Garrett Edson - Investor Relations Tom Majewski - Chief Executive Officer Ken Onorio - Chief Financial and Chief Operating Officer.

Paul Johnson - KBW Christopher Testa - National Securities Allison Taylor Rudary - Oppenheimer Mickey Schleien - Ladenburg.

Good morning. My name is Kasey and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2017 Earnings Call. [Operator Instructions] Thank you. Garrett Edson, you may begin your conference..

Thank you, Kasey 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 or projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from those projected in such forward-looking statements and projected financial information Further information on factors that could impact the company and the statements and projections contained herein, please refer to the company's filings with the Securities and Exchange Commission.

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

A replay of this call can be accessed for 30 days via the company's website eaglepointcreditcompany.com. Earlier today, we filed our Form N-CSRS and second quarter 2017 financial statements with Securities and Exchange Commission. Financial statements and our second 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 second 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 the underlying corporate loan obligors.

As we’ve done previously, I’ll provide some high level commentary on the second quarter and then we’ll turn the call over to Ken who will walk us through the second quarter financials.

I will then return to talk about the macro environment, our strategy and provide an update on some recent activity and then of course we will open the call to questions from any participants. The second quarter was an active one for Eagle Point on several fronts and that activity has continued into the third quarter.

During the second quarter, we completed our 1.55 million shares of common stock issuance pricing the offering at a double-digit gross premium to NAV. We deployed approximately $69 million of capital into new investments during the quarter, and our investment portfolio continues to generate strong cash flows.

We also took advantage of certain opportunities to sell securities from our portfolio walking in gains. In addition, we continue to utilize our adviser strength and their broader portfolio to complete additional refinancings and resets during the quarter.

However, drag from the common stock issuance since the capital was deployed throughout the quarter and the recalibration of effective yields for certain CLOs reflecting the broader market trends of loan spread compression, somewhat muted our overall performance.

For the second quarter, we generated net investment income and realized gains of $0.53 per common share. During the second quarter, we deployed $69 million on a gross basis in both the primary and secondary markets.

We made three primary CLO equity purchases representing approximately 29 million of proceeds, 7 secondary CLO equity purchases totaling 9.6 million in proceeds. 8 CLO debt purchases and also made investments in three loan accumulation facilities.

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

The CLO equity investments that we made had a weighted average effective yield of 15.89% at the time of investment. This is reflecting an attractive yield in a strong credit market. That weighted average expected yield includes a reserve for credit losses in the future.

On the monetization side, we are able to opportunistically sell 600,000 of CLO equity and 2.5 million of CLO debt securities allowing us to realize 300,000 of net gains versus our amortized cost. We believe that we can rotate the cash from these sales into more attractive investments.

Beyond our deployment and sale activity, we continued our refinancing and reset efforts during the quarter and priced the refinancing of 10 CLOs in our portfolio and were able to reset one of the CLOs in our portfolio.

For the first six months of the year, we’ve conducted refinancings of 22 of our CLOs and reset two of them in total, which is far and away the most we’ve completed in a single year with respect to refinancings and resets. We also highlight there are several more months to go and will share with you some updates on our pipeline shortly.

To provide some additional perspective, since August 2016, we have completed the refinancing and reset of billions of dollars of CLO debt and through our concerted efforts we believe the refinancings during that period have allowed us to save between 27 and 61 basis points per refinance CLO of ongoing debt cost.

This is an important tool that we have to partially mitigate the reduction in spreads on many bank loans that are seen in the market.

We expect the results of our refinancing and reset efforts will result in greater cash flows to our equity securities then had action not been taken and believe activities like these are a core benefit of our advisor’s investment program.

As of June 30, 2017 the weighted average effective yield on our CLO equity portfolio was 15.68% and that’s down from 16.21% last quarter and from 17.03% one year ago in June 2016. This is primarily due to the recasting of certain investments in our portfolio. The reduction is a product of - among other things market wide reduction in loan spreads.

This reduction frankly in weighted average expected yield would have been greater had we not conducted so money refi’s and resets. Ken will explain a bit more in his remarks and as I have noted previously, the weighted average effective yield measures do include an allowance for future credit losses.

With Eagle Point nearing full deployment of cash at the end of the quarter we established an at the market program to issue both common stock and Series B term preferred shares. The program was put in place to provide us with additional flexibility to issue shares and generate proceeds for us to deploy when we see opportunities.

Ken will provide more on the particulars, but through August 8 we have received proceeds through the program of approximately $1.7 million.

