Garrett Edson – IR, ICR Tom Majewski - CEO Ken Onorio - CFO and COO.

Allison Rudary - Oppenheimer Mickey Schleien - Ladenburg Ryan Lynch - KBW Christopher Testa - National Securities.

Good morning. My name is Mariama and I will be your conference operator today. At this time, I would like to welcome everyone to the Eagle Point Credit Company Q3 Update Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Garrett Edson, ICR. You may begin your conference..

Thank you, 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 NQ [Ph] third quarter 2017 financial statements and third quarter investor presentation with the Securities and Exchange Commission.

Financial statements and our third 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 would now like to introduce Tom Majewski, Chief Executive Officer of Eagle Point Credit Company..

Good morning and thank you Garrett. Welcome everyone to Eagle Point Company's third quarter earnings call. If you haven't done so already we invite you to download our supplemental information 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 third quarter and then we’ll turn the call over to Ken who will take us through the third quarter financials in more detail.

I will then return to talk about the macro environment, our investment strategy and provide some updates on recent portfolio activity and then of course we will open the call to questions at the end. We’re certainly active in managing the portfolio in the third quarter although our results were impacted by compression in loan spreads.

During the quarter, we deployed approximately $75 million in capital into a number of attractive investments including many that have benefited from some of the lowest debt spreads that we’ve ever achieved for our investments and with the added benefit of five-year reinvestment periods.

Our investment portfolio continues to generate solid cash flows and credit losses have remained well below long-term market averages. In addition, we’ve leveraged our advisor strength and the broader portfolio to complete or participate in a number of refinancing, or reset and the call of some of our CLOs during the quarter.

However, the reduction in our weighted average effective yield reflecting broader credit market trends impacted our performance this quarter and we generated net investment income and realized gains of $0.45 per common share. We want to elaborate a bit more on this because the NII for the quarter was below our distribution level.

We recognized that ultimately we need to earn our distribution and we want to assure common stockholders that we are comfortable with our current distribution level despite the lower short-term net investment income.

When formulating our distributions, we evaluate earnings potential on a long-term basis including both NII and the potential for realized gains as well as taking into account our taxable income levels, which are generally required to be distributed per the RIC tax rules.

As a reminder, while we had several quarters of NII per common share below the distribution level in 2016, we generated enough taxable income during the year to require us to pay a special distribution of $0.45 per common share earlier this year. Our portfolio continues to generate solid cash flows and credit expenses remained low.

We are optimistic that with spread compression having slowed so far in the fourth quarter, its impact on our net investment income will abate over the medium-term and our portfolio will operate on a more normalized run rate basis.

During the third quarter, as I mentioned we deployed approximate $75 million on a gross basis in both primary and secondary market opportunities.

We made six primary markets, CLO equity investments representing about $42 million in proceeds, five secondary CLO equity purchases totaling a little less than 9 million in proceeds, two CLO debt purchases and we also made investments in seven different loan accumulation facilities.

During the quarter, two of our loan accumulation facilities were converted into CLOs. The 11 new CLO equity investments that we made had a weighted average effective yield of 16.65% at the time of investment.

This is above the weighted average effective yield of our overall portfolio as we continue to source investments with attractive yields in a strong credit market through our advisors investment process.

On the monetization side, we sold 4.9 million of CLO equity where we saw more room for downside than upside as well as $3.1 million of CLO debt securities allowing us to realize a very modest amount of amortized - amount of gains versus amortized cost.

While we typically underwrite investments with a long-term hold mindset, we do sell investments when we believe the price available in the market is better than what our outlook for the investments warrants.

Between sales of CLO debt and repayment schedule to settle at par due to calls and resets of CLOs of debt tranches that we hold, that we had purchased at discounts in the secondary market, we lowered the size of our debt holdings during the quarter net by half since June.

We expect our CLO debt portfolios to remain on the smaller side in the near-term. While our CLO debt investments have been profitable, they are typically dilutive to our overall portfolio yield. We continue to opportunistically refinance and reset certain CLOs in the company’s portfolio.

During the quarter ended September 30, four of the company CLOs closed refinancings of their debt tranches and one CLO closed the reset which both changes the coupon and lengthens the maturity bringing the total number of CLO equity positions that were refinanced or reset since August 2016 to 28 and four respectively, representing over $14 billion of CLO debt.

The refinancings and reset completed in the third quarter will reduce the weighted average debt cost of those CLOs by an average of approximately 50 basis points benefiting the company over the long-term.

With spread compression that we’ve seen through much of 2017 refinancings and reset have been used to partially mitigate reduction of loans spreads, this is a good example of how our broader investment process from our advisor provides a powerful toolkit to manage our investments.

We note that our refinancing and reset activity causes a one-time reduction in CLO equity cash flows as the costs associated with refinancing our reset are paid out of the applicable CLO waterfalls on the next payment date.

Due to these one-time costs, we estimate that our portfolio cash flow has been reduced by $5 million so far this year or approximately $0.29 per weighted average common share.

While the short-term cash flow may be reduced, we believe this is money well spent and that our investments will harvest increase cash flows to our securities in the future versus had we not taken these actions.

