Garrett Edson - ICR Tom Majewski - CEO Ken Onorio - CFO.

Ryan Lynch - KBW Allison Taylor Rudary - Oppenheimer Christopher Testa - National Securities Merrill Ross - Wunderlich.

Good morning. My name is Tashan and I will be your conference operator today. At this time, I would like to welcome everyone to the Eagle Point Credit Company First Quarter Update Call. [Operator Instructions]. I would now like to turn the call over to Mr. Garrett Edson from ICR. Please go ahead..

Thank you, Tashan and good morning. By now everyone should have access to our earnings announcement and investor presentation which was released prior to this call and which may also be found on our website at eaglepointcreditcompany.com.

Before we begin our formal remarks, we need to remind everyone that the matters discussed on this call include forward-looking statements projected financial information that involve risks and uncertainties that may cause the Company's actual results to differ materially from those projected in such forward-looking statements and projected financial information.

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

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

A replay of this call can be accessed for 30 days via the company's website eaglepointcreditcompany.com. Earlier today, we filed our Form-NQ [ph] and first quarter 2017 financial statements with Securities and Exchange Commission. Financial statements and our first quarter investor presentation are also available on the company's website.

Financial statements can be found by following the financial statements and reports quick link on our website. The investor presentation can be found by following the investor presentation and portfolio information quick link on our website. I’d like to introduce Tom Majewski, Chief Executive Officer of Eagle Point Credit Company..

Thank you Garrett and welcome everyone to Eagle Point Credit Company's first quarter earnings call. If you haven't done so already we invite you to download our supplemental investor presentation from our website which provides additional information regarding our portfolio and underlying corporate loan obligors.

As on our last call I'll provide some high level commentary on the first quarter and then we'll turn the call over to Ken who will walk us through the first quarter financials.

I'll then return to talk about the macro-environment, our strategy and provide some updates on our recent activity and then of course will open the call to questions from participants. In the first quarter we continued to build on the success of 2016 and we deployed capital where we saw opportunities.

Also where we saw pockets of particularly strong demand we sold a small amount of securities. Our portfolio continued to generate strong cash flows and aided by our opportunistic sales in the quarter, we generated net investment income and realized gains of $0.60 per common share covering our run rate common distribution.

During the quarter, we deployed $51.4 million on a gross basis in both the primary and secondary markets.

We made one primary CLO equity purchase representing approximately $13 million of proceeds, 10 secondary CLO equity purchases totalling about 17.5 million of proceeds, fixed CLO debt purchases and made investments and for loan accumulation facilities.

Our CLO debt purchases were focused on opportunities in CLOs where we already own meaningful amounts of the equity class. Of our loan accumulation facilities one was converted into a CLO during the quarter.

Capitalizing on the strong price of loans we also called two CLOs in the portfolio during the quarter directing a liquidation of the loan portfolios into the marketplace.

The new CLO equity investments made in the quarter had a weighted average expected yield of about 16.3% at the time of investment reflecting attractive yields in a strong credit market.

In the monetization side we were able to opportunistically sell 12.3 million of CLO equity securities allowing us to realize 700,000 of net gains versus amortized cost. We believe that we can rotate the cash from these sales into higher yielding investments.

Beyond deployment sales and COGs [ph] we also capitalized on strong demand from CLO debt investors and devoted a significant amount of effort towards refinancing and resetting CLOs in our portfolio.

To provide a brief refresher in CLO parlance a refinancing involves tightening the spreads on a given CLOs liabilities typically without making other material changes to the transactions provisions or tenor.

This compares to what we call a reset where the transaction documents are reopened and typically the reinvestment period non-call period and maturity dates are all extended effectively creating a new CLO off of an existing portfolio. During the quarter we priced nine refinancings and one CLO resets in our portfolio.

We expect the results of these efforts will result in greater cash flows to our equity securities and believe activities like these are our core benefit of our advisors investment program.

To frame the magnitude of our activity according to market data 107 CLOs were refinanced in the quarter and the company represented 8.4% of that total market activity. As of March 31, the weighted average effective yield on our CLO equity portfolio was 16.21% down from 17.48% last quarter and 16.77% as of March 31, 2016 partially.

Ken will explain a bit more in his remarks and as I've noted previously the weighted average effective yields includes an allowance for future credit losses. Subsequent to quarter end we issued new common stock in April at a 14% gross premium to the March 31 NAV generating approximately 28.7 million in net proceeds for the company.

