Tom Majewski - CEO Ken Onorio - CFO.

Christopher Testa - National Securities Ryan Lynch - KBW Jim Young - West Family Investments Fred Small - Compass Point.

Welcome to Eagle Point Credit Company's fourth quarter 2015 and year-end 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 and welcome everyone to the Eagle Point Credit Company 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 before we begin please..

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

For further information on factors that could impact the company and the statements and projections contained herein, please refer to the company's filings with the Securities and Exchange Commission.

Each forward-looking statement and projection of financial information made during this call is based on information available to us as of the date of this call. We disclaim any obligation to update our forward-looking statements unless required by law.

A replay of this call can be accessed for 30 days via the company's website, eaglepointcreditcompany.com. This morning, we filed our annual report with the Securities and Exchange Commission. Additionally, we made the annual report and our fourth quarter investor presentation available on the company’s website.

The annual report which includes our year end audited consolidated financial statements can be found by following the Financial Statements & Reports quick link on our website. The investor presentation can be found by following the Investor Presentations and Portfolio Information quick link on our website.

I would now like to hand the call back over to Tom..

Thank you, Ken. Ken and I plan to discuss a handful of topics with our call participants today, including first, the company's fourth quarter financial results and investment activity during the quarter.

Second, we'll cover cash flows received on investments in the first quarter through February 23rd, management's preliminary estimate of the January 2016 NAV per common share and certain other portfolio highlights. The third item we'll cover is a recap of the company's bond issuance from December 2015.

The fourth item we’ll seek to cover is an update on the broad CLO and loan markets. Fifth item will be an update regarding taxable income for the upcoming taxable year. And then finally an update regarding Q1 of 2016 GAAP net investment income per share estimates that management has.

Ken, would you mind beginning by walking us through the fourth quarter results?.

Sure. Thanks, Tom. We will begin with the company's fourth quarter 2015 results. During the period from October 1 to December 31, 2015, the company had net investment income of approximately $7.3 million or $0.53 per common share.

This compares to net investment income of $0.51 per share in the third quarter and $0.31 per share in the fourth quarter of 2014. When unrealized portfolio depreciation is included, the company recorded a net loss of approximately $20.7 million for the fourth quarter of 2015 or $1.50 per common share.

This compares to a net loss in the third quarter of $2.20 per common share and a net loss of $0.31 per common share in the fourth quarter of 2014.

The company's fourth quarter net loss was comprised of total investment income of $12.1 million, offset by total expenses of $4.8 million and net unrealized depreciation or mark-to-market loss of 28 million.

The quarter-over-quarter improvement in net investment income was aided by $0.3 million increase in total interest income, resulting from the full deployment by the start of the fourth quarter of proceeds associated with the Series A Term Preferred Stock offering.

As of December 31, 2015, the company's net asset value was approximately $189.6 million or $13.72 per common share. As of December 31, 2015, the closing trading price of the company's common stock was $16.43 per share, reflecting a 19.8% premium to NAV on such date.

As of February 23, 2016, the company’s closing common stock price was $14.34 per share. For the full year of 2015, total return to common stockholders was a negative 8.12%. This assumes distributions received during the period where we invested our prices obtained by the company's dividend reinvestment plan.

During the fourth quarter, the company made new investments totaling $10 million. For the full year, the company made new net investments totaling $114.6 million. As of December 31, 2015, the weighted average effective yield on the company's CLO equity portfolio, inclusive of CLO equity investments made in the fourth quarter, was 16.68%.

Over the course of 2015, the company was able to capitalize on the volatility in the broader markets. The weighted average effective yield of the CLO equity investments made by the company in 2015 was 18.63%, as measured at the time of investment. This compares to weighted average effective yield of 15.3% as of December 31, 2014.

We highlight that effective yields of the company’s CLO equity investments include a provision for future credit losses. Overall, we remain pleased with the company's portfolio and believe that the portfolio's cash generating capacity remains strong.

Additional information regarding the company's portfolio and underlying loan obligations can be found in the company's regular quarterly investor presentation available on our website. The presentation includes portfolio level information, which we believe is helpful for stockholders in their continued evaluation of the company.

We encourage everyone to download and read this presentation. Your attention is drawn to page 4 of the quarterly investor presentation. On this page, we provide position by position details of the GAAP earnings, cash flows and other investment level metrics.