Subsequent to quarter-end, some of you may be aware we closed on an underwritten public offering of 27.5 million of aggregate principal amount of our new 6.75% series 2027 notes resulting in net proceeds to the company of about $26.4 million. These notes trade on the New York Stock Exchange under ticker ECCY.

Also recently the underwriters exercised the shoe, which will result in some additional proceeds for the company and we are pleased it was a strong offering. The issuance allows us to continue to pursue our investment program and expand our portfolio as we continue to seek to increase operating earnings and NAV for all stockholders.

While we are keeping an eye on our effective yields, we’re also pleased with the overall tender of our portfolio and the hard work put in during the team, during the second quarter to set ECC up for the longer term and after Ken's remarks, I’ll walk you through the current state of the corporate loan and CLO markets, as well as some updates on our activity in the third quarter of 2017.

I’ll now turn the call over to Ken..

Thanks Tom. Let's go through the second quarter in a bit more detail. For the second quarter of 2017 the company recorded net investment income and realized capital gains of approximately $9.3 million in aggregate or $0.53 per common share. This was comprised of $8.4 million of net investment income and 0.9 million of net realized capital gains.

This compares to net investment income and net realized capital gains of $0.60 per common share in the first quarter of 2017 and $0.57 per common share in the second quarter of 2016.

The reduced net investment income and realized gains per share was primarily due to the issuance of over 1.5 million common shares during the second quarter, as well as a recalibrating of effective yields of certain CLOs.

When unrealized portfolio appreciation is included, the company recorded net income of approximately $15.5 million or $0.88 per common share for the second quarter of 2017. This compares to net income of $0.05 per common share in the first quarter of 2017 and $1.81 per common share in the second quarter of 2016.

The company's second quarter net income was comprised of total investment income of $16.2 million net unrealized appreciation or mark-to-market gain of $6.2 million and realized capital gains on investments of $0.9 million, partially offset by total expenses of $7.8 million.

At the beginning of the second quarter, the company held $17 million of cash net of pending investment transactions. As of June 30 that amount was $6.3 million.

As a result of deploying $57 million in net capital during the second quarter it was a significant amount of capital that only generated income for a portion of the quarter, which we expect to generate greater income during the third quarter. As of June 30, the company's net asset value was approximately $317.1 million or $17.53 per common share.

We estimate that as of the end of July NAV has further increased by approximately 0.4% net of the $0.20 common distribution. Net GAAP return on common equity in the second quarter was 5.4%.

The company's asset coverage ratios at June 30 for preferred stock and debt as calculated pursuant to investment company act requirements 305% and 771% respectively. These measures are above the statutory and 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 or preferred stock within a range of 25% to 35% of total assets.

As of June 30 the company had debt and preferred securities outstanding totaling approximately 33% of the company's total assets less current liabilities, which is a reduction from 35% in the prior quarter.

In terms of our weighted average effective yield as we have noted previously, we made a determination going forward to recalibrate in investments effective yield at least once a year. Either on the anniversary of the formation of each CLO investment in our portfolio or on a deal events such as a partial sale add-on purchase, refinancing or reset.

As a result of the recasting this quarter, our weighted average effective yield reduced to 15.68% from 16.21% in the first quarter of 2017. 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 third quarter, investments that have reached their first payment date are generating cash flows in line with our expectations.

In the third quarter of 2017, as of August 8, the company received total cash flows on its investment portfolio, including proceeds from core investments totaling $20.8 million or $1.15 per common share. This compares to $30.8 million of total cash flow received during the full second quarter of 2017.

As always, we want to stress that some of our investments make payments later in the quarter and to date in the third quarter those other investments have not yet reached their payment date. In addition, some cash flow in the second quarter was due to outsized first-period distributions from several of our investments.

There were no first-period distributions so far in the third quarter. As you are aware, we’ve published an unaudited management estimate of the company's monthly NAV, as well as quarterly net investment income and realized capital gains or losses.

Management's unaudited estimate of the range of the company's NAV as of July 31 was between $17.55 and $17.65 per share of common stock reflecting the cash flows received during the month and an increase in the market value of our investments. During the second quarter, we paid three distributions of $0.20 per share of common stock as scheduled.

Additionally, we declared monthly distributions of $0.20 per common share for each of July August and September. At the end of the quarter, we established an at the market offering program and there was a company can issue up to $50 million in common stock and up to 1 million shares of its 7.75% Series B preferred current stock.

Under the programs so far in the third quarter through August 8, the company sold approximately 50,000 shares of its common stock and 27,600 shares of its Series B preferred stock for total not net proceeds to the company of approximately $1.7 million.

Subsequent to the end of the second quarter, we closed an underwritten public offering of $27.5 million in aggregate principal amount of our 6.75% series 2027 notes resulting in net proceeds to the company of $26.4 million.