This issuance will allow us to continue to pursue our investment program and expand our portfolio while increasing NAV for all shareholders.

We were pleased with our portfolio and its performance during the quarter and after Ken's remarks I'll take you through the current state of the corporate loan in CLO markets and our activity so far in the second quarter of 2017. I'll now turn the call over to Ken..

Thanks, Tom. Let's go through the first quarter in a bit more detail, for the first quarter of 2017 the company recorded net investment income and realized capital gains of approximately 9.8 million in the aggregate or $0.60 per common share. This was comprised of 8.5 million of net investment income and 1.3 million of net realized capital gains.

This compares to net investment income and net realized capital gains of $0.58 per common share in the fourth quarter of 2016 excluding the $0.04 per share excise tax and $0.61 for common share in the first quarter of 2016.

When unrealized portfolio depreciation is included the company recorded net income of approximately 0.8 million or $0.05 per common share for the first quarter of 2017.

This comparison to net income of $1.51 per common share in the fourth quarter of 2016 and a net loss of $0.10 per common share in the first quarter of 2016, the Company's first quarter net income was comprised of total investment income of 16.1 million and realized capital gains from the sale of investments of 1.3 million offset by unrealized appreciation or mark to market for us of 9 million and total net expenses of 7.6 million.

Our quarterly total investment income and realized gains increased from the previous quarter. As Tom previously noted in April we raised approximately 28.7 million and additional deployable net proceeds from our common stock issuance and increased our share count by just over 1.5 million.

At the beginning of the first quarter the company held approximately $26 million of cash net of pending investment transactions. As of March 31, that amount was 17 million. As a result of deploying 13.8 million of net capital during the first quarter there was a significant amount of capital that only generated income for a portion of the quarter.

We expect these positions to fully generate income during the second quarter. As of March 31, the company's net asset value was approximately 283 million or $17.13 per common share. We estimate NAV has further increased by proximity 3% as of the end of April. Net GAAP return on common equity in the first quarter was approximately 0.27%.

The company's asset coverage ratios at March 31, for preferred stock and debt as calculated pursuant to investment company requirements was 282% and 713% respectively. These measures are above the statutory minimum coverage requirements of 200% and 300% respectively.

On prior calls we discussed management's expectations under current market conditions of generally operating the company with leverage in the form of debt and/or preferred stock within a range of 25% to 35% of total assets.

As of March 31, the company had that debt in preferred securities outstanding totalling approximately 35% of the company's total assets less current liabilities comparable with a prior quarter.

In terms of our weighted average effective yield as we noted on our prior call we made a determination going forward to recalibrate in investments effect yield at least once a year on the anniversary date of the formation of each CLO investment in our portfolio.

Additionally effective yields will be recalibrated on an event such as a partial sell, add-on purchase, refinancing or reset. Partially as a result of the recasting this quarter as well as quoting two CLO investments during the quarter a weighted average yield was reduced to 16.21% from 17.48% in the fourth quarter of 2016.

A summary of the investment by investment changes and expected yield are included in our quarterly investor presentation. Moving on to our portfolio activity in the second quarter, investments that have reached their first payment date are generating cash flows in-line with our expectations.

In the second quarter of 2017 as of May 15th, the company received total cash flows on its investment portfolio including proceeds from core investments following 29.3 million or $1.66 per common share. This compares to 28.9 million of total cash flow received during the full first quarter of 2017.

As always we want to stress that some of our investments make payments later in the quarter and as of the calculation date in the second quarter those other investments have not yet reached their payment date.

On the company's website, we published an unaudited management estimate of the company's monthly NAV and quarterly net investment income and realized capital gains or losses.

Management's unaudited estimate of the company's NAV as of April 30 was $17.71 per share of common stock reflecting an increase in the market value of our investments and cash flows received during the month.

Earlier this year the company announced its intention to pay monthly distributions and began paying $0.20 per common share each month converting from prior quarterly distributions of $0.60. For the three months ended March 31, 2017 the company declared and paid distributions on common stock of $0.40 per common share.

The difference from the previous quarterly amount was simply due to timing of the conversion and there were no missed distributions. Finally we would like to update you on the special distribution we will be required to pay later this year.

As we've noted previously we estimate the taxable income for the tax year ended November 30, 2016 will exceed the aggregate quarterly distributions paid to common stockholders restating a special distribution to meet the tax requirement.