Among other information, this page compass the cash flows received in the fourth quarter versus GAAP earnings accrued using the effective yield method in the prior quarter. You will see that the ratio of cash received in the fourth quarter to income accrued during the third quarter is 207%.

All cash flow and excessive accrued income is treated as a return of capital for GAAP purposes. In addition, beginning in May 2015, the company started 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 the end of January is now available on the company's website. Moving to the second agenda item, I will provide an update on the company following December 31 year end.

On January 29, 2016, the company paid a distribution of $0.60 per common share for stockholders on record as of December 31, 2015, which was declared on December 7, 2015. As with prior quarters, the December 31 net asset value reflects an accrued liability associated with this distribution.

Those investments that have reached their first payment date are generating cash flows in line with expectations. In the first quarter of 2016, as of February 23, the company received cash flows on its investment portfolio, totaling $20.3 million or $1.47 per common share.

This compares to $21.1 million of total cash flow received during the fourth quarter of 2015. 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.

Earlier this week, we published a preliminary management estimate of the company’s January month-end NAV of $12.99 per share of common stock. This change in NAV per share from December 31 was due to further unrealized mark-to-market changes in the company's portfolio.

Tom will now cover the next agenda items?.

Thanks, Ken. This is Tom speaking again. Our third agenda item is to provide a recap of the company's bond issuance from December 2015. You may recall that in early December 2015, the company issued $25 million principal amount of Series 2020 unsecured bonds. These bonds pay interest at a rate of 7% and are due on December 31, 2020.

The bonds may be repaid in whole or in part at any time after December 31, 2017, at the company's discretion. The bonds are rated A- by Egan Jones and trade on the New York Stock Exchange under ticker ECCZ, z is in zebra.

We believe the issuance of the Series 2020 unsecured bonds represents an opportune way for the company to raise capital to deploy in today's choppy markets. A number of investors and analysts have asked about the company's overall plans for leverage. The bond issuance was part of the company's longer-term strategy for managing its capital structure.

As of December 31, the company had debt and preferred securities outstanding, which total approximately 27.4% of the company's total assets. This is in line with management's expectations under the current market conditions of operating company leverage.

Both in the form of debt and preferred stock, we would expect leverage to range between 25% and 35% of total assets. As market conditions evolve, or should significant opportunities present themselves, the company may incur leverage outside of this range or go below this range, subject of course to all applicable regulatory limits.

Moving to the fourth agenda item, I’d like to provide an update on the loan and CLO markets. 2015 was certainly a year that brought both challenges and opportunities for credit investors.

The Credit Suisse Leveraged Loan Index, a widely followed index for senior secured loans, recorded a total return of negative 40 basis points, only its second negative annual total return since the inception of the index in 1992.

One of the attributes of CLO equity as an asset class that we seek to capitalize upon, the market’s relative inefficiency proved a weakness from the perspective of mark-to-market valuation, particularly during the second half of 2015.

However, we believe the flipside of this current market volatility is the opportunity it presents for specialized long-term oriented CLO market investors such as the company to invest capital at lower and more favorable prices.

In the loan market, new issue US institutional loan activity fell to $258 billion in 2015 from $377 billion in the year before, according to data from S&P Capital IQ. Although new issuance fell over the year, as of December 2015, there were approximately $850 billion of senior secured loans outstanding.

This is a sizeable market and allows for a broad range of investment and reinvestment opportunities for the CLOs in the company's portfolio. According to S&P Capital IQ, from May of 2015 through December of 2015, the new issue yields maturity on BB and B rated bank loans increased by 1.18% and 0.94% respectively.

This reflects the benefits of both wider spreads and greater original issue discounts or OIDs. For perspective, the average purchase price of new loans in the fourth quarter of 2015 was approximately $0.98 on the dollar.

This level of OID, approximately 200 basis points compares quite favorably to the approximately 50 basis points of OID commonly found in new issue loans earlier in 2015 and in prior years. This can certainly partially offset any future credit expenses that the Company may face.

As we have previously communicated, we believe that the ability of CLOs to continue reinvesting during periods of market stress when loan prices are falling and spreads are widely can be beneficial to CLO equity over the medium and long term.

Moving to the CLO market, according to estimates from Citibank, JP Morgan, and Morgan Stanley, the total return for the US CLO 2.0 equity market in 2015 was between negative 13.4% and negative 15% total return.