Further, as our advisor continues to manage our overall portfolio as of today, all but one of our 2012 and 2013 vintage CLOs have been called or reset. This part of our advisors investment process prudently manage - the managing the end of CLOs lifecycle frankly is just as important as the investment selection process at the outset.

As of September 30, 2017 the weighted average effective yield on our CLO equity portfolio was 15.29% and that’s down from 15.68% last quarter and 17.27% one year ago. This reduction is a product of among other things the market wide reduction in corporate loans spreads.

This reduction would have been greater had we not conducted [Indiscernible] resets. Ken will explain a bit more in his remarks, and as I’ve noted previously these weighted average effective yields include an allowance for future credit losses.

On the capital front, we utilized our at the market program during the quarter to issue nearly 300,000 common shares at a premium to NAV and approximately 28,000 of Series B preferred shares. Ken will provide more particulars but through November 8 we had net proceeds from the program of about $7 million.

Finally in August, you may be aware we completed a successful underwritten public offering of our new 6.75% series 2027 notes achieving the lowest cost of funding for the company to date and comparatively one hundred basis points below the rate on our original series of preferred stock that we issued back in 2015.

The new baby bonds trade under ticker ECCY under a ten-year maturity highs for the longest financing term we’ve been able to achieve. In our view, the ability to issue longer-term paper to strengthen the balance sheet is an important achievement, an example of the longer-term mindset we take to managing the company.

Our team continues to work hard to create value and set up ECC for long-term success, while the NII this quarter was below where we would like, we remain comfortable with the long-term outlook for our portfolio.

Notably, the weighted average of our effective yield of our most recent CLO equity purchases this quarter is meaningfully above the overall CLO equity portfolio effective yield, and as noted previously, amongst the lowest debt spreads of many CLO’s in the company’s history.

After Ken’s remark, I’ll take you through the current state of the corporate loan and CLO markets and our activity so far in the fourth quarter of 2017. I’ll now turn the call over to Ken..

Thanks Tom. Let's go through the third quarter in a bit more detail. For the third quarter of 2017 the company recorded net investment income and realized capital gains of approximately $8.3 million in aggregate or $0.45 per common share.

This was comprised almost entirely of net investment income as net realized capital gains were modest for the quarter. This compares to net investment income and net realized capital gains of $0.53 per common share in the second quarter of 2017 and $0.54 per common share in the third quarter of 2016.

The reduced net investment income and realized capital gains per share was probably due to the continued loan spread compression, decreasing the weighted average effective yield of the portfolio, any lack of meaningful net realized capital gains this quarter.

To expand upon this last point, over the prior four quarters, the company has generated total net realized gains of $0.23 per common share, but generated less than a penny per common share in the third quarter.

When unrealized portfolio depreciation is included the company reported GAAP net income of approximately 2.2 million or $0.12 per common share for the third quarter of 2017. This compares to net income of $0.88 per common share in the second of 2017 and $2.80 per common share in the third quarter of 2016.

The company’s third quarter net income was comprised of total investment income of 16.4 million, partially offset by net unrealized appreciation or mark-to-market loss of 6 million and total expenses of $8.2 million. At the beginning of the third quarter, the company held 6.3 million cash, net of pending investment transactions.

At the end of September, that amount was 4.1 million. As a result of deploying approximately 40 million in net capital during the third quarter, it was a significant amount of capital that only generate income for a portion of the quarter, which we expect to generate income at full capacity during the fourth quarter.

As of September 30, the company’s net asset value was approximately 308 million or $16.67 per common share. We published an unaudited management estimate of the company’s monthly NAV as well as quarterly net income and realized capital gains and losses on our website.

Management’s unaudited estimate of the range of the Company’s NAV as of October 31 between $16.95 and $17.05 per share of common stock, an increase of approximately 2% since September 30th. Net GAAP return on common equity in the third quarter was 0.7%.

The company’s asset coverage ratios at September 30 for preferred stock and debt as calculated pursuant to investment Company Act requirements were 264% and 529% respectively. These measures are about the statutory minimum coverage requirements of 200% and 300% respectively.

As of September 30, the company had debt and preferred security outstanding totaling approximately 38% of the company’s total assets less current liabilities, which was about the 33% noted in the prior quarter.

This was primarily due to the issuance of our Series 2027 Notes in August and the special distribution paid to common stockholders of September 8.

We’ve previously communicated management’s expectations of the 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.

And while we sometimes incur leverage outside of that range, as we’ve done this quarter and as we did back in late 2016, with our ECCB offering over time we expect the ratio to fall back within our target range.

In terms of our weighted average effective yield, as we have noted previously, we recalibrated CLO equity investments effective yield at least once a year, either on the anniversary of the formation of each CLO investment in our portfolio or upon an event such as a partial sale at our purchase refinancing or reset.

As a result of retesting this quarter, and other portfolio activity, our weighted average effective yields have reduced to 15.29% from 15.68% in the second quarter of 2017. A summary of the investment by investment change, changes in the expected yield are included in our quarterly investor presentation.

Moving onto our portfolio activity in the fourth quarter through November 8, investments that have reached their first payment date are generating cash flows in line with our expectations.

In the fourth quarter of 2017, as of November 8, the company received total cash flows on its investment portfolio including proceeds from core investments totaling 22.4 million or $1.21 per common share. This compared to 26.3 million of total cash flow received during the full [Indiscernible] quarter of 2017.