Management's current estimate of the company's special distribution requirement is $0.55 to $0.70 per share of common stock. The range is estimated based on the increased number of our shares of common stock outstanding today as compared to the number of shares outstanding in prior periods.

Please note the actual distribution requirement will not be known until the company filed its tax return later this year and may deviate from our range. We still expect to pay the special distribution and one of more installments was a latter part of 2017 and will provide a further update on the special distribution plan on our next quarterly call.

I would now like to hand the call back over to Tom to discuss the current status of our portfolio and the overall market..

Great. Thank you, Ken. First let me take the call participants through some macro alone and CLO market observation and then we can discuss how they might impact the company and I will also touch a little bit on our recent portfolio activity.

Through May 2nd, the Credit Suisse leverage loan index has generated a total return this year of 1.69% tracking a little behind last year's strong performance because, 69% of the corporate loan market is currently trading at a premium to par.

On a more positive note with the Fed still expected to raise rates potentially more couple of more times this year corporate loan fund inflow momentum continues with nearly $13 billion in net inflows during the first four months of 2017 into open end loan mutual funds.

As a result we continue to see increased loan and refinancing and repricing activity. According to S&P Capital IQ 79% of the new loan issuance volume through April of this year was attributable to repricings and refinancings. So while issuance volume is up a significant portion of that is attributable to these repricing said refinancings.

Total institutional corporate loans outstanding were 889 billion as of March 31 up just slightly from the end of 2016 and this continues to provide us with a large investable market for our CLO's.

In terms of defaults or credit expense default rates remain low and are expected to remain around these levels for the foreseeable future due to minimal impending maturities, a more robust economy and the majority of the corporate loan market consisting of covenant light loans.

That said we will continue to position Eagle Point in our portfolio to be able to take advantage of price dislocations and volatility when they occur. In the CLO market through April we've seen $27.6 billion of new CLO issuance representing an annualized pace in line with our expectation of $80 billion to $100 billion of issuance for this year.

What is not included in this total however is an even greater amount of issuance that was in the form of refinancings or CLO resets. Together through April refinancings and resets totalled $97.3 billion far greater than we've ever observed in the CLO market.

We saw in the first quarter some equity investors concerned about spread compression this is loan spreads coming down which caused a drop in the value of some of our investments in February. Specifically related to Eagle Point however in addition to future credit losses we typically model spread compression into our expected yield base case.

While loan spreads have fallen we believe the market concerns were overblown during the first quarter. We would expect that should loan spreads continue to tighten then credit expense should also be lower than our base case.

With rising rate environment floating rate CLO debt interest remain strong and many new issued AAAs are pricing in the high 110s to the 120s with a few exceptions outside of that range. We're also seeing some secondary equity trading again at tight yields.

CLO debt refinancing activity remain strong and as we remove through the second quarter we are seeing a pickup in reset activity of existing CLOs in the market.

With that said we continue to be busy in the second quarter and from a refinancing perspective I'm taking advantage of our advisors, deep investing experience to generate additional value for our portfolio and our stockholders.

So far in the second quarter we've priced one primary CLO equity investment from a loan accumulation facility, we also made one new issue majority CLO equity investment where we were not an investor in the loan accumulation facility, deployed $11.7 million in the secondary market and opened one new loan accumulation facility where its creating a new CLO.

We've also directed one CLO debt refinancing and a full reset in another CLO in the portfolio. As part of the reset that CLO which had recently reached the end of its reinvestment period was able to create a new additional five year reinvestment period, we think that's very powerful for that investment.

In addition we continue to maintain a robust refinancing and reset pipeline for other investments in our portfolio. To sum up we remained active in the new issue market while also focusing on refinancing and resetting CLOs in our existing portfolio.

We believe the value of our in the ground portfolio gives us a significant edge in completing transactions like that where we saw opportunities we also bought and sold in the secondary market and by virtue of locking in lower funding costs our 10 CLO refinancings and two resets this year should generally increase future cash flows to our CLO equity securities versus had we just taken a passive approach to our investments and not done anything.

We remain in a strong position to be able to deploy our capital into new investments as well as using our deep experience to further complete refinancings and reset with a goal of creating additional long term value for our shareholders. We thank you for your time and interest in Eagle Point. Ken and I will now open the call to questions.

