor brings during the create process of CLO in that.

If you were to pick up an offering memo for and you can obviously see our portfolio on a name-by-name basis, if you were to pick up the offering memo for many of those CLOs you would see provisions which are a little, maybe a little more detailed and a little kind of unique to us of the ability to put in additional capital in a CLO which would count as an asset in the OC test.

One of the things we saw and there were a few instances of this in the '07, '08 credit cycle, where CLOs were getting very, very close to the test in a $0.25 million or $1 million or something like that in context of a $5 million CLO might have made the difference to keep the test on side.

There was one instance I am aware of where the CLO equity investors even were willing to put the money in, but because it wasn’t contemplated in the documents their trusty would not count that additional equity capital injected in the OC test.

So that was obviously kind of a worst of all worlds where you had people saying if you do a little bit, we're willing to do it, we could cure this problem, there wasn’t a mechanism to put it in.

So if you look at certainly the majority of the CLOs or nearly all of the CLOs that we created were kind of initial majority investor you'll see provision that let us in certain additional equity capital and in most cases even additional capital senior to the existing equity which would have a priority of payment of the regular common equity.

We also bake in provisions so that other equity investors can participate as well. So it’s always on fair terms. But trying to build in the flexibility that if and when we do hit a meaningful credit storm we have the ways to help navigate those choppy days..

Great. That’s great color. This is Troy now. Just to add a little bit here. Just another question on the overall market.

As you're looking at entering into a new transaction and taking down the majority, are you still getting sold down? And just speak a little bit on the activity in the market place for CLO equity and on the new CLOs kind of what is the gating factor now, is it equity is it the AAA, kind of just some market commentary on that?.

I might have different answers had you asked me that a week or two ago versus today.

Certainly with the broad volatility in the equity markets what we would say is secondary activity certainly the week activity of CLOs has dropped significantly and the worse time of the year of course overlaying all the different radical moves in the equity markets, and certainly we do open people eyes both ways.

So while there is a small number of CLOs in the market right now, I think the market is largely in the mood of pick us up, see you in September, see you after Labor Day, which really puts September 7th or 8th, before we're going to see any meaningful pickup in activity.

Certainly across our portfolio, the vast majority of CLOs we get sold down pretty significantly, not in every case and looking at some of the more recent additions into the portfolio, we have taken as an advisor more than 51%, in a lot of cases when we're going in and negotiating our terms at the outset, we're baking in the ability to hold more at the closing and the reason for doing that is a couple of prong, but one of the benefits it get us is the ability to have pieces to sell, which would not impair our majority holding.

So while there is some benefit to getting down to exactly 50.01% frankly in most of the - in frankly many of our investments today, we are asking for a higher hold than that 51% to give us the flexibility to be able to sell the $5 million if we needed to for whatever reason in the future without impacting the majority..

And in the marketplace today, on the CLO equity side, deals that you are not involved, is there usually a 50% plus holder in there or is it more piece meal, how many platforms are out there doing what you do, going in and taking that majority piece upfront?.

You've asked two questions in there actually. We think the vast majority of CLOs have a majority investor, but we would suggest that in many cases they're not coming in exactly the way we do of getting involved in the transaction, kind of pre-underwriter stage.

So, frankly I struggle, I'm sure there have been a few, off the top of my head, I can't name a recent deal that didn't have a majority investor.

Although frankly there are -- we think many of those deals if not the majority of them get created on a underwriter signs up a deal, shows it to majority investors and then someone ends up circling up for it.

We do get shown plenty of those opportunities as well, it's infrequent that we participate in them, I want to say it's never but it's certainly a very small percentage of the time for us that we think that's the way a lot of the market get's to. There are lot of other folks you're buying CLO equity.

We shared earlier the stats of the amount of CLOs issued year-to-date. I'm going to go back and look at that number again. It was in the $70 billion range, but I forgot the exact number, bear with me. $71 billion, that would suggest times 10%, a little over $7 billion of equity capital of CLO equity tranches that have been created this year.

We have certainly purchased some of those but we're -- we don't seek to buy any stretch be the largest investor in the market, so there are simply plenty of other folks still active in buying.

