Garrett Edson - Senior Vice President, ICR. Tom Majewski - CEO Ken Onorio - CFO and COO.

Mickey Schleien - Ladenburg Ryan Lynch - KBW Chris Kotowski - Oppenheimer & Company Christopher Testa - National Securities.

Good morning. My name is Tiffany and I'll be your conference operator today. At this time, I would like to welcome everyone to the Eagle Point Credit Company Fourth Quarter 2017 and Year End 2017 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers, there will be a question-and-answer session. [Operator Instructions] Thank you. I'd now like to turn the call over to Garrett Edson, Senior Vice President, ICR..

Thank you, Tiffany 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 NCR, a full year 2017 audit financial statements in our fourth quarter investor presentation with the Securities and Exchange Commission.

Financial statements in our fourth 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..

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

On today's call, I'm going to provide some high level commentary on the fourth quarter's results, I'll turn the call over to Ken who will walk us through the fourth quarter financials in a little more detail from there I'll return and talk more about the macro environment, our strategy and provide updates on the company's recent activity.

And then of course we'll open the call to your questions. We remain particularly active in managing our portfolio during the fourth quarter, deploying capital into new investments, opportunistically harvesting gains and taking advantage of majority investor rights in a number of our holdings.

During the quarter, we deployed approximately $53 million in gross capital into new CLO investments. The new CLO equity we purchased had a significantly higher weighted average effective yield than the overall weighted average for our portfolio. We believe this bodes well for the future performance of our portfolio.

And when where we saw strong demand, we sold certain CLO equity and debt investments locking in $1.1 million of realized gains during the quarter. In addition, we leveraged our advisors competitive strength and priced three resets during the quarter and the company also participated in the calling of 1 CLO.

With our investment portfolio continuing to generate solid cash flows, the attractive debt terms we have achieved on recent new CLOs and resets and with credit losses remaining well below long-term market averages, we feel confident in the current state of our portfolio to continue generating long-term value for offers.

That said, the reduction in our weighted average effective yield reflecting broader credit market trends has impacted our results in the fourth quarter. For the fourth quarter, net investment income and realized gains was 9% higher than the prior quarter. We had $0.49 per common share.

This is a $0.04 increase from the third quarter, but still below our common distribution rate of $0.60 per share per quarter.

As we've noted last quarter, we recognize we have a need to earn our distribution and we want to assure common stockholders that we remain confident and comfortable with our current distribution level despite the shorter term lower NII.

When formulating our distributions, we evaluate the earnings potential on a long-term basis including both NII and the potential for realized gains. We also take into account our taxable income levels, which we are generally required to distribute to maintain our RIC tax status.

While our NII per common share has been below our distribution level in recent quarters, we continue to generate enough taxable income to remain comfortable with our current distribution level. During the fourth quarter, as I mentioned earlier, we deployed about $53 million on a gross basis in both the primary and secondary markets.

We made five primary CLO equity purchases, representing approximately $29.2 million of proceeds, 8 strategic CLO debt purchases and made investments in 6 loan accumulation facilities all during the quarter. Also during the quarter, two of our loan accumulation facilities were converted into CLOs.

The five new CLO equity investments that we made during the quarter had a weighted average effective yield of 17.25% at time of investment. This is well above the weighted average yield - effective yield of our overall portfolio which as of December 31 was 14.42%.

We believe this demonstrates our ability to continue sourcing our creative investments in a strong credit market through our adviser's investment process. On the monetization side, we sold $8 million of CLO equity where we saw strong demand for other investors.

We also sold $10.3 million of CLO debt securities, together these sales allowed us to realize $1.1 million of net gains versus our amortized cost. While we typically underwrite investments with a long-term hold mindset, we do sell investments when our adviser believes the price is better than what our outlook for the investment warrants.

We continue to maintain a smaller CLO debt portfolio principally comprising strategic investments for the company, while our CLO debt investments have been profitable they are typically dilutive to our overall portfolio yield, but have represented a very attractive risk adjusted return for the company.

Beyond our investments in sales of what we believe really sets Eagle Point apart from its peers as our advisors deep experience emphasis on proactive ownership and being mindful stewards of the company's capital.

Throughout the investment process and lifecycle of our investments, we are regularly in touch with the CLOs collateral managers, as we seek to create value throughout our CLOs lives. In particular, our reset activity has become an increasing part of our investment process as our portfolio seasons.

We already priced two new resets in 2018 and have several investments as reset candidates for the remainder of the year. By actively and prudently managing investments at the end of their lifecycle we seek to create additional long-term value for our company, including via reset.

As we've noted previously this portion of our adviser's investment process is just as important as the investment selection at the outset.