Operator could you please process the questions..

[Operator Instructions]. Your first question comes from the line of Ryan Lynch with KBW. Your line is open..

So first question talking about the decrease in NAV this quarter, so NAV went down from the fourth quarter to the first quarter from 17.30 to 17.48 driven by unrealized depreciation and some CLOs and then we look at quarter to date so through April the NAV has more than reversed that decline and is actually up pretty nicely in April which I would assume is probably driven by or you know some unrealized appreciation of CLO investments.

Can you just talk about what drove the unrealized depreciation in the first quarter and then why have we seen such a dramatic reverse so far in April..

The unrealized loss in the first quarter is around $9 million, negative or 9.045878 million to be exact a lot of that was particularly if you look at the kind of the month by month management estimates of NAV which are available on our website you'll see the biggest decline was between January and February of 2017.

There was not a charge for a distribution taken in that period which there were two $0.20 distributions charged against the March 31 NAV but for January to February there was none.

So you can see the decline in NAV there and what that was in our view broadly a number of CLO equity participants got particularly concerned around the rate of loan spread compression and this is -- talked about earlier a significant portion I think 79% of the loan market activity this year has been repricings and refinancings which is simply the companies lowering their debt spreads which follow a sequel is bad news for us.

In many cases though they're also extending their maturities which may be good news for us as a lender to them, the flip side of all of that. So the market got a little spooked by that would probably be a fair way to say it.

The flip side to that we've sort of returned the favour onward to some of the CLO debt investors and we've refinanced or reset about 20% of our positions on account basis this year and probably greater on a dollar basis and then B at the same time credit expense remains lower than contemplated which is certainly a kind of a key thing in times of strong credit markets and loan repricing you're going to see fewer defaults.

Against that more recently the kind of trend has changed, loan repricings are a bit of a seasonal thing it's odd but the first quarter in many years 2016 being an exception but loans have a bit of a seasonality of repricing in the first quarter that has certainly slowed significantly, it hasn't gone away, but I think equity investors have appreciated the bulk of the way many of them believe is behind us.

To quantify in our portfolio you can see in our Investor presentation the weighted average spread on our loan portfolio fell from 397 to 385 quarter over quarter, so to kind of quantify the numbers that we're talking about and what repricing means the impact to us was about 12 basis points on the underlying loan spreads.

Finally all of our expected yields when we calculate them assume some degree of spread compression and also assume credit losses though seeing loan spreads come down while we never like to see it is something we do contemplate in our models. .

Okay.

And so basically some of those loan I guess refinancings have slowed down in Q1 in I guess some loans have there -- some CLO debt piece have been either refinanced or reset which I guess is gotten equity investor CLO equity investors more comfortable around the ultimate returns for CLO equity and that's basically what has driven up or created some unrealized appreciation in April then?.

That's a fair way to think of it, yes, many investors would say the concerns or we believe investors would say the concerns were overblown going in particularly into February..

Okay.

And then if you can -- this is maybe more of an educational question but can you talk about you know you talked about refinancing several CLO debt pieces as well as you know I think you have one CLO reset in the first quarter and I know you're doing some quarter-to-date can you just talk about where the steps, the processes you guys take in evaluating whether to take action or refinance tranche or CLO debt or to go in there and reset a whole CLO or conversely just do nothing or let the CLO kind of continue as is?.

And it was a fourth option of calling the CLO as well which we did two of. So every deal, every investment has a number of facts and circumstances bespoke to it, that's about the two calls maybe just to start there those were the easiest. Those were positions we bought in the secondary market.

In one case we bought majority, I think in the other case we built two majority and this is across Eagle Point as a family not just ECC and those were such the investments that reached the end of the reinvestment period, the portfolios maybe were short or dated or maybe had attributes that we didn't think were conducive to new CLOs so there we simply directed a full liquidation of those investments.

Generally it will be quite positive IRRs and MOICs on those investments but there are some where that's reached the end of the reinvestment period. One of them we had refinanced previously but then we just look at the prospects for a new CLO, its better just to let it go. Loan prices are high take it in some cases.

Then in terms of resets and we've completed two of them so far this year.