We highlight that Eagle Point common stockholder had a much better total return in 2015 when compared to this broader market or these broader market estimates.

In fact, we believe that the price movement experienced in the CLO market broadly during the second half of 2015 was among the worst in the history of the CLO market and was primarily the result of two key factors. The first being concerns related to energy exposure coupled with broader macroeconomic concerns.

And the second being negative technical factors in the CLO market, specially decrease in demand from hedge funds and BDCs for CLO products. It's worth noting that as of December 2015, on a look-through basis, the Company had exposure to the oil and gas industry of 3.9% based on the par value of our exposures.

This compares very favorably to 5.4% as of December of 2014. Our exposure today as it was then is in line with the broader loan market. By contrast, as of December 2015, the JP Morgan US high yield index had energy exposure of approximately 17.8% based on par value.

We believe this significant differential is often overlooked by investors and the financial press when high yield energy exposure is cited.

We encourage shareholders to review our annual letter which was released this morning for more detail regarding this and the technical factors that we believe have impacted the CLO market and the mark-to-market in the marketplace during the second half of 2015.

Importantly, our portfolio fully continues to generate meaningful cash flow despite the downward mark-to-market volatility in the prices of the CLO securities that we hold. We believe this apparent inconsistency between high cash flows and falling market prices should eventually converge.

Based on our review of our current portfolio, we do not anticipate a material change in our original internal return estimates for our aggregate CLO equity portfolio over the life of such investments.

That being said, we believe it is a time of heightened uncertainty in the market and that the potential for continued mark-to-market volatility remains. In addition, there is a potential for increased loan downgrades and defaults in 2016 compared to 2015.

While default rates are often discussed, we believe it is equally important to consider loan repayment rates. For example, during 2015, approximately 21% of all outstanding loans prepaid at par according to data from S&P Capital IQ.

During times of market stress such as those that we’re in now, in a closed structure such as a CLO those par dollars from prepayments can be reinvested in new loans during the CLOs reinvestment periods often at meaningful discounts to par. This provides an opportunity for CLOs to build par and offset a portion of potential future credit expense.

According to S&P Capital IQ, for the full year in 2015, US CLO issuance reached $97.3 billion which was the second busiest year on record for the market.

Looking forward to 2016, not unlike many others in the market, our advisor expects lower issuance as the market works to equilibrate during this period of heightened market volatility and uncertainty..

This is Ken speaking again. For our fifth agenda item, we would like to discuss the Company's taxable income and our analysis of the need for special distributions. In order to maintain our RIC status and minimize excise taxes, the Company is required to pay distributions equal to nearly all of its taxable income.

As you may recall, the Company elected at November 30 tax year-end, this has a number of advantages including facilitating timely and accurate reporting of year-end tax information to our stockholders.

For 2015, as reflected on the Company's 1099-DIV, approximately 64% of the Company's common distributions represented ordinary income with the balance a return of capital. We will continue to track taxable income and expect to provide a further update on our plans regarding special distributions on our call discussing the first quarter 2016 results..

Thanks Ken. And to offer some brief concluding remarks, I'd like to continue to thank everyone for their interest in Eagle Point Credit Company.

Certainly the NAV moves in our underlying portfolio have been frustrating for us as we are all shareholders here and the Company - we do highlight though that the Company has generated consistent quarter-over-quarter growth in net investment income. This is an important metric that we watch very closely.

While the Company does not intend to provide regular guidance on its projected performance, based on the cash flows and investment income recognized on our portfolio through February 23 of this year and management's expectations of such items through March 31, 2016 under current market conditions, the Company expects its GAAP net investment income per share for the quarter ending March 2016 to be between $0.57 and $0.62 per common share.

Beginning with the first quarter of 2016, when quarter end estimates of NAV are published by the Company, the Company will now also include a management investment of net investment income for the quarter that ended.

Our advisor has a number of investment opportunities in various stages of analysis, diligence and negotiation and we will continue to selectively take advantage of the opportunities in the market as they come about. That concludes management presentations of Eagle Point Credit Company's fourth-quarter update.

At this point, we’re happy to open up the call to question and Ken and I will be pleased to address any questions that participants have..

[Operator Instructions] Your first question comes from the line of Christopher Testa with National Securities. Your line is open..