Our existing portfolio comprising positions in dozens of CLOs where ECC and other clients of our adviser own the majority of the CLOs equity class, as well as the evergreen structure of our company provides us with a meaningful advantage in pursuing additional value through this approach.

We believe there are few other investors in the market with as many majority CLO equity positions as our adviser. During the quarter ended December 31, three CLOs were reset bringing the total number of such CLO equity positions that were either refinanced or reset during 2017 to 26 and 6 respectively.

The resets completed in the fourth quarter created new five year reinvestment periods for each of the CLOs reset and it reduced the weighted average debt cost on those CLOs by approximately 9 basis points.

As we've noted previously, our refinancing and reset activity causes a one time reduction in CLO equity cash flows, as the associated costs with the refinancing or reset are paid out of this applicable CLOs waterfalls on the next payment date.

However, while the short term cash flow for one period may be reduced we believe this is money very well spent and that our investments will harvest increased cash flows to our CLO equity securities in the future versus had we not taken these actions.

Of course, wherever possible our adviser seeks to keep those service provider costs to a very small minimum. As of December 31 the weighted average effective yield on our CLO equity portfolio was 14.42% down from 15.29% last quarter and from 17.48% one year ago.

This reduction is the product of among other things, the market wide reduction in loan spreads. However, had we not conducted any re-financings or resets during the year we would expect the reduction would have been even greater.

As I've noted previously, the weighted average effective yields that we quote include losses and reserves for future credit losses. And a summary of the investment by investment changes and expected yield are included in the quarterly investor presentation.

On the Capital front, we utilized our aftermarket program during the quarter to issue approximately 289,000 common shares all at a premium to NAV and we'll provide more of the particulars, but through the end of 2017 we receive net proceeds from the sale of new common stock through the program of approximately $11.2 million.

Finally, last month in January we did complete an underwritten public offering of 1.95 million shares of common stock that was issued at a price of eighteen and a quarter per share versus NAV at the time of approximately 16.77 per share.

With the green shoe fully exercised we generated net proceeds of 38.8 million and almost immediately began deploying those funds into new investments. We had exceeded our target leverage band when we issued our ECCY baby bond last August.

A key part of our strategy on that offering or of the recent equity offering was to bring the company's leverage ratio back in line with management's longer term targets.

In January and through the beginning of February we've already deployed a net of $36.6 million of capital across CLO equity and debt investments, as well as additional loan accumulation facilities. Through February 15th, two additional CLOs have been reset.

In addition to resetting existing investments, we are actively pursuing new primary investments which we expect to price into new CLOs in the coming months and as with some of our recent investments we expect to benefit from some of the lowest financing spreads ever achieved by investments in our portfolio.

We continue to find attractive opportunities and believe the company is well positioned to capitalize on them. Our team continues to work hard to create value for ECC towards our long-term success. While the NII and realized gains this quarter were still below our common distribution rate.

They did increase 9% from the prior quarter and we remain very comfortable with the long-term outlook for our portfolio.

We continue to purchase CLO equity securities where the weighted average effective yields are meaningfully above the overall CLO equity portfolio effective yield and we continue to also benefit from some of the lowest debt spreads of any CLOs in the company's history.

After Ken's remarks, I'll take you to the current state of the corporate loan and CLO markets and share a little bit of our outlook for 2018. I'll now turn the call over to Ken..

Thanks, Tom. Let's go through the fourth quarter in a bit more detail. For the fourth quarter of 2017 the company recorded net investment income and realized capital gains of approximately $9.1 million in the aggregate or $0.49 per common share.

This was comprised of net investment income of $0.43 per share and net realized capital gains of $0.06 per share. This compares to net investment income and net realized capital gains of $0.45 per common share in the third quarter of 2017 and $0.54 per common share in the fourth quarter of 2016.

When unrealized portfolio appreciation is included the company recorded GAP net income of approximately $12.6 million or $0.68 per common share for the fourth quarter of 2017. This compares to net income of $0.12 per common share in the third quarter of 2017 and $1.51 per common share in the fourth quarter of 2016.

The company's fourth quarter net income was comprised of total investment income of $16.6 million, net unrealized depreciation or mark to market gains of $3.5 million and net realized gains of $1.1 million. These gains were partially offset by total expenses of $8.6 million.

At the beginning of the fourth quarter, the company held $4.1 million of cash, net of investment transactions pending settlement. As of December 31, that amount was $1.4 million, reflecting essentially full deployment of our available cash during the fourth quarter.