The underwriters have fully exercised their overallotment option for an additional aggregate principal of $4.1 million, which is expected to close later this week. The notes trade on the New York Stock Exchange under the symbol ECCY.

We're very happy to be able to issue new tenure unsecured paper of the company's shelf and believe this will be accretive to the company's earning over time. As a result of the ECCY offering, the company is over its targeted 25% to 35% financing bend.

Pro forma for the ECCY offering that ratio was approximately 37% as of June 30, excluding the exercise of the over-allotment option. Previously, we had exceeded our target then for a period in late 2016 with our ECCB offering and took steps over time to bring that ratio within our targets.

Finally, the company has completed and filed its 2016 tax year and return and we want to update you on the special distribution.

In accordance with the company's taxable income for the tax year ended November 30, 2016 exceeding aggregate quarterly distributions paid to common stockholders, the company today declared its special distribution of $0.45 per share of common stock payable on September 8 to stockholders of record as of August 25.

The distribution was lower than prior estimates, primarily due to the repositioning of underlining CLO portfolios resulting in lower than anticipated taxable income and a higher share count as a result of common stock issuances. Now I 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. Let me first take you through some macro loan and CLO market observations. I mean how they might impact the company and then I’ll touch on our recent portfolio activity. Through July 28, the Credit Suisse leverage loan index has generated a total return of 2.71% this year tracking a little behind last year's strong performance.

71% of the S&P LSTA leveraged loan index was trading at par or above. While corporate loan fund inflows slowed a bit in the second quarter it was still robust in the first half of the year, thanks to the Fed increasing rates twice and expectations in the market for at least one additional rate hike later this year.

There were approximately 13.6 billion in net inflows into open end loan funds during the first six months of 2017. And as a result, we continue to see increased loan re-pricing and refinancing activity to help meet that demand.

According to S&P Capital IQ, 58% of the institutional leverage loan volume through July of this year was attributable to such repricings. Total institutional corporate loans outstanding were $943 billion as of June 30 and that’s a 6% increase from both the end of 2016 and the first quarter of 2017.

The institutional loan market remains quite large and provides us with a large and large investable market for our CLO's to navigate. In terms of defaults, credit default rates remain low.

There is a 12-month lagging default rate of about 1.54% in the market as of the end of June and we expect rates to remain around these levels for the foreseeable future due to minimal and pending maturities at generally more robust economy and the majority of the loan market consisting of covenant light loans.

Should volatility and price dislocations occur, we remain well positioned to take advantage of those opportunities. In the CLO market through July, we’ve seen approximately $60 billion of new CLO issuance this year representing a pace slightly ahead of our expectation of 80 billion to 100 billion for a total issuance in 2017.

Also of importance 2017 has seen record-breaking amounts of issuance in the form of refinancing and resets. Together, through July refinancings and resets totaled over $111 billion far greater than we’ve ever observed in the market. So far in the second quarter and into the third quarter, we continued to see continued reasonable demand for CLO equity.

As we’ve talked about previously at Eagle Point, in addition to reserves for future credit losses, we typically also model spread compression into our expected yield base cases.

While spreads certainly have been compressed on many loans so far this year, we have applied a significant amount of refinancing activity to our portfolio to the liabilities of CLO's to help offset that spread compression wherever possible.

As in the previous quarter, with a rising rate environment floating rate CLO debt activity remain strong with new issue AAAs typically pricing in the low-to-mid 120s today. Our reset and refinancing pipeline remains robust.

We expect to see an increasing number of resets in the market in the second half of 2017 coming on the heels of a busy first half which was dominated more by refinancing activity.

By emphasizing resets, we hope to extend the lives of our CLO transactions that would otherwise be exiting the reinvestment period during this time of historically tighter CLO debt spreads.

Our advisors deep CLO investing experience and their broader portfolio frankly provides us with notable advantage as we seek to generate additional value in our portfolio or our stockholders.

So far in the third quarter, we’ve converted two of our loan accumulation facilities into CLO's and deployed $9.6 million of capital into the primary CLO equity market.

We’re currently focusing on completing resets, opening new loan accumulation facilities for later this year and into next year and converting our one remaining loan accumulation facility from end of quarter two into a new CLO.

To sum up, we remain pleased that the make up our overall portfolio in the second quarter saw us actively putting our dry powder to use across the board. We continue to utilize the strength of our team and our advisor to complete additional refinancings and resets, which should increase cash flows in the future to our CLO equity securities.