One in the first quarter, one so far in the second quarter within ECC .There is this situation where it's kind of coming to the same point in its life as those CLOs that we're called but maybe we think the portfolio has some more room for upside in it, we're certainly very pleased with the investment in both of the certainly in the most recent CLO that was reset that was an investment we were in the kitchen on originally so it's we owned it as an advisor since its inception where we'll come in and say this one the math suggests the value is greater than just liquidating the value of that new CLO security after going through the reset and adding a new reinvestment period looks great and in some cases you can see the value of CLO equity securities increase just simply as a result of doing a reset because you're adding a new four, five year reinvestment period to a deal that's probably otherwise near the end of its reinvestment period.

The most recent one we conducted just ended its reinvestment period in April and the new reset has priced such that from start to finish and this predates the formation of ECC that CLO will have a nine year reinvestment period which is one of the best things we can think of.

And then to the last two categories of refinance versus do nothing and here it's a little bit of a calculated decision that we shared with you, we were a high single digit just ECC alone was a high single digit percentage of the refinancing market so far this year and that's indicative of us being very proactive investors within our portfolio and not just passive riders in each of the investments.

As we make the decisions though some of the things to think through many of the CLO refinancings perhaps not all but certainly the vast majority are done under something called a crescent or a no action letter given by the SEC, I guess last year which specified that the CLOs created before December 2014 could have a refinancing without having a springing risk retention requirement.

One of the drawbacks of that letter, it's a great letter and it gives a lot of flexibility in our portfolio. The one drawback to it is you can only do it once under the letter.

Now there's talk of the rules being repealed or changed but we're working on the rules we're in right now .So you have to make a conscious decision certainly spreads are tighter today and we talked about AAAs for new issue and the 110s and 120s, in general it's great to do refinancings if we have all AAAs in the 140s, 150s, or 160s that's easy math.

The challenge though is you only get one bite at the apple in many cases.

So we intentionally didn't do everything we could because two, three months from now spreads could be even tighter and we could look back and say boy we overdid it And now we've lost capturing that further tightening at the flip side of markets turn haywire we might not be we might have foregone some refinancing opportunities.

So in general we did more than less but we frankly intentionally didn't do all and then the final question the decision to do nothing in the case of some of the CLOs some of them still could be and certainly all the 2016 and even some of the 15 CLOs may still be in their non-call period.

So there's nothing you could do there and then similarly a few of them we let linger with the hopes of capitalizing on even tighter spreads later this year whether or not they occur obviously remains to be seen..

Just one last one, looking at the market environment today. You talked about there's been very significant CLO volumes so far in 2017 but a lot of those are driven by refinancings or reset CLOs.

So can you just talk about what is the environment today for deploying new capital and primary issuance CLO equity pieces given that on one hand you have a very good pricing on AAAs you know you mentioned you know on the upper 110s or low 120s however you also have tighter spreads credit spreads on the loans that are being originated today.

So given the dynamic of a lot of that being refinanced CLOs as well as that push, pull of low debt pricing from the CLO debt side but also those spreads on new loans.

How are you feeling about the environment today for putting capital to work?.

Yes, Ryan you fit on the dilemma we face every day, the best data by loans is the worst data issue CLOs and vice versa in many cases.

So in terms of kind of what we're doing and if you just look at the new issue pace and we share the numbers 26 billion or 27 billion through April which is in-line with kind of $80 billion to $100 billion full year issuance that excludes resets and refi so that's just straight up new deals that are counted in there.

So the market is continuing at a healthy pace. We've been involved year-to-date I guess with three of those from Eagle Point which is about our normal pace.

The way -- one of the other things I talked about earlier though was that the vast majority I think was 79% of loan issuance has just been refinancing or repricing of loans and what typically happens in a loan syndication then is the existing lenders get first dibs on the new paper and oftentimes it makes it more difficult for a new portfolio to ramp up and get access to a new issue loans.

You can certainly buy loans in the secondary market but again the majority of those loans are also trading at a premium to par which may make them less compelling to buy in the secondary market.

So in terms of creating new CLOs what we've been doing and you'll see as of quarter-end we had three loan accumulation facilities, Aries, Carlyle [ph] and THL were all in the ground.

We mentioned we converted one facility into a CLO that was the facility formerly known as THL 163 which became THL 171 when it became a CLO earlier this year a deal Morgan Stanley arranged.

For those who were taking the slow and patient approach to accumulating loans we have multi-year non-mark to market facilities in place to buy loans in partnership with the collateral managers to ramp up to have new CLO's, but it does take a while to get there and if anything they probably last a little longer than they might have otherwise in today's market.