As a result of deploying $22.9 million in net capital during the fourth quarter, it was a significant amount of capital that only generated income for a portion of the quarter which we expect to now generate income at full capacity. As of December 31, the company's net asset value was approximately $350 million or $16.77 cents per common share.

Each month we publish on our website and an audited 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 January 31 was between $17.12 and $17.22 per share of common stock.

Based on a range midpoint, this is an increase of approximately 2.4% since December 31. Net GAAP return on common equity at the fourth quarter was 4.1%. The company's asset coverage ratios at December 31 for preferred stock and debt as calculator pursuant - pursuant to Investment Company Act requirements was 268% and 537% respectively.

These measures are above the statutory minimum coverage requirements of 200% and 300% respectively. As of December 31, the company had debt and preferred securities outstanding totaling approximately 37% of the company's total assets less current liabilities, although the 38% noted in the prior quarter.

As Tom mentioned earlier, the issuance of a Series 2027 notes in August contributed to the company exceeding the target band.

We've previously communicated management's expectations under current market conditions of generally operating the company with leverage in the form of debt and or preferred stock within a range of 25% percent to 35% of total assets.

While we sometimes incur leverage outside of that range, with our recent issuance of common stock in January 2018 on a pro forma basis the number declined to 34.6. Moving onto our portfolio activity in the first quarter through February 15. Investments that have reached their first payment date are generating cash flows in line with our expectations.

In the first quarter of 2018, as of February 15, the company received total cash flows on its investment portfolio, including proceeds from called [ph] investments totaling $21.7 million or $1.06 per common share. This compares with $34 million of total cash flow received during the full fourth quarter of 2017.

Consistent with prior quarters we want to highlight that some of our investments are expected to make payments later in the quarter.

During the fourth quarter, we paid three distributions of $0.20 per share of common stock as scheduled and on January 2nd 2018 declared monthly distributions of $0.20 per share of common stock for each of January, February and March. Pursuant to our asset market offering [ph] program for common stock and 7.75% Series B Term Preferred Stock.

During the fourth quarter the company sold approximately 289,000 shares of its common stock at a premium to NAV for total portfolio net proceeds to the company of approximately $5.3 million.

As previously noted, last month we completed an underwritten public offering of 2.2 million shares of common stock as an offering price of $18.25 per share, including the full exercise of the green shoe. We received total net proceeds of approximately $38.8 million.

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 very much Ken. Let me first take call participants through some of the macro loan in CLO market views that we have right now and we could talk about how they may impact the company. And then I'll also share a little more color on some of our recent portfolio activity.

For 2017 the Credit Suisse leveraged loan index generated total return of 4.25%, tracking a few points behind 2016s performance. As of yearend approximately 66% of the S&P/LSTA leverage loan index was trading at or above par.

While we believe the slightly lower total return on loans was primarily driven by refinancing and repricing activity in the first half of 2017, 2017 was nevertheless the 24th out of the last 26 years since the inception of the index that the Credit Suisse leverage loan index has had a positive return.

During the fourth quarter, we saw loan fund flows continue the trend we are seeing towards the end of the third quarter with funds observing about $3.7 billion in outflows according to data from JPMorgan.

While a significant amount of loans still trade above par, we believe that the muted fund inflows will act as a bit of a headwind for further loan refinancing or repricing activity.

However on the plus side, we're pleased to see that in the CLO equity market the loan market as well has really not been seeing selling pressure that would have come about from some of the broader equity market volatility that's been present in the last few weeks.

The total amount of institutional corporate loans outstanding was $959 billion as of yearend and that represents an 8% increase from the prior year and up 1% percent the end of the third quarter according to data from S&P Capital IQ.

Institutional new issue loan volume was a record $504 billion in 2017, but this was principally driven by refinancings which made up a significant part of the market activity. The large institutional corporate loan market provides us with a large and investable market for our CLOs. In terms of corporate defaults.

Rates remain low with a lagging 12 month default rate of 2.1% as of yearend according to S&P Capital IQ and for 2018 we and many others expect rates to remain around these levels due to minimal pending maturities, a more robust economy and the majority of the loan market consisting of covenant light loans.

Therefore as we did on our prior call, we think that it's important to note that the lower NII we've been recording is principally attributable to spread compression on the loans and that overall credit expense appears to remain low and we expect to stay below long-term averages in the near to medium term.

Should volatility and price dislocations occur in the market, we believe the company and its investments remain well positioned to take advantage of those opportunities when they present themselves. In the CLO market 2017 volume totaled $118 billion according to S&P.

That's the second highest issuance here on record, along with $65 billion of resets and $102 billion of refinancings both shattering previous annual records. 2018 is picking up right where 2017 left off in January. There have already been $6.3 billion of new issuance, $12.1 billion of resets and $2.5 billion of refinancings according to S&P.