Nearing full deployment earlier in July, we remained active investing and we are able to raise additional long-term capital in the form of the ECCY’s. We remain well positioned to be able to deploy the capital into new investments, as well as using our deep experience to further complete refinancings and resets unlocking value wherever we can.

We thank you for your time this morning and your interest in Eagle Point. Ken and I will now open the call to questions..

[Operator Instructions] And your first question today is from the line of Paul Johnson with KBW. Your line is open..

Hi good morning Paul, how are you?.

Hi good morning guys. Good. Thanks for taking my question. My first question has to do sort of with the effective yield on the portfolio; it’s come down over the last several quarters.

I know you guys have had a number of refinancings and debt, but still looks like the effective yield continues to come down, I know you guys were also able to refinance some debt tranches within those of refinancings that you did, but doesn't really look like that it was able to offset the spread compression.

Should we sort of expect there to continue to be further pressure on CLO yields going forward?.

So very good question Paul, so to kind of walk you through a couple of miles here, just metrics in the portfolio to quantify when we say spread compression at least on the asset side.

If you look at our monthly portfolio updates, you will see December 2016, the weighted average spread on the underlying loan portfolios was 3.97%, and as of June that number was 3.75%. To put numbers on the asset side spread compression of 22 bips is what plays out.

The weighted average expected yield in the portfolio was as of December, my notes as of December 2016, 17.48% as of March 16.21% and as of June 15.68%. Just to share an interesting reference point, roll the clock back to June of 2016 and that same number was 17.03%, so it actually went up in the second half of last year.

Overall, what we have seen and kind of what has been driving the compression has been demand from retail loan funds and if you are managing a retail loan fund then you have inflows, you have two choices, you can either invest or sit on cash.

And in many cases those investors are those fund managers based on inflows, were buying loans pretty aggressively that allowed for companies to come back and reprice.

We have certainly seen and if you look at charts of monthly loan inflows, loan fund inflows, in general you will see that pace has slowed through the second quarter - I think nearly every single month and it certainly feels on the slower side in July and so far in August.

So that could suggest that the pace of compression on the asset side has gone has played out more full cycle, but obviously an increase in loan inflows could turn that back up. So we are a little bit subject to the whims of the broader market as all credit investors are.

To kind of talk about the impact into the effective yields of the portfolios, frankly had we not been involved in so many refinancings and resets, all else equal, the reduction in the weighted average expected yield would have been greater.

I don't have an exact number, but it’s obviously easy math if we can shave cost on the right side of the balance sheet that will reduce it.

So, overall if you look back historically in the loan market when there are periods of refinancing and spread compression it is typically most pronounced in the first quarter and first half of the year, but I can't say we are immune unfortunately in the second half, but trends are certainly at a minimum writing at this point..

Okay. Sure that makes sense; it makes a lot of sense. My second question was sort of around the dividend.

I understand that on a taxable income basis you guys have well over-earned the dividend for quite a while, but then on a GAAP NII basis you guys have sort of under earned the dividend and that could be fluctuate quite a bit in one direction or the other in any given quarter and appreciation and depreciation in the portfolio, but do you anticipate over time for GAAP NII to ever sort of align with the dividend and if not, do you plan on doing any anything to manage the dividend policy as it continues to under earn the dividend?.

Well, certainly we look at the common distribution rate carefully each quarter. We have declared back on June 1 the next three months of distributions through the end of September and as Ken mentioned earlier, we just declared the tax driven special which will be payable in early September.

As we look on this quarter, second quarter was $0.53 of NII and realized gains, the first quarter of this year was $0.60 in NII and realized gains and it bounced between the mid-50s and 60, 61 last year.

Some of the drivers - the two things that brought - if you had to look from being at 60 in the first quarter, which - it was 60 in the first quarter of 2017 that has a nice ring to it versus the common distribution rate.

The reduction is a combination to do with the reduction in spread on some of the underlying loans and the expected yield on the portfolio coming down. And then the cash drag associated with the common raise I guess in late April of the second quarter.

That common raise was obviously at a double-digit premium to NAV, so that’s accretive to all shareholders.

The way we look at it broadly is kind of how the portfolio's cash flowing, you can see that the NII and gains move around from quarter-to-quarter, when we certainly look at it carefully we are mindful that where we look at, we think of all of this on a very long-term basis and we try not to make long-term decisions on a quarter-to-quarter basis.

So, where we sit, it is something we look at carefully; our board looks at carefully. The portfolio is generating cash flow well in excess of the common distribution, earnings overall were down a little bit quarter-over-quarter, but I think we understand the key drivers of that, not a fundamental issue with the overall performance of the portfolio..

Sure. Okay. And I just have two other questions, if that’s alright..