We highlight the some of our investments are expected to make payments later in the fourth quarter. During the third quarter, we paid three distributions of $0.20 per share of common stock as scheduled, and on October 2, declared monthly distributions of $0.20 per share of common stock for each of October, November and December.

Pursuant to our aftermarket offering program for common stock, and 7.75% Series B preferred stock, during the third quarter the company sold proximally 300,000 shares of its common stock, common stock at a premium to NAV and approximately 20 -- 28,000 shares of Series B preferred stock for a total net proceeds for the company of approximately 7 million.

As of November 8, we sold an additional 15,000 shares of common stock under the program for additional net proceeds for the company of approximately 0.3 million.

As previously noted, we closed an underwritten public offering of our new 6.75% Series 2027 Notes including the full exercise of the green shoe, we received total net proceeds of approximately 30.4 million.

Finally, during the third quarter, we also declared a special distribution of $0.45 per share of common stock paid on September 8 to stockholders of record as of August 25. 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. Let me first take everyone through some macro loan and CLO market observations. I mean, talk about how they might impact the company and then I’ll touch a bit on our recent portfolio activity.

Through October the Credit Suisse leverage loan index has generated a total return of over 3.72% tracking a few point behind last year's strong performance. 71% of the broader loan market according to the data from S&P was trading at or above par.

While corporate loan fund inflows have been robust through much of 2017, the third quarter actually saw a bit of a reversal as open end loan funds observed about $0.5 billion of outflows mostly occurring in the latter part of the quarter.

This trend has continued into the fourth quarter and one positive from the recent fund outflows is that we are seeing spreads compressions in loans, slow compared to the first half of the year. According to S&P Capital IQ, 55% of the institutional leverage loan volume through October was attributable to repricings.

The amount of institutional corporate loans outstanding was $947 billion as of September 30 and while loan issuance has been high, the total outstandings have only seen a slight increase from the end of the second quarter and a 7% increase from the beginning of the year, as much of the issuance activity has been related to refinancing and repricings.

The institutional corporate loan market remains large and provides us and our CLOs with a large opportunity to invest and re-invest.

In terms of defaults, rates remain low with a lagging 12-month default rate of about 1.5% at the end of September and we expect rates to remain at or 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.

Therefore we think it’s important to note that the lower NII we are reporting recently is really attributable than a large part to spread compression and that overall credit expense remains below long term averages.

Should volatility and price dislocations occur, we believe the company and its investments remain well positioned to take advantage of those opportunities. In the CLO market through October over 90 billion of new CLOs have been issued in the U.S.

and with two months still to go, we are now expecting CLO issuance to exceed $100 billion by the end of the year. This is well ahead of our initial expectations from the beginning of the year and would be one of the highest CLO issuance years on record. In addition, the amount of refinancings and resets for 2017 continue to set new records.

Together through October our refinancings and resets totaled over $140 billion.

As has been the case in recent quarters with additional expected rate hikes to come, floating-rate CLO debt interest remained strong from investors and new issued AAA’s now pricing in the low to mid 110, and shorter dated refinancing AAA’s pricing below 100 over as new buyers have emerged focused on shorter dated AAA paper.

We continue to maintain a meaningful reset and refinancing pipeline. Already in the fourth quarter, we have closed on three additional resets; we are continuing to emphasize resets to take advantage of opportunities to extend the lives of CLO transaction exiting the reinvestment period during the time of historically tighter CLO debt spreads.

We have also converted another loan accumulation facility into a CLO so far this quarter.

Beyond seeking to maximize the value of our in the ground investments, we continue to maintain good visibility on our new investment pipeline for the balance of the quarter and into 2008, To sum up, while our third quarter results were affected by loan spread compression, we remain comfortable with the makeup, positioning and cash generating abilities of our overall portfolio as well as the recent investments that we’ve made in CLO equity.

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

[Operator Instructions] Your first question comes from the line of Allison Rudary from Oppenheimer. Your line is open..

Good morning, Allison..

Good morning. So a couple of questions. The first one is I was looking over the portfolio kind of component list. And I see that there are quite a few smaller but still significant mark ups and markdowns, but on the balance kind of markdowns.

And I was wondering if you could talk a little bit about the dynamic that affect, that it kind of affected those, because it’s hard for us to see kind of taken from this view what might have been causing especially some of the larger ones in for instance like the Battalion..

Sure. To look through on a few different positions, I’ll get into maybe Battalion in a minute in a bit more detail. Broadly, CLO equity securities, you would expect their value to decay over time, as to extent there are losses realized in over the life cycle of a CLO.

If you buy something at 90 or 100, when the CLO reaches its end of its reinvestment period, you might expect $0.60 on the dollar value left at the end, just due to some degree of natural decay.

So overall, if everything behaves exactly according to the model, you would expect the [Indiscernible] to fall a little bit every single quarter on a given position. Of course these are living, breathing things with lots of dynamics going on, underlying in each of the investments.

In the case of Battalion, this one looks like it was marked down and has a fair value, a couple of million dollars below amortized cost.