So just with the effective yield, I noticed it was definitely up, not up as much as I guess I would expect given the volatility in the market.

Is that mostly from a heightening provisioning that goes into the effective yield or is that because prepayments were somewhat muted and you didn't have as much to deploy into the lower loan prices?.

So the prepayment rate throughout the year was a little over 20%. In the fourth quarter it was 17% is my recollection.

Bu the effective yield to the effective yields calculation is a yield that struck at the time of investment and then is held constant over the life for accrual unless there is a material change in assumptions related to any given investment.

So you will notice, if you line up positions by position quarter-over-quarter I don't believe maybe one or two had changes to sales or purchases but broadly you'll see positions where the amounts were unchanged, the effective yield would hold constant.

That said, if you applied than projected stream of cash flows to the current marks on most of our positions, you’d actually come up with a higher yield. But basically that's the original yield at time of investment would be the way to think of it.

And the portfolio went up significantly during the year as we did make new investments; the new stuff in the ground was over 18% this year. So it trended up over the year but it's not a mark-to-market effective yield..

And if you’re looking at a cash-on-cash yield differentials from the fourth quarter - in the fourth quarter from the third, how much additional cash yield where you able to capture from the volatility?.

It is a little variable in that - to cut to the chase, cash in the fourth quarter versus prior period accrual was 207%. And cash in the third quarter versus prior period accrual was 201%, so directionally positive in terms of more cash flow versus what we’re accruing.

Although I highlight that the cash flows in our portfolio can be a little bit lumpy particularly as new CLO investments come online. You see we do break out cash from CLOs making first payments versus CLOs making other than first payments and things around a little bit.

And as of year-end, we had a number of CLOs that had not yet reached their first payment date, so that also distorts it a little bit but safe to say the cash flows on the portfolio we think generally continues strong. In an aggregate, the cash in excess of income accrual was greater on a quarter-over-quarter basis..

And just with the junior OC cushion down a bit not that it's anywhere near a worrisome level but can you just give some color on what drove that or there is some pickups in defaults, increased provisioning, what generally drove that down?.

So the drivers of that - actually correlate a little bit to the reduction in the energy exposure frankly in the portfolio is obviously a weighted average on a CLO by CLO basis.

At the current 4.75% junior OC cushion, it’s certainly our portfolio on average meaningfully in excess of the weighted average market average that we've seen published from a number of leading CLO research desks. And then if you look on a position-by-position basis none of them are anywhere near close to tripping.

But the net - the modest reduction in the overall portfolio was principally driven due to a repositioning within some of the CLOs in a reduction in the oil and gas exposure. That exposure was down 130 or 140 basis points throughout the course - went from 5.4% to 3.9%, so down 150 basis points through the course of the year.

Some of that reduction did involve taking some losses but certainly a material derisking along the way..

Got it. And just one of the things that I hear speaking a lot with the institutional investors is, there is very low liquidity in the stock, the portfolios relatively small balance sheet.

Are there any thoughts and I don't know if this is possible if you could speak to this about potentially using your own stock as currency given it usually trades at a decent premium to NAV but potentially acquire a BDC or RIC that's trading at a substantial NAV discount, has a lot of cash something that you could easily turn around and just use as your own strategy, is that a possibility and is that something that you would consider if it a possibility from a regulatory perspective?.

Let me just go back and add one bit to the prior answer. In our annual letter on page 6, we provided that the Company had 46 basis points of defaults on a look-through basis and that compares very favorably to the broader loan market which as of December 31 on this S&P index was 3.5%.

So defaults while greater than zero, certainly well less than our assumptions for ramped up and seasoned portfolios. In terms of - just to clarify there. In terms of your question on potential M&A activity, indeed we've been very fortunate, the Company as of yesterday’s closing price was at an approximate 12% premium to the January NAV.

While we continue to - we’re always open to interesting and creative ideas. I can’t say that we’ve given any specific analysis to any particular opportunity for the company. We're always open to things that are accretive to shareholder value.

In the near term, certainly the past few months has been completing the balance sheet round up with the issuance of bonds, getting that capital deployed. We’ve shared with you the anticipation of being in the $0.57 to $0.62 a share net investment income which importantly gets to that - in the context of that $0.60 bogey.

And that's been our main focus to-date. So I can’t say we have not looked - there has not been anything under consideration to-date..