Two? Go ahead..

Sure.

There was another [Indiscernible] a decent amount of unrealized appreciation in the portfolio, can you speak to sort of what drove that? Was it just sort of a recovery from the last quarter in the CLO market or was it anything specific to the portfolio?.

Unrealized appreciation, correct?.

Correct, yes..

The A word versus the D word, which is what we want to have. Indeed we had a decent pick up in the unrealized appreciation this period.

If you look first three months of the year was actually the D word negative 9 million, next three months it was positive about 6.2 million and you can see we did have realized gains certainly in both of those periods as well.

In general stronger demand if you kind of look at a total return on a month by month basis, I think factoring in the distribution and any change in NAV, I think February was a negative month, but overall when you factor in the distribution we’ve had positive returns every other month.

And that reflects broadly continued credit recovery, if you think of the tone of the market 12 months to 18 months ago, it was certainly quite negative. Today it is generally - certainly on the positive side compared to where it would have been a year plus ago. Nothing - there was no one security that drove the mark-to-market gain during the period.

Overall, just a kind of normalizing of the market conditions kind of trending back to more of a run rate..

Sure. And then my last question is just kind of a general question.

You guys had a number of refi’s and resets and the activities been largely driven by that so far this year, could you sort of just describe the market, how you would describe it I guess for new issue CLOs for 2017 and if you expect that to have any or possibly even 2018?.

Sure. Yes, we have made a number of new issue majority investments as Eagle Point advisor. ECC participates in those. Our advisor does have other clients who also participate in those investments, but in aggregate our advisor purchases and kind of creates the majority interest of the equity class in those CLOs.

Most of them have been created off of loan accumulation facilities we have. I think two of them so far this year have been created where we are not involved in the loan accumulation facility as well. We are obviously happy either way with that.

And a key part of our investment strategy and investment process is to continue to create vintage period diversification within our portfolio and continuing to push out the weighted average end of the reinvestment period in our portfolio and continuing to get exposure to different periods of CLO creation.

One of the things that from our team’s 20-year experience in the market it is very tough to call CLO vintages without the benefit of hindsight.

If you look back to the kind of the trade publications and popular headlines this is being a little factious, but I don’t think it’s ever been written at the CLO Arb looks great today whereas there is typically always a nice air in the markets aiming the CLO Arb is very difficult today. In deed the CLO debt is too expensive to issue.

Our loans are too expensive to purchase. You usually neither get, you get neither of those right. What you can see is the weighted average effective yield of the capital we put in the ground in the second quarter was 15.89% and that is on an effective yield basis, which includes a meaningful reserve for losses and future credit spreads compression.

That’s above the weighted average expected yield of the portfolio at the end of the quarter.

So we will have a possible, while we do buy things below the weighted average as well wherever possible and we’re looking at portfolio construction, while we want to continue to increase the vintage diversification, wherever possible we want to try and make new investments that are accretive to the expected yield in the portfolio.

And in the case of the gains, we are able to realize also frankly, also sell things where we can at tighter yields where maybe there is excess demand buying low and selling high is a good strategy.

The final piece of the puzzle to highlight and this certainly was a bit of a factor in the Q2 returns and I mentioned we did purchase a couple of CLOs debt positions. During the quarter those obviously earn less than CLO equity. You will see we had about 12.8 million of fair value of CLO debt on our books at the end of the second quarter.

However, if you look through those, I think with no exception there might be one, you will see Eagle Point is also involved in the equity of those CLOs and you can also tell by the due dates those are typical or the names of the CLOs those are older CLOs, which might expect to be called or refinanced in the coming weeks and months as there are years as the CLOs reach the end of their kind of natural reinvestment periods.

So some of the position on that part of the ledger that obviously earns a lot less than CLO equity as we’ve made investments, if you can buy something at 97 that might be paid off at 100 that is a very good investment that might not be a 15.8 IRR, but things that we are going to capitalize on where we can, which we think we are in the long-term best interest of the company.

Going forward, we expect to continue to be active.

We have a number - we’ve obviously priced as I mentioned two new CLOs of the loan accumulation facilities this quarter and we deployed in one other CLO where we are not involved in the accumulation facility and we have a couple one more to go and a couple information for later this year and into 2018.

So, we continue to be very active in the market, but remain also very disciplined..

That’s great. Thank you those are all my questions..

Right. Thank you, Paul..

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

Hi good morning..

Hi good morning Tom.

Thanks for taking my questions, just a question on - when you are recalibrating spreads, so for example if you recalibrate spreads in the second quarter and you have a refi that’s occurring within the second quarter is that recalibration reflecting the refi that is currently occurring or is that not until the subsequent quarter when it takes effect?.