So without getting into too much detail on this investment, while this one has still been a positive IRR to date, it frankly suffered from a little higher energy exposure and have one position that was in the kind of 1% plus category that turned out to be a fairly weak, and ultimate loss in the energy sector.

So this deal has been kind of, it’s on the upper end, still below expectations, but on the upper end of credit expense in terms of the broader portfolio today, and then be, it has like many of the CLOs are pretty much all of them face some degree of spread compression.

On this one, a nontrivial portion though was due to probably a little bit overweight energy in the book..

Great. That’s helpful. And then I suppose my next question is kind of more of a bigger picture situation.

If the market environment continues to remain similar to how it is now with tight spreads, potentially even tighter spreads, does this kind of imply that it’s going to be more challenging for you to cover your distribution out of NII, without some sort of kind of if everything kind of remains in the status quo from here to now?.

Sure. We look at that very hard both on a quarter-by-quarter basis, and a longer-term basis frankly, in terms of the earnings power of the company and its portfolio.

As Ken mentioned we have had, and I guess this is both good and bad over $0.20 of realized gains in the last year and that’s obviously great to realized gains, but there’s not enough for those to go around, at the same time, when you look at the actual raw NII over the last few quarters.

It bounced around from the 40s to 50s, sometimes distorted by offering and cash drag from those. Where the company sits today, probably that toughest thing it's faced is the weighted average yield on the portfolio coming down by about a 175 basis points over the last year.

Against that if you look at our investor presentation we provide the deal-by-deal change in effective yield, and you can see frankly while the average was down 25 to 50 basis points quarter-over-quarter, frankly there were quite a few that actually went up and that -- some of that have to do is refis and resets.

Some actually improving underlying portfolio metrics, but it was not a situation where by far not a situation where everyone was down and frankly a number of them were up by nontrivial amounts. So that helps a little bit as well against that to the extent loans spreads tighten significantly further.

I would say that’s going to be a challenge for the company. Presumably CLO debt spreads move commensurately tighter. But as you see loans kind of move en masse against us and it’s blocking and tackling line by line and every single one of these positions to get them to lower their debt costs. So we look at this on a long-term basis.

We look at the cash flow generation. We look at the potential for gains in the portfolio. There were a few things sold at gains. There were one or two things sold at losses, which ended up basically net flat for the quarter. And then finally we also look at the anticipated taxable income for the company.

Last year or for the last tax year we ended up generating a $0.45 special which we needed to pay out in September of this year attributable to tax year 2016. We look at that as well in terms of making estimates if and when we’ll need to pay a special attributable to our tax year ended November 2017 when the Board factors all of these things then.

So, we can’t say, the worst is behind us. I wish we could. Certainly loan spreads certainly ratcheted in pretty hard in the first half, that pace has slowed significantly in the second half, but we remain subject to market conditions obviously more broadly..

Thanks. That’s it from me..

Great. Thank you, Allison..

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

Yes. Good morning, everyone. Tom, I sort of wanted to follow-up on previous questions. I see that you pretty meaningfully raised the discount rate assumption in your level III discussion from 14.1 to 16.1 and certainly an impact on fair value.

Can you give us some background on what drove that change?.

Yes. I’m familiar with the number and I’m looking at it. That actually the weighted average actually falls out. When we’re valuing any individual security there's a number of things that go into it. I don't look overall and say, let’s use 16.08 or 16.07 or 16.09 as the weighted average.

That blended number is an output and you can see there’s a wide range of inputs in there of eight and a third just shy of 44%. The way a CLO get valued changes over its life cycle. When it's brand-new it’s much more around a yield basis and what is the earnings potential and what are the debt spreads.

As it gets closer and closer towards the end of its reinvestment period it starts - the equity starts being more the value, more a function of where is it relative to the underlying liquidation value of the CLO versus what the prospective yield is.

And so to the extent if we look through some of the positions, some of them do get a little distorted high or low as they reach the end of their reinvestment period, an example, if you look at our SOI, you can see [FASB and 13.2] [ph] which at present has an estimated yield of 25.25%. When we made that investment that was not a 25%.

We were very pleased with the investment. It was not a 25% yielder, but that one has its reinvestment period in very early next year. So sometimes some of the yields get a little distorted is where I’m going with that, particularly at the very end of the CLO's lifecycle.

So for something like that there was not a conscious widening of discount rates per se or discount yields. It’s more on a position-by-position basis. You could see each of them versus where CLO is in its lifecycle or if it’s been called that 16.08 kind of falls out.

It did get a little wider during the quarter but I wouldn't say there was a market wide widening of discount rates if anything probably a little bit tighter. The change here was more nuances in our portfolio..

Well, okay. So I'm still trying to understand what drove the unrealized depreciation if it wasn't the discount rate and we’re looking at default rates that are historically low and steady. So I’m assuming there weren't any meaningful changes in the default rate assumption.

Just generally speaking then was it just weaker bids in the market that drove the unrealized depreciation [ph]?.

No. Sorry – I would just answer; why did that rate change. In general those positions that face greater unrealized changes in value and someone up and someone down during the quarter a mindfully decayed and maybe at varying degrees, the number one thing that was a driver of change in market value was heavier than average spread compression.