Okay. And just last one from me, if I may.

Given the volatility in the markets and that this is where you guys see a very favorable reinvestment market, are you prone to issue, more capital, more debt at least until you hit your leverage limit by, let’s say, at the end of the second quarter of this year in order to take advantage of the loan market dislocations?.

A good question and we provided the guidance that we expect to keep the company between 25% and 35% total indebtedness. It’s been current market conditions. As of year-end we're a little over 27%. So there is a little bit of room for that. Always the dilemma, the best day to buy CLOs is often the worst day to issue debt for the company.

So there is always that borrower and lender dilemma that we face. We have no current active plans.

Right now our main focus again has been getting the net investment income into that $0.60 context and deploying the bond proceeds from December, but we’ve kind of shared a broader range which we hope can give the communities some guidance as to where you should expect to see the company in general in the coming months..

Great. Thanks for taking my questions, Tom..

Thanks, Chris..

Your next question comes from the line of Ryan Lynch with KBW. Your line is open..

Hi, Ryan..

Hey, Tom. Good morning. Thank you for taking my questions. Just going back to your effective yield for a minute, when you guys are making those assumptions, I know you guys make it at the beginning and then depending on how things change, they could be changed through unrealized markdowns in the underlying CLO portfolios.

Can that affect your effective yield or do those unrealized marks have to be - do they have to eventually just turn into defaults and losses before you actually adjusted your effective yields?.

So a good question. So the effective yield is set at when we make you original investments. And it’s contemplated to be the yield over the lifecycle of the investment. One of our checks and controls is evaluating how the investments are doing relative to our original forecast.

The first metric we look at is how are the cash flows doing versus our original forecast. And then how are defaults doing, how our CCC is doing and things like that are certainly some of the drivers that we look at when we reevaluate, do we have a change or do we need to make a change in the yield or accrual prospectively.

Except for positions where we've added some or sold some, we haven't made any changes to the effective yields in the portfolio this year other than if we bought or sold that created a revisiting event as well.

But we look rigorously at each position and frankly what we're seeing is some of the marks are down significantly and that’s factored into the NAV against that the default rate we've suffered is sub-50 basis points as of year-end. So we're not today seeing a pickup and that we haven't through last year seen a pick up defaults.

Many in the market and a number of credit research analysts do predict a pickup in defaults this year. Certainly the energy sector broadly is likely to have some degree of defaults greater than zero this year, you could debate how much. I know our maximum I guess would be 3.9% if every company defaulted, which is certainly not a production.

So we look at it carefully and what we're seeing is that the CLOs are still performing very much in line with our expectations. A negative about our positions, I would say, is the value of the loans is lower in many cases than we'd like and that's all else equal a bad fact. The flip side of that is the CLOs are reinvesting at much, much better prices.

And when we would have made an effective yield calculation a year ago or 18 months ago, we would assumed reinvestments at 99.5 or half something like that. Today 98 is a new par and there is plenty of opportunities for loans to come in at even lower prices, which has the effect of offsetting potentially higher credit expenses.

So we reevaluated regularly price movements on a security of something that also causes us to reevaluate and where we look, how we've seen the investments performing. We've been very comfortable that they're still performing very much in line with the original expectation. So those remain the original yields off of our original purchase price.

If you were to apply those cash flows to today's marks, you'd see a much greater yield frankly, but that’s the accounting we are following. It uses the original basis unless there is a significant change in assumptions..

Great. That’s actually really great commentary around that..

Could I just add one. We’ve been assuming defaults since before there were defaults. Our base case forecast for the last few years assume that once the portfolios are ramped and seasoned we're having 2% defaults per annum. Last year we had less than 50 bps.

We don’t recast favorably for that either holding all else equal and this is a simplified statement. If you said we - if you take that 150 bps that’s kind of a carry forward to losses, defaults potentially for this year. So we've got our 2% budget for this year, plus we’ve got unused reserve from last year.

So it’s something that we haven’t taken - it’s buried in the effective yield, but we haven't released that reserve I guess would be the way to say it from prior years where we’ve had better than expected credit performance..

Yeah, that’s a good point on building kind of that reserve for losses kind of per se. Just one other one. You guys raised - in your debt offering you guys raised about $25 million. I think I believe you guys put to work about $10 million in the fourth quarter.