For the full year of 2018, our adviser predicts between $90 billion and $100 billion dollars of new issue volume, $70 billion of resets and approximately $30 billion of refinancings.

As has been ongoing in recent quarters, and with a minimum of two rate hikes expected in the market this year and possibly three, floating rate CLO debt activity remains strong. New issue AAAs late last year were pricing around - around or even inside of 110 for some of the most well-known collateral managers.

And today those numbers start with a nine handle. As our portfolio continues to season and the market evolves, our focus for existing investments has shifted from refinancings to resets. In the first quarter as we mentioned we've already completed two resets.

As we discussed on our prior call we're continuing to focus on reset to take advantage of opportunities to extend the lives of our CLO transactions that would otherwise be exiting the reinvestment period during this period of historically tighter CLO debt spreads.

We have also deploy net capital of $36.6 million across CLO equity and loan accumulation facility so far in the first quarter of 2018, quickly putting to work a significant amount of the capital generated from the common issuance earlier this year.

Beyond seeking to maximize the value of our existing investments, of course, we maintain a good visibility on our new investment pipeline for the balance of the quarter and into much of 2018. On the regulatory side, we do have an important update, earlier this month the District Court of Appeals in Washington D.C.

ruled that CLOs backed by broadly syndicated corporate loans were not intended to be subject to the securitization risk retention regulations. This is something we've talked about a number of times on this call and with investors in the past.

While the appeals court decision remains subject to further appeal for a period of time many market participants expect that the appeals court decision will be made final. This decision unless appealed effectively ends risk retention for CLOs backed by broadly syndicated loans in the U.S.

We are certainly pleased with the court's decision and believe it should help expand credit availability in the United States. We also think it bodes well for a moderate increase in CLO issuance in the near to medium term.

However, the retention regulations have had little impact on our ability to source majority CLO equity investments and indeed according to data from the LSTA, the majority of CLOs issued so far in 2013 restructure to be vertically compliant allowing investors like us to hold the majority of the equity class.

That said, it's possible that the repeal may further expand the investment opportunity set that our investors - and investment adviser evaluates. To sum up, we remain comfortable with the makeup positioning and cash generation abilities of our overall portfolio, as well as the recent investments that we've made.

We remain optimistic about 2018 and in particular we're excited about the potential for significant reset activity in the year, which should allow us to generate significantly improved cash flows from the recent investments over the longer term.

We believe there will be many opportunities during the year to use our deep expertise and acumen as we continue to remain proactive in creating additional long-term value for our stockholders. We thank you for your time and interest in Eagle Point. Ken and I will now open the call to questions..

[Operator Instructions] Your first question comes from the line of Mickey Schleien with Ladenburg. Your line is open..

Good morning..

Good morning, Mickey.

How are you?.

Hi. Tom, it sounds like you have a fairly positive outlook on the economy this year, so perhaps you're willing to take a little bit more than the average risk.

I'm curious as to how that view is impacting your selection of particular CLOs, are you looking perhaps for more cyclical portfolios of thesis that maybe the credit cycle is going to be extended or perhaps newer managers where you can earn better economics?.

Great question, Mickey, kind of three parts in there, economic outlook, are you turning up the risk at all and are you getting into kind of newer or less familiar collateral managers, probably the three pieces in there. Let me address each of them one at a time. Indeed overall the economy we are you know, reasonably constructive on at this point.

We're certainly in a growth market. Politics aside, lower tax rates and you know, various stimulus - stimuli I guess coming into the market should help increase economic activity in the United States. In general, in my view no increases in GDP bode very favorably for below investment grade rated companies.

So as we look into the next one to two years absent and exogenous events we're pretty darn constructive on the portfolio. Overlay that covenant light aspect of many syndicated bank loans helps take the - takes the concept of technical default off the table as well for many of the loans.

So we're pretty optimistic there in terms of default rates staying reasonably low. In terms of risks that we're taking. We're certainly pleased the new investments that went in the ground during the fourth quarter had a weighted average effective yield of seventeen and a quarter percent, which is certainly above the overall portfolio.

But I want to highlight, we don't believe we are taking any meaningful incremental risk with that, more what we're doing is capitalizing on the even or the lowest in our history costs on the right side of a CLOs balance sheet in terms of the CLOs debt levels.

As I look through the investments we made during the fourth quarter, only one collateral manager is new to - I take that back, and say 2 collateral managers are new to us. However I highlight one of them was their 30th CLO where we took a minority piece and another where we took the majority piece was their 53rd CLO.