And then as a secondary amount while defaults overall remain well below long-term averages. Some CLO's particularly 2014 vintage CLO's which have higher energy exposure might be the one that's face a little more credit pain in their portfolio. Overall the portfolio is experiencing very low look through defaults, but that's an average.

Some deals are higher, some are zero frankly. So the number one thing to the extend spread compression might have been more pronounced in an investment, something you’d say, into a lesser degree like in the case of the Battalion, that one had a 1% or that was liquidated earlier this year by recollection..

Right. On the flip side, Tom, looking at your estimate of your estimate of your October NAV, it's now up fairly nicely versus September.

What occurred in October that caused the reversal on that trend?.

Sure. And this kind of goes to some of the -- very good question. Indeed the NAV is net of the distribution for the month is estimated to be up about 2% month-over-month. While we again focus on a longer-term basis, obviously all are sequel, we prefer when NAV moves up. The drivers there were couple of prong.

The pace of spread compression certainly has slowed as I was intimating to in my remarks.

Looking through the portfolios on a month-over-month basis, frankly few of them had the spreads on the underlying loan portfolios actually go up which is something we hadn't seen a lot of -- much of this year, not big wins but basis point two, three, which even if it's flat it's just the reversal of going down is probably the first good step.

And then B, if anything the market bid for CLO equity is the perception of the risk of spread compression weighing probably the bids got a little more keen from other investors during the quarter..

That's really helpful. Just a couple of last questions. Given that you've been involved in the market for a long time and certainly I or probably most of the people on the call haven't.

Can you just put into context the current weighted average spread of the portfolios 3.7? How to compare over the long run? Just give us some background on where this thing could settle out?.

Sure. So a common question we get is where you're going to – are loans cheap or rich today? And our answer really comes down to it depends on your time frame.

If you look at our portfolio over the last one to two years, that’s down about 25 basis points from where it had been running and been kind of hovering up and down around four for a while now it's around three and three quarters as you talked about. So that’s down.

The flip side, if you look at the long-term, loan spreads are still about 75 basis points above the long-term average. The long-term averages right around 300 basis points over 25 years. This is a kind of the Credit Suisse leverage loan index data.

So they maybe rich by recent standards and they’re probably cheap by long-term standards, that the ultimate arbiter of spreads in loans and how tight companies can refinance their loans is driven by the CLO machine and by retail loan fund flows are kind of the two big drivers.

If you have heavy fund inflows and open-end mutual funds, if you're a portfolio manager for that you have two choices; buy loans or go off index and sit in cash.

So in many cases those buyers not wanting to be off index, you have to buy a little more indiscriminately and not as to credit maybe but as to price and that allowed for loans to get tighter and tighter and tighter.

CLOs which have a spread covenant and tests that they have to work with in typically are more disciplines, not always but typically due to greater constraints that they faced. So, unless we saw a meaningful tightening of AAA spreads and CLO debt spreads up and down the stack, CLO collateral manages, some point just back off from the market.

So those are probably the two big drivers absent on credit wave..

That's really helpful. My last question, Tom, I think Ken alluded to the difference between NII and taxable income, and I know it's difficult until the tax returns are done and you collect all the information. But at least in my model I'm calculating sort of a cash flow per share well north of the distribution rate.

Can you give us a sense to where taxable income per share stands for the year relative to the distribution?.

Unfortunately, it's still too early to do that. In that we have information on less than half of the investments in the portfolio at this point for this taxable year. Different CLO's have different tax year ends and the company has a November 30 tax year-end. So for some we already received kind of the definitive K-1 or PFIC information statement.

So those we know against that others we’re not going to get until shortly after our tax year. And so we haven't been to put an estimate out. We spend a lot of time looking at it instantly. Certainly last year we ended up having to distribute an additional $0.45 over the 240 run rate.

Taxable income has often exceeded GAAP income, but we don't have a specific number on it yet.

One other factor just to be mindful of the refis and resets do created a new interesting dynamic as to [Indiscernible] you’re paying all debt early that lets you take a little bit of a tax write-off any given year from amortize extinguishing prior debt issuance cost.

So there’s a couple of new things that will drive into that the taxable income this year, but it still too early to put a meaningful number on it..

Okay. That's it from me. I appreciate your time. Thank you..

Thank you very much..

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

Hey, good morning, Ryan..

Good morning, Tom. So, my first question, I want to talk about just the revenue growth in combination with portfolio growth. So if I look at the first quarter of 2017 you guys had about $16.1 million of total revenues. In the third quarter grew to about $16.4 million of total revenues. During that time period your portfolio grew by over $60 million.

So, it looks like you guys had a significant amount of deployments throughout the year in 2017, but revenue growth has been almost non existence?.

Yes..

Yes. Is there anything in the number one time or is that just due to the weighted average yield and your portfolio going down. Because the concern is that if we’re at a point now where portfolio growth may be a little bit limited going forward considering you’re kind of about at the upper end of the leverage targets.

I’m thinking if portfolio growth stopped, does that mean revenue now goes negative going forward?.

So very good question and as you look at I’ll maybe just throw out a broad highlight on Ken, if I go arrive or going to add to this. The portfolio grew by about 10% to 15% roughly during the year. And at the same time the weighted average yield fell by about 10% during the year. And those are not perfectly but substantially offsetting.