I know you guys I think raised it in December, so it’s little belated in the fourth quarter, so just putting $10 million out of the $25 million to work, does that have anything to do - does that have to do with just the bond kind of closing later in the quarter or are you guys taking at a more gradual pace of deployment of that capital or is there any reason behind why $25 million was raised and only $10 was put out to work in the quarter?.

The $10 million was - obviously money is all fungible, but the $10 million was actually excess cash flows over the distributions from payments received earlier in the quarter. Typically we get our payments in October for most of our investments and we pay out the distribution at the end of October.

That $10 million invested was sort of the excess cash flow over the distributions. I don’t believe we made any investments - maybe a small amount of investment after the bond was raised, but you’ll see as of year-end we had about a little over $20 million of cash on the balance sheet.

We’ve continued to be active and have deployed a fair bit of that since. We certainly had the window open and we're hoping for some of kind of yearend specials if someone needed to move something on December 31 no matter what. I am sad to say we didn’t - those opportunities didn’t present itself.

But net of a little bit further deployment we had $21 million of - I think it’s $21 million of cash as of yearend and we've continued to deploy capital throughout the first quarter..

Great. That’s all from me. Thanks..

Thank you very much..

[Operator Instructions] Your next question comes from the line of Jim Young with West Family Investments. Your line is open..

Hi, good morning, Jim..

Yeah, hi. Good morning.

A couple of questions, I guess, with the cash that you've been able to deploy year-to-date basically what kind of the effective returns are you able to acquire in this marketplace?.

Sure. The effective yield on investments that we made during the full year last year I believe was 18.63% measured at the time of investment. And I will say in general that number has trended up throughout the course of 2015. And the investment opportunity today broadly in that context with some ability to invest at even wider levels today..

So for the investments that you made year-to-date in 2016, are they north of 20%?.

We haven't disclosed specific information around the investments made this year, but safer to say the market has not rallied against us in terms of investing..

And you had mentioned that the loan prepayments for the industry in 2015 were around 21%.

Could you share with us what your actual experience was in 2015 and how has 2016 started off?.

Sure. We don't release the annual or our specific prepayment rate to a very good proxy, though, forward is the market and I wouldn't expect a meaningful difference from our portfolio prepayment rate to the broader market prepayment rate. And I would say, in 2016, so far the prepayment rate has actually picked up a little bit.

I don’t have an exact stat in front of me. There have been a number of big pay downs in the market, though. One I think the - one of the like dollar store I think paid down $1 billion of its loans already this year and that’s just one credit. But we've seen a more - a bigger pickup than I would have anticipated so far here in 2016.

The long-term average prepayment rate according to S&P data kind of looking over a 10-year period is a little over 30% per annum. So last year's rate of very low 20s is a significant outlier on the low side.

The lowest two-year period for prepayments just to frame that is 2008 and ‘09 when on average those two years the market saw 12% prepayment per annum. Those are obviously some of the darkest days in the credit market.

So where we sit around 20 is broadly in line with if anything right now it feels a little higher, but things can ebb and flow in the market. And just to add one other specific to your prior question, the newest investment, the newest CLO equity investment that came into the portfolio had an effective yield. This was in December.

It was purchased at 20.75%..

Okay, thank you. And the last question, just with respect to the underlying credit trends that you are seeing, we appreciate that the markets have been negative.

But when you think about the 1,078 unique obligors that you have, how did the - how are their credit trends from the second quarter to the third quarter going into the end of the year? And have you noticed any notable change in 2016 year-to-date?.

Sure. We will say excluding energy credits, the low investment-grade credits have continued to show reasonable growth at both top line and EBITDA while companies maybe stronger or weaker overall in aggregate in the loan market and certainly representative in our portfolio we've seen reasonable top line and EBITDA growth within the companies.

So that much we consider quite positive. Energy is certainly a different story. While the company has senior secured loans, it’s always good to have collateral. Certainly some of the collateral there was worth a lot less than when the loans were made and we do see a wide variety of prices, some names, some energy names still trading well into the 90s.

And the market is clearly saying those are very, very strong names. Other names are trading well below $0.50 on the dollar.

The interesting part about that with covenant light is to the extent these companies in many cases are covenant light can keep paying their cash flow or keep their debt service via through whatever free cash flow from operations they have or if they have to sell a division or sell an asset, as a CLO equity investor we're very happy just to see that cash flow continuing as long as possible.