It’s Ken here. So, you can have an instance of one or the other. If there isn’t let’s call an anniversary date CLO and the refinanced has closed in the same quarter. The recalculation of that effective yield would reflect to refi against what’s called current cash flows.

There are other situations where that refi may slip into the subsequent quarter when the refinance has closed..

Okay.

And do you have a ballpark estimate of kind of what the split was between those for the second quarter?.

Of the 10 that we mentioned, seven of those were reflected in the second quarter..

Were or were not?.

Were..

Seven were. Okay..

Seven were and three will be reflected in the third quarter..

Okay, great thank you.

And how much of a book if any is at risk of failing the weighted average spread test and what will the consequences of that effectively be?.

Sure. I don't have the specific number in front of me, but it’s likely and then obviously test can move around and portfolios can move around it’s likely that one or more are failing that test at percent. Within the CLO universe however that - at its extreme some people would call that a toothless test. It does have some consequence, but not dramatic.

The consequence is that subsequent in general and every CLO can vary a little bit. If you're failing the weighted average spread test, the consequence is that each subsequent investment has to maintain or improve the test level. So let’s say you have a covenant of 370 and your spread is 360.

You could actually buy a 361 loan because that’s maintaining or improving your just not making it worse. Failing the spread covenant, a weighted average life test or WARF which is the rating factor test, none of those have a direct impact on the equity cash flows or could cause the cessation of equity cash flows..

Got it. Okay. So it is just that each new investment has to keep or improve the spread.

So it’s not at all an interest diversion type test like [indiscernible]?.

You got it.

And within the test and the reason I am less focused on it on a day to basis, most CLOs have what’s called a matrix and collateral managers can change the test throughout the life of the deal as they say I'm going to improve the WARF than the rating agencies will lead them have a lower spread or if I'm going to make the WARF or little riskier you need a higher spread to consummate that.

So collateral managers are often changing the test level working within a matrix specified in each CLO. So could be failing today and passing tomorrow..

Thank you. That’s good color.

And just with your comments on the vintage period diversification, is there a certain kind of percentage of the book that you strive to have be callable each quarter because it seems like you guys have an ample amount of refi’s and resets every quarter and some of your peers have kind of struggled with this and kind of on quarters without being able to do any of these.

So, if you strive to hit a certain percentage of that is it, or is it kind of agnostic and more based on what the availability on the vintages are?.

So a really good question. And this is part of the - a important part of our process of having 2012 or maybe I will put and Asterix by that in the second 2013, 2014, 2015, 2016 and 2017 vintage CLO's and we certainly hope to have 2018’s is 2019’s in the future when created.

Across our portfolio the decisions we make, we call the number of CLO's this year we've refinanced the number of CLO's, we’ve reset a number of CLO's and on calls or resets it typically makes sense near the end of the reinvestment period, sometimes it could be a little earlier, sometimes a little later depending on the circumstances of any given CLO.

Wherever possible our process we usually first let’s look at our reset, does it make sense to keep this going and when that makes sense yes we are certainly happy to do that.

In other cases for any number of reasons shape of the portfolio where that collateral manager’s debt might price today, sometimes that doesn't make sense and in those cases we’re happy to call and simply liquidate the CLO in the portfolio. Refinancing is a more interesting and more nuanced discussion.

In that refinancing is a couple of facts in the market convention is kind of a one and done and then once you refinance once you can’t do it a second time in most cases, obviously deals can vary deal by deal. So anything we refinance in the first quarter was great and we saved a bunch of money.

Perhaps we would have saved more had we done them in the second quarter.

Now importantly you can see, we also did a whole bunch in the second quarter and this kind of goes to the important part of the portfolio diversification, you make a decision in Q1 if we do everything now, maybe spreads gap wider and we would be great having done it or similarly maybe things get tighter and in general they got tighter, so we were able to continue to drive refi’s into Q2.

One of the things that’s very important is there is a different buyer base, particularly for the AAA's in refinancings and in many cases we are seeing investors who might be more traditional fixed-rate investors investing with money indexed of the Barclays Ag coming in and buying short dated CLO AAA refi’s, a number of CLO's we are involved in, one recently did a refi and the AAA is prized with a nine handle [indiscernible] 90 something.

In a market where regular way is 120-ish people are willing to differentiate and buy short-term bonds at tighter spreads. They have to kind of make a decision on each investment.

If we are going to refi this do we do it now, do we wait another quarter, if we are just going to reset it in six months maybe it doesn't make sense to incur the cost, everyone is a highly judgmental decision, but in markets of strength like this the diversity of our portfolio is probably well over 50 different CLO equity positions gives us the opportunity to navigate today's strong markets.