In the last few weeks with the continued volatility - secondary volume has gone to basic very close to zero, certainly in the last week we've seen a number of deals cancelled, and that's up and down the stack of debt and equity as everyone is kind of evaluating what's going on..

And then one final question.

You talked about kind of the buyers over the last several years the BDCs have been big participants with a couple of them being very active in the CLO equity market, couple of things are happening as we see it, we saw TICC decide that maybe that wasn't the best product inside of a BDC for reasons and actually going to switch managers is not going to focus on CLO equity.

And then others that maybe have been big purchasers have less access to new capital, still around the edges selling some few things an buying a few things that type, but who are - who is stepping in to replace that those buyers from that were in the BDC space that maybe are now in other forms.

Are you seeing new entrance into the CLO equity market?.

Yes, continuously. And there are - at a high level – they have done it well, put out a presentation in one of his weekly updates that listed the aggregate amount of CLO equity owned by public BDCs and it was in the high $1 billion numbers maybe low $2 billion number, something like that.

And just to kind of frame the context, let's just stipulate it was $2 billion for the moment although that's not the exact number.

If you think about the last 24 months of CLO creation, there's been about $200 billion plus or minus of CLOs created which would suggest the total equity capital is about $20 billion that was needed to support that market.

The BDCs if they had deployed all of that money in new issued transactions in the last two years which is not the case, they would have only been about 10% of the market.

The interesting thing about them is and just like with us and other CLO oriented risks, it's very public, you can see exactly what they're doing, but if you were to add up all the CLO equity publicly reported to be held amongst these equity income vehicles, it's a really small part of the overall market.

Where we're seeing some investors come in, frankly some more opportunistic pension funds have been active in buying CLO securities directly, it takes a very high touch process and a very few pensions are able to directly interface with the capital markets but a small number of them are - that source of capital is obviously significant and vast far greater than the CLO equity market.

We also see continued interest from overseas, certainly from investors in the pacific rim where to the extent we follow some of the CLO collateral managers travels, frankly quite a few I think have had found new sources of demand from investors both in Asia as well as in Europe.

Within Europe they are obviously burdened with some of the additional requirements regarding European risk retention. But we are seeing an increasing number of U.S.

CLOs get printed into European retention and then some investors from Europe who might not be subject to those rules also pensions and one or two other type plan investors that are not subject to those rules. So, certainly the broad theme in the market is BDCs are a lot less active in buying CLOs today.

The flipside, you can be reasonably confident that essentially every CLO security listed is being sold with the $70 billion plus of deals getting done have been sold by the underwriters, there is not really a concept of the underwriters taking down meaningful amounts of equity.

So it is finding a home, some of the other investors includes hedges continue to, some are buyers, some are sellers, I'm sure in any given day and then other investors who have dedicated private funds, an interesting example obviously what [indiscernible] announced couple of weeks ago, where they've raised a new fund and have a whole bunch of new capital and we certainly see other folks in our travel talk to us, so we're seeing a fund opportunity from someone else.

So, I think there continues to be interest and demand in the assay class, if you think things are going to get worse, walking in long term financing is typically a good thing to do in advance of that, much of the CLO paper seems to be held and stick here a longer term pockets than it might have been in the past, which is why even in these choppy days we're seeing effectively zero or very close to zero volume..

That was great. Thank, Tom. That's great color on the market..

[Operator Instructions] And there are no further questions at this time..

Great. Thank you very much again. This is Tom Majewski, I appreciate everyone's continued interest in the Company. As Ken mentioned, we will be presenting at some point in early September, a tax presentation similar to the GAAP presentation we had provided earlier this year.

We will have a presentation which will be available on our website and we'll have a call in where we will offer some prepared remarks and then to the extent we're brave enough we'll open it up to questions from the audience, but we'd be very happy to continue that discussion with folks as we understand.

Hopefully we've offered some clarity on the GAAP income questions that investors continue to analyze and then we will do our best on the tax side, and hopefully that will foster some further discussion. To the extent anyone has any other questions, we’re happy to fill them, if not we thank everyone for joining the call today..

This concludes today's conference call. You may now disconnect..

Thank you..