And I think what most people would say broadly around the loans in the energy space maybe not so much the high yield bonds, but certainly the loans where we have relatively low direct kind of E&P exposure.

It's more service provider and midstream type exposure that the runways that these companies have are typically longer than shorter, which is a good fact we believe for CLO equity.

The other big trend which is we think is a favorable one for the company is and this is all according to data published by S&P Capital IQ that we think is very representative in our portfolio is the new loans that are getting created today are typically much, much better quality than loans might have been a year or two ago.

I think you'd find few in the market who say it's not a lender’s market today, covenants are getting added, larger OIDs, some hung deals coming through the market where the investment bank might have underwritten the level and are now forced to sell at a deep discount.

There have been plenty of loans purchased and new issue loans coming at 95 to as low as the high 80s even. That's not 100% of the market, but there's enough of those which can be quite powerful.

So we're seeing leverage come down and if you look at the S&P Capital IQ data, you will see for broadly syndicated loans that the leverage levels certainly at the first lien level in an aggregate are trending lower, which is good for us as a lender.

Conversely middle market loans, the smaller loans which is not the company's principal focus has actually been trending higher. That sector is not subject to the governments, the FDIC and OCC leveraged lending guidelines. So some of the regulatory pressure that the banks have been under and certainly the market pressure has been helping us.

Some of the other kind of shadow banking systems have been subject maybe less to those regulations. So where we sit certainly the economy is not gangbusters. The growth is the number one thing that helps these companies and what we're seeing is reasonable top line and EBITDA line growth across our obligors..

Thank you very much..

Thank you..

Your next question comes from the line of Fred Small with Compass Point. Your line is open..

Hey, good morning. Two or three questions.

So I guess, just thinking about the difference between sort of the underlying cash flows and where the mark is - where the marks are currently, what level of losses or defaults or cash flow stoppage, however the mix works out, do you think the CLO equity marks are currently discounting? I mean, if you look at your portfolio and say, based on the cash flows we anticipate, what would it take in the actual underlying market to get sort of your fundamental price to where the mark actually is?.

I'm not sure I fully followed the question.

What sort of move in the market or what would have to change in the cash flows or --?.

Yes, or what would have to change in the cash flows or one step further, what would actually have to change in the underlying positions or what level of losses and defaults in the underlying market due the marks - do you the marks are discounting?.

That's a good question. We think it's fairly significant. The prospective yield and this is an approximate number, if you take our expected yields on our portfolio at original - from inception, which are in the upper 16, mindful of the mark-to-market losses, the unrealized mark-to-market moves on the portfolio.

The certainly translates into a mid-20s sort of expected yield. So that's just to kind of frame. What the current marks using our cash flows would suggest is kind of the applicable outcome. The weighted average I think and you can see this in the financials, it looks to be about 26% yield from today's marks using our cash flows prospectively.

That assumes out a default rate of 2% per annum once the portfolios are ramped up and seasoned. Some of the things that are going to move around, we've seen the securities mark fallen value between 20 and 40 points against 50, in our case sub-50 [ph] basis points of actual defaults.

The market is clearly saying there is going to be higher defaults than there have been in the past. I think few in the market would disagree with that.

Against that, I will say there is some degree of market psychology where people have been very used to investing in the CLO market without any substantive credit losses, and boy, once the event specter of that comes on to the table, which it certainly has in the last year that changes investor psychology and behavior towards the marketplace.

Two of the biggest participants in the market, and I guess where I'm going with this, a big driver of the change in valuation, I don't think you'd find too many people saying CLOs are going to have 7% or 8% defaults in the next few years.

Frankly, a big driver of the change in the prices of securities in our opinion is due to some changes in supply and demand, whereas a year ago, 18 months ago, the hedge fund community was a very active user of CLO product. A common trade was to buy a CLO with new issue, take big of a block of it, clip one or two payments and then sell it.

Not necessarily planning to hold it for the long term, and that's a great trade. Obviously, as long as there is another guy there to buy it the day after, that's ultimately caused some.

That trade has I think largely gone from the market, and frankly, we're seeing some selling pressure and some of the majority pieces that we purchased in the secondary market last year came from hedge funds we believe selling unwinding that trade.