In that we were earning little less than 200 basis points running versus a year ago. So some of the -- we have more assets but they’re earning less and we ended up flat roughly.

Is that a fair way to think of it?.

Okay.

Does that make sense, Ryan?.

Yes.

I just want to make sure there is nothing kind of one time that this is just you know due to portfolio compression from lower?.

Ryan, reset expenses get blended into the new yields and get amortized over the future. We did have 20 – I think we said $0.29 of cash flow reduction because we have to pay the bankers and the rating agencies and the attorneys at the time of the reset or refi or they like to get paid at the closing. So that reduces our cash flow.

The cost of that is worn over the useful life of that debt, but their one time item is probably a little more attributable on the cash side than the GAAP side..

Sure. So then, brings me to my next question. If you guys this quarter $0.45 GAAP NII, you guys were at the upper end of your levers kind of guidance range that you guys kind of said.

You do have $14 million of cash on your balance sheet to employ, but based on being in the top end of leverage with GAAP NII of $0.45 versus the $0.60 dividend, besides just hoping that the market turns around because I know you guys have been resetting and refinancing CLOs throughout the year and still the weighted average yield are been going down.

Are there any other levers related that you can pull to get this $0.45 number higher?.

Sure, sure. So if you look at the NII component of the earnings over the past few years or past few quarters, the number we talk about is net investment income plus or minus realize gains or losses which those are the GAAP profits of the company excluding unrealized changes.

Looking back over the last few quarters, going back to Q3 of last year, the numbers bounced around the NII component has bounced around between $0.51 and $0.45 reached the higher $0.52, was that $0.48 in the second quarter. So that the quarter over quarter change in actual NII is only $0.03.

Against that we had the benefit of between looks like I’m just looking on the screen here, $0.03 and $0.08 per share of realized gains which is great that -- those are the most real earnings we can get, but that certainly help us as we look towards the 60.

In terms of him prospectively for the portfolio certainly indeed that the strategy is much more than you hope, is very proactive.

Each one of the CLOs is its own living, breathing thing and the portfolios change in many cases 30% to 50% plus in the course of a year move that forward over multiple years, you’ll expect to see in the underlying CLOs significant turnover.

And then within our portfolio on what you're starting to see if you look at the changes in NII broadly our changes in a weighted average expected yield we show that on our position-by-position basis many of the ones that were down were kind of the anniversary date recalibrations. Many of the ones that were up were due to refis and resets.

So some of the things we’re feeling today are still the result of Q1 and Q2 spread compression because we reevaluate the expected yields on each position on an annual basis, on a CLO’s anniversary and then upon any buyer, any sell within the portfolio or a refi or reset.

So a little bit about the reduction was attributable to get catching up on some of the loan activity. Many of the ops have been attributable to proactive portfolio management by us.

You’ll also see in the investor presentation, I think we have -- CLOs that have been called in various stages of being called and liquidated and those are things that towards the end of their life often were lower yielding investments on with the goal of rotating that capital into newer higher yielding investments.

What we put in the ground in the third quarter had a weighted average of 16.65 loss adjusted expected yield, so more than a 100 basis points above the overall portfolio. We can't wave a magic wand and simply roll the whole book into that higher-yielding paper.

But as we look and you see the new things coming into the portfolio we are able to get some pretty attractive investments today focused more on squeezing the right side of each CLO’s balance sheet and accepting where the loan market is. So we’re actively working hard to get the weighted average expected yield up.

That’s probably the number one thing we can do and that’s a combination of rotating refi and reset calling, selling wherever possible..

Okay. That’s good color. I wanted to go into kind of follow-up little bit on maybe Mickey’s question about the taxable income, I know you guys can’t – don’t have taxable income for this year.

But I mean, if I look at this quarter $0.45 GAAP operating earnings, but if I look at the cash flows, you guys had about $26 million of cash flows generated from the portfolio versus the GAAP revenues about $16 million.

And so my expectation is that for the remainder of 2017 GAAP earnings and for the whole year to fall meaningfully below the dividend, but I would assume that the tax flows which is a pretty pricey sometimes for taxable income is going to come in well above the dividend for the year.

And so, how do you guys balance the tension of GAAP earnings likely coming in below the dividend for the year and probably on a quarterly basis going forward, but taxable or cash flow earnings coming and probably meaningfully above the dividend and you guys are forced to pay out taxable earnings and we saw this most recent quarter you had a big special dividend because you guys are forced to do it.

So how you guys down potential or maybe GAAP earnings running below the dividend but taxable and cash flow running above the dividend?.

Yes. It’s a balance. It’s a careful balance. Hopefully you know as well enough everything we do here is very much with a long-term perspective. One of the things that as we look back when we declare the special this -- the tapes will have the exact numbers but the stock was up roughly the amount of the special.

And then when the stock went [Indiscernible] the special, it went back down roughly that same amount. And with that have the effect of doing was not rewarding long-term shareholders, the person who bought the day before and they did very well. We seek to maximize value very much over the long-term. So the market hadn't fully treated that.

Not lot of people in the market will say, the market doesn't really value specials that much, so that that's the one side. Against that we’re quite focused on getting the NII and unrealized gains as high as possible.