The flip side with the resets in our most recent reset which occurred after quarter end was a $600 million and what we did was increase it to 700 million which provided some additional new investment capacity for the company and opportunities like that whereas to create a new 700 million CLO today would be tough sledding shall we say.

The ability to bolt on a 100 million that certainly becomes more interesting and more attractive so that was the kind of thing where we were able to create what I'll call it a bit of shadow capacity on the side that might not even be in the new issues stats, more in the reset stat but where we think of it that CLO if we didn't reset it probably would have been called and would have had a return of capital back to the company.

Here we were able to add a new investment period and get a little more capital in the ground into an investment where we're already certainly very pleased with.

So there's not one right answer to it but patience is frankly a key part of the attribute key attribute of it and then similarly just the options that our portfolio gives us that reset and the one in the first quarter where things -- the only way we had access was because we had an underground portfolio.

So that that edge and the ability to keep working within a diverse set of about 60 different equities securities some where we have majority of the house, a few where we don't gives us a very big edge in what can be a tricky market..

Your next question comes from the line of Allison Taylor Rudary with Oppenheimer. Your line is open..

So I noticed that your cash distributions from the portfolio and you guys mentioned it tracking around 29 million for the first kind of six weeks of the quarter and that seems to be roughly kind of the amount that you've been running give or take for full quarters now if I look back over the last couple or actually well above that.

I was wondering if you guys could talk a little bit about some of the dynamics there, is some of that coming because you've had proceeds from your calls or is the portfolio kind of where it stands now starting to tick up and it's cash distribution is kind of on the whole?.

I'm going to go back and look at the Q4 cash summary here as well and what we had I don't have that number handy..

It was 25.5 million..

I think for -- 25.5 million for the full quarter. Let me go back to the earnings release if I can see that probably would have had the number kind to-date.

We had received as of the February earnings call so far in the first quarter we received 24.6 million, again ultimately getting to 25.45 so the vast majority that would be indicative the vast majority is in the bank already, Most CLOs pay on January-April-July-October cycle, so we've gotten the bulk of the capital in, the cash flows in but there are a few stragglers that pay elsewhere in the quarter..

I was going to ask a little bit about -- I know that the leverage loan market issuance was really high in 1Q but you did mention in your prepared remarks that a lot of that was repricing and refinancing and it sounds like that from your commentary has more to do with the CLO resets and repricing and not necessarily kind of a boom in CLO creation.

Is that a fair way to characterize kind of what's going on right now in the overall markets?.

Sure. In the CLO market again through April we're on pace for between 80 billion and a 100 billion of new issuance not including refinancing and reset activity which would be an increase year-over-year from the prior year.

I don't recall the exact stats but it was mid-70s last year, billions of CLO created so we're on pace for an increase year-over-year in terms of CLO formation excluding CLO refinancing and resets.

In terms of loan issuance while the market has been certainly very strong, we've actually received inbounds from a number of investors like what's going on why is there so much new credit getting formed.

We included the total loan market outstanding of 889 billion is not radically different than where it was six months ago suggesting the vast majority of the loan market activity is simply repricing or refinancings.

So in terms of CLO formation we're on pace for a slight increase year over year, not a doubling but more than a trivial increase and then the loan market a fair bit of the activity has just been kind of churning the same paper likely that slows it certainly feels like that slowing at present which should facilitate more new issue loans and potentially an increase in the supply of loans overall..

Your next question comes from the line of Christopher Testa with National Securities. Your line is open..

Just a bit of a housekeeping item first, should we be looking at core earnings in terms of the dividend coverage to be from net investment income plus realized gains going forward given it seems to have contributed as significant amount towards the earnings in the past two quarters?.

Yes, that's probably a fair way to think of it and when we think of things that it is you know there's always a trade-off, the investments we sold which generated some very nice gains, were fine investments.

However we saw bids that were in many cases indicative of yields tighter than we thought were fair value so higher prices on prices higher than our amortize cost [indiscernible] that’s great, everyone likes to sell securities at gains, I will remind people our fee structure does not include any performance fee on gains so that doubly potent for shareholder.

On the flip side you get cash when you sell those securities and then I tried again because we don't have enough NII. So it’s a trade-off between the two.

We're ultimately going to run the portfolio to maximize long term value, there is obviously a trade-off realizing a gain all else equal, we're going to be in cash on that capital for a little while but we think of it on a combined basis certainly between the two..