That’s great detail. Thank you.

And roughly 160 billion or so of loan growth with call premiums expiring in the current quarter, have you seen the prepayment rate change materially in this quarter and how that kind of stack up in terms of challenges with the reinvestment's opportunities being what they are?.

The overall trend in the prepayment rate on loans has been coming down throughout the year. It peaked in Q1 and has certainly come down month-by-month through the second quarter, but you hit on an interesting point, there is a non-trivial amount of loans growing off of call pro in the next say 60 days to 90 days.

To the extent probably a big variable where the company’s exercise that option is, are the big variables is that loan at a premium or discount and some loans might be at a discount to par not due to credit quality, but simply because they refinance the blood type in the first quarter that the market is saying no more and then so you would have to look at the price of those loans and I have seen that stat that you are stating as well.

I think that’s aggregate that’s not just loans that are trading at a premium.

So some of them are very likely at a discount and then be what’s the status of the loan market is there a geopolitical dramas in the world that could make that low or our loan funds getting heavy inflows and the Fed talking about rate increases in which case you could see it greater.

To the extent, hopefully we would be able to continue to be actively refinancing at least as many of our CLO's as possible..

Okay and last one from me, could you guys provide any guidance on what you expect the exercise tax amount to be?.

We already charged the tax, so we - [indiscernible] refund right?.

Yes, so I think end of last year we accrued at December 31 roughly $600,000 at the time was $0.84 a share at roughly. So in light of the special being a little bit lower, in some cases we do expect a refund in the third quarter..

Okay, so there has been net refund from that, got it. That's all from me. Thanks for taking my questions..

Thank you..

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

Good morning, Allison..

Hi good morning guys. Thanks for taking my question. A lot of them have been - have already been asked and answered, but I am curious about the dynamics of the portfolio cash flow components that you guys have laid - that you guys layout for us every quarter.

It seems that you had mentioned in your prepared remarks that 1Q was a bit higher than average when you look at the kind of ongoing pay in CLO equity, but the drop was larger in linked quarter than we were looking for.

Now was that a function of kind of what had been refinanced and sold? I'm trying to get a feel for, or maybe you guys can give me an understanding of what the run rate and the growth might be in that line?.

So you are probably looking at our investor PowerPoint presentation in Page 3, looking at the second - the first line and the second line the 10.81 in the 19.56?.

Exactly..

Perfect. So a couple of drivers there, and indeed you can see the 1956 down from the 2778 but up from the - down a lot less I guess from the 2162 and up from the 1843 looking back over the past few quarters. In general that number will move around a bit.

If I had to generalize your CLO's are paying around 25% plus or minus on a cash on value basis today, obviously every CLO can vary up and down from there, but as a broad assumption in today's market that’s roughly the level we're seeing. I mean in terms of cash flow versus the value of securities on an annualized basis.

A portion of that were mindful, we treat as a return of capital along the way.

The driver for the big pickup in Q1, if I had to go back to my memory I think we also had some terminal payments coming in there from the call [indiscernible] Madison, and so we had two CLOs that we called at the beginning of the year, Madison Park VIII and Crescent Atlas I.

So some of the pickup in cash in Q1 in the other - all other CLO equity involved some leap in life liquidation payments from CLO’s that we called. So if you were to kind of cross that when out, you kind of look at the regular run rate across the portfolio. You could see it’s not wildly above or below the average excluding that period.

In Q2, we did have an unusually large CLO making first equity distribution. One CLO in our portfolio made, I think to be the largest distribution I have ever seen in our portfolio, and we are very happy to get that.

We don't expect that to be recurring although a portion of that cash would then move in the next quarter to be in other than first-period distribution..

Okay. That’s really helpful color. Thanks so much and that’s it from me..

Great, thank you..

Your next question comes from the line of Mickey Schleien with Ladenburg. Your line is open..

Good morning Mickey..

Good morning Tom and Ken. In your prepared remarks you mentioned the large amount of CLO formation this year, and since you are an important CLO investor, I imagine you are in touch with most managers, if not all of them.

So, I would like to understand how the implementation of the risk retention rules has affected that playing field and also whether you're seeing new managers come in, given how much demand there is for yield in the first place?.

Good question, the answer is, yes there are a few new collateral managers. Broadly if you read back to the headlines of a few years ago, many would say, oh with risk retention the CLO market is over and only 20 people will be able to meet risk retention so on and so forth.

That was inconsistent with our view and obviously inconsistent with what has played out.