The other factor that certainly has reduced demand for product has been the reduced investment interest in the market from business development companies.

While few BDCs have been big sellers of CLO securities, some of the biggest BDCs who are holders of CLO securities have slowed their investment pace significantly or stopped it some cases we believe.

And that's certainly due to a combination of what we've been really fortunate being at premium, the BDC community certainly had a discount and not raising much capital. And then frankly feedback from many of their investors saying, this is not what we want to see you doing, we want you to be out originating loans.

So we've taken two big sources of demand in the market that kind of built up the size of the market. Those two have certainly gone away. So whereas in prior - in the 2008 or 2001 cycle, people were talking about meaningful spikes in defaults.

In the loan market, we're seeing relatively few, even though the worst, most bearish outlooks from some of the underwriters are still in the low-single digits for default rates this year. There is some confusion with the high-yield bond market having 17% or 18% energy exposure and typically more E&P type exposure and then the loan market.

High yield bond defaults, many expect, including us, to be materially higher than the loan market. But we don't see anyone talking about 4% or 5% defaults in loan market.

That said, if we were to see that, what we would expect to happened is a significant reduction in loan prices, which goes a long way to helping build par through discounted purchases or from prepayments, which we would expect to continue in reinvesting, recoveries I guess as one bid, and then finally, any relative value trading that can be done in the CLO can all be tools to offset an increase in credit expense.

So we're not seeing people predicting 5%, 6% or even 4%, 5% default rates in CLOs this year. And we certainly haven't seen that anywhere near that in our portfolio, yet the marks have moved significantly. We attribute a fair bit of that simply to the technical supply demand balance change. Sorry, that was the long answer, but I hope I gave the flavor..

That’s great. That’s helpful. I mean, the two ranges that you put out there were either a 7% to 8% or 4% to 5% in terms of the level of I guess defaults or the underlying defaults that current markets anticipate.

How much has liquidity declined in the underlying?.

It's certainly down somewhat and bid asks are wider. But we continue to see reasonable activity to a market, so there is a number of dealers who actively make two-way markets in CLO equity paper, sometimes it's two-point markets, sometimes it's four-point markets, but it's nice to see two-way activity. I will say, doubled.

In the last few weeks, Bwick [ph] activity or the Double B level has picked up significantly and we're seeing more equity trade and be shown to us kind of on a privately negotiated basis versus off of Bwick from the secondary market.

So liquidity is certainly down from where it was a year ago, but there is activity certainly in the marketplace and that there is very rare is there a day where someone has not called us to enquire about a position or offer us an opportunity..

Got it.

And then in times like these, when there is higher volatility and less actual issuance, what goes on - can you give us some color about what goes on with the loan accumulation facilities?.

Sure. So these are all set up as sort of - probably the best way to think of them as interim or mini CLOs, all of the ones we have in the portfolio don't have any sort of mark-to-market triggers and frankly the past few weeks have been great times to be buying loans up at significant discounts to par in those facilities.

Without saying this definitively, I don't remember anything coming in there, anywhere near, it's 98 or lower for the vast majority of purchases, which is great to get that kind of part into the system. The CLO market certainly started off quite quietly in January with only a handful of deals crossing the finish line.

More recently, however we've seen a significant pickup in issuance, two or three CLOs have been issue of price as recently as this week and we are beginning to look at the process of converting some of these into new CLOs today..

Got it. Thanks. And any sense for just given - I don't know how about - there are different estimates out there for what different parts - different CLO bonds, CLO equity was down in January.

Why do you think CLO equity has been down in February?.

I will let you know on the 29th. The market had been a little softer earlier in the month and I am kind of grouping CLO equity and Double Bs the together and more recently, we've seen certainly a renewed interest and we've seen some dealers actually moving up their offers on paper in past week or so..

Okay, great. Thanks a lot..

There are no further questions at this time. I'll turn the call back over to Mr. Majewski for closing remarks..

Great. Thank you very much everyone for joining the call. We appreciate all the questions and continued interest in Eagle Point Credit Company. We will continue to update you as any developments unfold.

And then as we mentioned earlier, when we publish the management estimate of quarter-end NAV, we'll also be including a management estimate of net investment income, which we think will be very important for investors as they continue to analyze the company.

So thank you very much for your time this morning and look forward to speaking to many of you again soon. Thank you..

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