And frankly realizing some degree of gains has been part of our investment process since we set up Eagle Point five, six years ago in terms of continuing to maximize total return. Well, everything we do is on a long-term holds maturity mindset.

There are situations where prices are above what we view fair value and we’re happy to sell and gains as well so while we like NII the most -- we recently demonstrated over the last years, so the ability to generate at least a couple of pennies of gains pretty consistently. So it is a balance. We’re focused on the NII side of the ledger.

Right now it’s probably the biggest area of focus. If you look at the weighted average expected yield on the portfolio, it kind of went up about 25 bps a quarter for quite a number of quarters and then we had a fairly significant drop downward earlier this year and we’re doing everything we can go slow-growing to get each of those pieces back up.

To frame it broadly, 100 basis points in equity yield in our book translate to $0.05 to $0.06 roughly in NII give or take and that can change over time depending on the composition of the portfolio, to the extent the portfolio was back where it was a year ago, which I don't think it can happen in the near term, add an little bit of gains and we know we’re right around 60.

Where we sit today we got some wood to chop to get there. Against that we have the potential of a special looming over us which the market has shown it doesn't really rewards. So when we look at this it's looking at a much more long-term mindset.

If in a few quarters spread compression is worse, obviously you’re going to revisit kind of how the company is situated, to the extent we see the weighted average yield in the book go back up, couple of pennies as the gains turn up, that also changes the calculus, but we’re fortunate everything we setup is very much long-term and the way we make the decision, it is a careful balance, but its stuff you make over the longer term not on a quarter by quarter basis..

Okay. And if I can just ask one more, as you guys think about the liability side of your balance sheet, I mean, I know you guys have an ATM offering with some preferred shares out there, that’s about a 7.7% cost of debt. You guys just did bond know it at 6.75% that looks pretty attractive from the rate standpoint.

I just want to get your thoughts about how you plan on using the preferred stock ATM going forward, because the cost of that is 7.75% additionally shareholders pay management fee on that which is 1.75%, so I look at that toward costs shareholders like 9.5% versus the bond just issued which again great job is 6.75% doen’t pay management fee on their.

So I’m looking at 6.5% --7.5% bond versus 9.5% if you guys do issue preferred equity ATM in the future.

So, how you balance – I guess, what is your thought about issuing preferred stock in the near term?.

Anyhow we’ve to pay the bankers too on top of all of that, so don’t forget the home team there, but the – it’s a dilemma and you hit on it. Our fee structure is more shareholder friendly than other peers in the space where management fees are only calculated on common and preferred equity, the baby bonds don't attract any management fees.

So some of the dilemma as a maximizing NII that we like the baby bonds over the preferred, because you hit the nail on the head, it is that much cheaper.

The preferreds also have certain benefits and we certainly never hope to use any of these provisions, but they were actually pickable, you could defer for two years if you needed to and they have been a more equity layered attributes and can be a little more flexible for the company.

So not unlike that your prior question, it is a little bit of a balance. In general we sought to run them roughly equally, where I look at on the case of the debit how much coupon do we have to pay in a given quarter versus how big is our portfolio, because on high water we have to get that coupon paid.

So we look at that at one extreme and finding a balance between the two, frankly is something we like. And we've done it roughly 50-50, the numbers are always a little bit off between the two. We mentioned that we do have that ECCB [ph] ATM open, that security has often traded around $26 a share.

On my screen I see it at 26.17 so the cost of issuance is actually a little lower to the extent we’re issuing at a premium the car when you issue up the preferred of the ATM you’re selling at the market price of 25. So that helps lowered a little, but you can see we’ve done, it was a very small number of shares, few thousand shares, 28,000 shares.

So not something we've actively used. It's all part of the tools that we have available and it’s a very flexible tool for the company, but you can see our practice to-date certainly we have not used it the heavily. One of the other trade-offs we made just to share with you.

Frankly, the market for five and seven year baby bonds, what we know, it was even tighter than ten-year baby bond and I don't remember the exact pricing differential, but lets it might have been a quarter point different or something like that to go from five to seven to 10 years.

We went with the long without the most expensive, still 6.75 our lowest cost, but getting the benefit of the longest runway, and frankly that's something we consider that money very, very well spent of pushing out the maturity wall.

And one of the things I look at here is kind of our little maturity schedule, and with the exception of disease you know everything is a long way out which were – which we quite like..

Okay. Thanks for taking my questions, Tom..

Thank you very much, Ryan..

[Operator Instructions] Your next question comes from Christopher Testa, National Securities. Your line is open..

Hey, good morning, Tom. Thanks for taking my questions.

Just curious, so you guys have alluded to roughly $29 million cost to refis and resets year-to-date, could you just tell us what the cost was during the third quarter?.

It’s Ken here. Little bit over $0.10 per share of $2 million..

Got it.

And of four refinances done in the quarter, how many are those were recalibrated in the current quarter’s effective yield versus being pulled into the fourth quarter?.

We disclosed for refis and one reset, all reflected in the third quarter..

Got it..

And that’s how disclose going forward, so whatever we mentioned for the quarter will be reflected in the quarter..

Got it. And do you guys calculate the effective GAAP yields.

Is that including CLOs that are in the process of being redeemed or liquidated as well?.

CLOs that our called, we would calibrate that effective yield to zero once it's called..