There have been a handful of newer entrants that have come into the market both large firms and smaller firms, a name you might know of a firm Guardian Life, which I believe is actually the fourth-largest mutual insurance company in the US began issuing CLO's last year. They are not in our portfolio, but they are certainly a well capitalized firm.

Pacific Life another large firm you have seen come into the market beginning this year, again with presumably very deep pockets behind them, not names in our portfolio, but firms like that continue to enter the market.

Last year roughly 82 collateral managers issued CLOS in the United States and from our line by line view a review of those in our opinion, every one of those collateral managers could continue to issue in 2017 if they choose to.

A few of them haven’t, some are more episodic issuers on and off, but overall we are seeing, we believe every issuer from last year can continue to issue in this year. Against that there are lots of different ways to satisfy risk retention there is - actually come back.

And then there is actually also smaller firms, firms backed by private equity groups, our adviser back the collateral manager, which began issuing CLO's earlier this year and other firms certainly well versed in the CLO market have either began begun or are considering formation of new collateral managers.

Importantly, it is an asset heavy business model versus years ago you could have considered it an asset by business model. Moving into kind of what’s played out, there are lots of different ways to satisfy risk retention.

The horizontal approach or the vertical approach, broadly the retention requirements set forth that the issuer or the collateral manager needs to maintain at the time of issuance or purchase 5% of the fair value of the asset backed securities that can be buying 5% of every class, 5% of the total concentrated in the equity or even L-shaped transactions one of which the company was involved in.

According to some data and this is in the - in our semiannual report on a couple of pages in. Looking at it according to - in 2016 according to a research our adviser conducted approximately 49% of CLO collateral managers or their affiliates purchase the majority of the equity in 2016.

So just to kind of frame it before risk retention was in place roughly half were taken by the - half of the majority blocks were taken by collateral managers, the other half available for sale.

In 2017, so far, according to a research report from Nomura 57% had the collateral manager or affiliates take majority leaving 43% available or for investors like us. I mean frankly many collateral managers will do a combination of horizontal and vertical in their portfolio.

One of the advantages of our enforce portfolio is the ability to reset the CLO’s, an example one transaction in our portfolio opting on 14 was the transaction that was reset in Q2 of 2017.

In that case, the collateral manager that was 2012 vintage CLO long before anyone had even heard of risk retention as the collateral manager made that transaction compliance on a vertical basis simultaneous with the issuance of the new reset CLO.

From our perspective that will make that CLO a nine year life vehicle, which is great and for the collateral manager while they had to put some capital up their alternative was otherwise their CLO would have been called as it reached the end of the reinvestment period. So, for them that was something that would comply in attractive outcome.

For us it was a very attractive outcome and what we will see. We expect to see more of that in our portfolio as more and more of our investment season. But overall the short takeaway and I shared with you some high level data.

The short take away is risk retention has not had a substantive impact on our investment strategy and overall clearly it hasn't had a meaningful impact on the market as it seems like the market is likely to grow year-over-year..

That’s really helpful Tom. If I could just follow-up with one more question, based on what do you just said, if I recall correctly, a good share, maybe half of the CLO’s that are being formed now are situations where the manager is anchoring the deal themselves.

So historically, I believe that’s been an important strategy of yours to not only negotiate terms that you like, but also to earn related fees whether that’s for the warehouses or for - in the form of rebates on the CLO management fee.

So is that benefit actually dissipating given what you just said?.

Substantively, not. The important piece what I was trying to highlight, it’s not actually been that big of a change, whereas last year according to our adviser's analysis 49% the collateral managers took, that number has increased to 57%.

So it’s a modest reduction in the percentage that’s available to the outside investors like us, but in a growing market has helped to offset some of that and then B, the advent of resets give us the ability and those are not numbers counted in the issued 60 billion of issuance stats, the ability to reset some of the investments in our portfolio give us access to even additional new investment opportunities that otherwise would have been called by us.

So the broad takeaway, it’s gone from 49% to 57% where the collateral manager has taken majority. So, the universe on a percentage basis has shrunk a small amount, 8%.

The flip side we’re in a much bigger market, which has helped as the market has grown and then our existing portfolio with older majority position gives us additional investment opportunities to reset investments..

I understand. I appreciate your time this morning. Thank you..

And I'm showing no further questions at this time. I would turn the call back over to Thomas Nijinsky for closing remarks..

Great. Thank you very much for your participation in the call and questions this morning. We're certainly pleased without how ECC has been positioned in the second quarter and we remain quite active both on the investing side and the refinancing and reset side here so far in Q3.

We appreciate everyone's support and interest in the company and thank you for your time this morning..

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