And just obviously with the substantial amount of refinances which should serve to obviously offset the substantial spread compression going on in the market, just curious so when you were refinancing things in the first quarter how much of a lag is there before that kind of gets baked into the effective spread calculation you're using to model out GAAP effective yields..

Sure so maybe I'll answer that with two parts and Ken, can we do the recasting on the pricing or closing date?.

Closing date..

Got you, so the closing date -- so when a refinancing or reset occurs my price on February 15th and close on March 10th, March 10th, is the date we will go and re-run the numbers which would then so de-crew at the old rate prior to that date and then the new rate prospect of late.

And then B, that's how it affects the yield all else equal lowering debt costs should increase the yield but things could change in the portfolio but then B, it's also important to highlight the impact on the cash flows and that all these refinancings do cost a little bit of money.

The bankers were pretty cheap and the lawyers are rating agencies work pretty cheap but it is greater than zero and sometimes you see a little bit of a dip and that’s paid for by the equity usually on the next payment date such that sometimes your equity cash flows may fall quarter over quarter when you've done a refi or reset to pay for all the work that was done with the expectation that on the next payment you obviously more than make up for that.

So there can be a little bit of distortion in some of our April payments we would have actually been lower than the prior quarter even though we did the refi as we're paying for those refi expenses. .

And just you had mentioned in your prepared remarks you did a significant amount of secondary market purchases despite the market being so hot right now for CLO equity just curious you know where you found pockets of opportunity there and of I believe it was the 11 secondary market or 10 secondary purchases during the quarter if you could elaborate on how many of those were follow-ons from your previous secondaries or follow-on purchases from what you had primarily originated in the past..

Sure.

I'm looking at the investment blotter, so first off so we had 11 investments one was the new issue, THL 171 which came off of the THL 163 accumulation facility, so that's kind of a regular way Eagle Point business and then the other piece of the puzzle so the remaining amounts are relatively small that's often ones, twos and threes of proceeds though there are some outliers a little bit to the higher side there and a number of them are either positions where we are accumulating actually looking through the list none of the first quarter add-ons were CLOs where Eagle Point was in the kitchen all those when the deal was originally created although a number of them are positions where we either own majority or own a significant minority and are building on those positions and frankly a fair bit of the activity was in February and you saw from our monthly NAV estimates March were down in February so and hopefully a few [Technical Difficulty] turn out to be good buys in general, more than big strategic acts in the portfolio.

So the count is high, the dollars relatively low and quite a few of them were things were otherwise working on..

And just looking at the through the investor deck here it seems that the amount of loans with LIBOR floors year over year is down significantly.

Now my question is this from the loans breaking through the floors and no longer having them or is there a lot of borrowers willing to accept no floors on the new loans?.

So here you're looking at page eight of the investor deck and the weighted average percent of floating rate loans with LIBOR floors?.

Yes that's correct..

9.2%, yes, so let's go to the tapes here, three month LIBOR is 1.1864% comfortably and you will see the weighted average LIBOR floor is 95 bps consistent with our [indiscernible] quite a while.

The good and the bad were through LIBOR floors and holding all else constant LIBOR going up obviously could bring other issues but would be a good fact and could generate more cash flow for our investments.

What we're seeing in the loan market now is certainly the strongest borrowers wherever possible either pushing back to a 75 bps floor or in some cases pushing to get rid of the floor altogether.

You'll still see 89% of the market has it, so it's one in 10 that don't -- truly an exception but it is you can see the trend is a little bit moving away from that..

Got it. So it's a combination of those two. Okay..

Maybe broadly, loan spreads coming in is a credit positive and that companies have lower debt service costs all else equal. We're paying L+4 and now they are paying L+3 [ph] that makes companies again all else equal less likely to default.

The flip side is now we have LIBOR moving up, LIBOR going from one to two not a forecast but if that were to happen that offsets that spread savings. LIBOR goes from two to three, three to four at some point it's holding all else constant does become a challenge for companies in our view that's a pretty far away scenario.

But it is something we're mindful of..

Got it.

And off the 31% of the corporate leverage loans being under-par, I'm just curious if there are any particular sectors may retail aside which is a just unmitigated disaster but if there is any other sector?.

Chris, very fair question and certainly with the majority of the market and you would get page 10 or -- we didn’t put it in here, I apologize.