Got it..

And that’s [Indiscernible] investor presentation..

So when we move those investor deck to a separate section just if it done expect the loans are sold, that money is coming in, but not…..

Okay, got it. And I know that obviously and Tom, you had mentioned in the past and on this calls while that there is a lot of new buyers of AAA paper and I know that previously you had sold a lot of CLO debt through Asia, specifically China which is implemented capital controls recently.

Just wondering how the appetite is bouncing between investors whether it would Asian or European versus kind of the typical bond fund managers that are driving a lot of our AAA demand?.

Very good question and indeed some of the currency controls in Pacific Rim countries have had an effect of reducing flows not eliminating it but certainly out of countries with capital controls we've seen less inflows than many would have expected a year or two ago.

The flipside probably the new thing that has emerged, and this is a little bit of a deep in the weeds technical but important to understand for everyone, probably that the newest category of buyer who is come in and I alluded to this of individuals and institutional investors focused on buying shorter dated refinancing AAA's while the new issue market for AAAs is kind of between low to mid one team, one-tenth of kind of 1.18 is a reasonable range today.

If you're doing a refinancing versus a shorter remaining life, because the deals are really a couple of year season, in many cases you can get that done 75, 85 over.

So that's a pretty interesting dynamic, and the investor who has been buying that in many cases are kind of short duration bond funds, we’ll be going a little off indexed to buy that sort of paper. What that’s done, that investor, this is mutual funds, in many index of the Berkeley act.

We’re floating through on the act, but that's swell of capital has come in has distorted the buying for a lot of regularly investors who in many cases saw their books shrink as new -- as paper was taken from them and sold to these other investors were comfortable buying only shorter duration paper.

I mean, that’s helps bring in the spreads on regular way CLO's as many of the existing holders had their books shrink threat or not grow as much as they like on his paper was refid [ph] and transferred to that other buyer community. So, we didn't get a lot of the swell from China that was expected.

Many of the banks and the institutional investors elsewhere in Pacific Rim remain active, but then the 40 act buyers of short duration bond funds have probably been the biggest game changer this year in terms of helping heighten the refis but then drag in the longer data deals..

Got it. That’s great color. And just kind of staying on that topic, you’d mentioned that AAAs are pricing kind of low to mid 1.10, but spread compression seems to abating somewhat, we’ve seen prices on institutional term loan sort of remain flattish past couple of months.

Has that impacted negatively the refinance side and AAA spreads at all?.

No. We don’t move in perfect sink. At a high level often, the high yield bond market catches the cold first and sometimes the loan market catches a cold. And then sometimes the CLO market, but it's by no means, there are days when bonds are down and loans were up and then CLOs are in and they run little bit.

Certainly even over the last two weeks high yield bonds had a couple of days where they got banged up lot stuff that we invest in, at the same time CLO's BBs tightened probably 50 basis points in the last two weeks.

So in that case kind of a little bit out of think, the CLO market as all markets to also work on its own technicals, to the extent other investors are coming in and scale, we might see things tightening even affluence aren't tightening. So the good news is while right now the trend on everything on assets and liabilities has been tighter.

The assets have sort of plateau that they could go up or they could down from here. And the demand for CLO debt has continued to increase which is definitely endorsed to our benefit, but it's not was the perfect match..

Got it. And just kind of shifting gears, I mean, obviously the reinvestment environment is very challenging right now.

Just curious what your thoughts are on you know the average broadly syndicated loan multiples are pushing test 6.5 turns and just wondering if it’s not only getting harder to it’s a primary investment opportunities based on yield, but also if you know structures are becoming worrisome as well..

Overall, broad corporate leverage kind of just around in the syndicate loan – just around five times, loss on loans or higher, someone’s are lower than that. I mean the average has remained largely unchanged over the last two or three years that may move around up point one or point two of return.

As we look at kind of with that, how that translates into individual loans, indeed some loans have been also able to be more aggressive in terms of structural provisions, while at the end of the day you have the most important thing in our opinion is that loans have a first lien pledge of all the companies assets, that’s the thing we are most focussed on.

In some instances we have seen the loan terms weaken and become more borrower friendly which you know should companies get into distress that could prove adverse for loans and loans recoveries could be lower.

I forgot the exact number, but our weighted-average recovery rate for our assumptions is 69 unchanged and that compares to a long-term recovery rate assumption on a long-term actual recovery rates on senior secured loans, a little over 80%. So we are taking -- lightly factoring in the light issuance factoring down.

At a high level unsecured high-yield bonds have recovered 50 and senior secured loans with covenants have recovered 80, you kind of make the judgment, we know where unsecured and covenanted has recovered and we know where secured covenants has recovered and this then falls somewhere in between. It’s very high to take these as an assumption.

It is an average, some are higher, some are lower for sure, but the collateral that companies that we have is the lender of and that remains the most important part of the equation..

Got it. That’s all from me. Thank you for taking my questions..

Thank you very much..

There are no further questions at this time. I will now turn the call back over to Tom..

Great. Thank you very much everyone for your interest on the Eagle Point Credit Company. We appreciate all the questions and the interaction during the call today. If anyone has any follow-up questions, please feel free to reach out to Ken or I. We appreciate your time today and thank you again..

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