The weighted average price on our portfolio you could see was on page eight rather 98.61 versus 98.62 flat quarter over quarter, certainly some of the lowest price loans find their way into the retail and energy sector still, those are still unfortunately kind of the areas that get some of the some of the most attention in the market.

Against that I'll say it was certainly within retail and you will see we have about, if you look on page nine, 4% retail excluding food and drug retailers and energy is not even on the charts anymore which is good. Retail kind of falls into a tail of three broad categories.

A number of loans are trading in the very high 90s and low 100s, the Albertsons of the world, that PetMart guys like that have a have a pretty good place in the world and probably face the Amazon effect a little bit less.

Then you have companies in the middle the, Neiman Marcus' of the world which last I looked was trading high 70s, low 80s that was a few days ago that's one where the market's saying this one could go either way and then it moves green if you have companies like a [indiscernible] which we have very, very little exposure.

Last I saw that first lien loan was trading in the single digits, that's the market saying probably not long for the world. So there is not all retail is created equal and whereas energy companies and oil and gas companies that topic [indiscernible] a year ago largely all kind of fell around the price of crude oil and natural gas.

There's a lot of things that that play out in the retail market beyond just the input of one commodity so it is a more diverse set of factors. Amazon I guess being the one thing that that's kind of common to all of them but different companies are positioned certainly very differently versus an Amazon..

[Operator Instructions]. Your next question comes from the line of Merrill Ross with Wunderlich. Your line is open..

My question is on page six, and this is really in the way of education more than anything else.

I think I understand the changes and effective yield when they're positive might reflect refinancing of the CLO or reinvestment period still being open Well I'm having trouble understanding is that the ones that decline like the first one on the list that’s down 4.1% an effective yield.

Is there a generic explanation for that or is it different in each case?.

Sure.

So there is probably a few categories to look at the first one ALM- VIII, this one -- I'm going to work a little off of memory here, it’s a smaller position for us was principally due to spread compression in the portfolio and this was a process on this we have been -- this was a new investment that we made or we bought additional amounts of in the first quarter which caused a triggering of a recasting and compared to where it was previously this CLO may have faced a greater amount of spread compression while on average we were down about 12 basis points that number is an average and some were flat in terms of spread in their portfolios and others were down 25 bps or more.

So there are a few things that could give rise to -- I will compare it to the a couple down, you'll see like Babson 2013-II went up 1.64% and that one was due to a simply the quarterly refresh of the positions and that one things that could help it if it had built par or bought some loans at discounted prices or previously distressed names kind of phonixed back to par that we're certainly seeing a lot of that in the market where names that a year ago were 60 or 70, six months ago were 80 and are now 98.

So the market's going to look at those and we're going to look at those names much more favourably and they may have had less spread compression than other CLOs and they may have also in the case of Babson I believe benefited from refinancing during the period.

So the things that hurt loans spreads coming down, losses in the underlying portfolio be it realized or defaults good things refinancing, par building and previously troubled credits, phoenixing are each of the inputs that can go in there.

While overall the portfolio fell, the yields fell about 100 basis points if you look at weighted averages on page six. In general that reflects a little more than average spread compression that we faced in the quarter largely offset by less than contemplate a credit expense if you had to make a generalization a number of factors in there.

You will see one or two of them went to zero just also highlight those a crescent atlas that was the CLO that was called and one of the C-SAM [ph] deals Madison VIII was also called, those we were able to get at or equal to our prior months marks in terms of call proceeds on them.

So obviously sad to see them go at higher earning rates but those reached their natural end of life..

What I really wanted to hear was that it was more spread compression on the negative than it was credit issues. I don't know if it's possible to keep -- in the future--.

Yes, that’s absolute fair way -- that’s certainly the overwhelming trend volume, invariably there are some small credit issues and a small number of portfolios that the driver today is much more spread compression than credit expense..

And I currently see no further questions over the phone. I'll turn the call back over to the presenters..

This is Tom and Ken again. Thank you very much for joining in this morning and we appreciate the thoughtful and detailed questions. Very pleased with how the company has performed in the first quarter and we shared certainly some of the portfolio updates through mid-quarter here in Q2 and we believe we're trending positively in the quarter.

We appreciate everyone's time and continued interest in Eagle Point Credit Company. Thank you very much..

And this concludes today's conference call. You may now disconnect..