So while they may be a little newer to the portfolio here in both cases platforms we know very well and as indicated by the currently their count of CLOs that they've issued by no means new issuers in the market.

So the portfolios I would say in each case look very similar to portfolios each of those collateral managers would have created 3 to 6 months ago just with the added benefit today of locking in some of the lowest CLO debt costs that we've ever been able to - ever been able to achieve..

Thanks, Tom. That's very helpful. That's it for me this morning..

Thanks, Mickey..

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

Good morning, Ryan..

Good morning. Tom. So during 2017 as you mentioned you guys had about six CLO resets and 26 CLOs refinanced. I believe you mentioned you're going to shift your focus from refinancings to resets in 2018. So for just - for those who maybe aren't as familiar with the CLO market and those dynamics.

Can you just walk us through what goes into the determination of whether to refi a CLO versus resetting it?.

Sure. A very good question and I'll even broaden the menu a little bit. With every investment past that's on-call period the range of outcomes do nothing. Delva [ph] Security call the CLO refinance the debt or reset the entire CLO. So we have kind of a five prong menu with each investment.

The - once a CLO gets close to the end of its reinvestment period, typically zero to 12 months prior to the end of its reinvestment period is typically when we'd start looking at a reset and trying to assess what that - like and would it be a creative to have such a transaction.

Some of the reasons we completed refinancings more last year were attributable somewhat to where many of the CLOs were in their lifecycle in our portfolio, in that quite a few of them had between 1 and 3 years left on their weighted average remaining period and the reinvestment period.

So in those cases rather than kind of rip up the remaining 1 to 3 years of reinvestment period it made sense just to refinance, lock in lower costs and kind of run forward there and as we got closer to that reinvestment period end at that point go back and reopen the docs.

And frankly some of the CLOs that we have reset or will be resetting our CLOs that we had previously refinanced in the last 1 to 2 years.

As we get closer to the end of the CLOs life really the big decisions kind of comes down to in today's market, do you reset the CLO, do you call it or do you sell it and that loans are - loans are pretty fully valued right now. So one of those three is nearly certainly the best course.

Default is that we're going to be resetting a CLO, which involves reopening the documents, locking in lower debt costs and reopening the tenure and the terms of the transaction, typically adding a new five year reinvestment period. The reason we might not do that however that's our base case for every investment.

But we look at what that newly extended CLO would look like.

What sort of weighted average expected yield would we be able to get from that investment if we contemplated - if we were able to get a best in class reset done on it and in some cases in the case of 1 CLO in our portfolio in the fourth quarter we directed a call of it where the attributes of that portfolio just didn't bode well for the outlook in the future.

So we locked in a very handsome IRR on that predecessor investment. But it made the best sense for it. There are also cases where it might make sense to sell the majority block to someone else. We do know from time to time it's infrequent, but not unthinkable, where our adviser has sold majority pieces.

But in general we're looking for the long-term reset opportunity and the only reason why not would be something around the portfolio might not fit well into new CLO structure..

That's helpful. That makes a lot of sense. Thanks for that background. In the quarter the weighted average yield a new CLO, CLO equity investments was fairly strong at 17.25%. When you look at the weighted average yield in your portfolio you know, 14.4%.

I just was curious was there any big onetime going on in the new CLOs you guys invested in this quarter or is that kind of the market yield you guys are seeing for new CLO equities?.

Yeah. Nothing in particular. The range of effective yields on new investments, I'm just looking at new equity investments was 10.7 to 22.4. But the others were all in the mid to upper 16s.

And if I had a - put a range on it today, I'd say it's kind of 16.5% to 18%, is kind of the ballpark yields that we're seeing today with the loss adjusted effective yields.

And the biggest reason that's higher than the yield on the overall portfolio by a non-trivial amount is not really additional risks in these new investments, but these are CLOs that have the lowest costs on the right side of the balance sheet that we've ever achieved.

And one way to kind of think about, loans spreads have compressed throughout 2017 as you heard from us and anyone else in the loan market, syndicated or middle market and CLO debt spreads have also gotten tighter.

However we have a kind of a little bit of a granularity mismatch in that we have over a thousand loans so we have less sand coming at us and we only have about 50 or so CLOs, we kind of have golf ball sized blocks on the other side.

So the granularity, it's all going in the same direction, but frankly a fair number of our CLOs are still in the non-call period. There's one CLO in the company's portfolio octagons [ph] 26 which know has AAA around L plus 160. Thankfully that sale comes off of not-call next quarter and you can be assured it's on our radar screen of things to do.

So the possibility to keep ripping out cost on the right side of the CLO balance sheets, absent a change in market conditions if things stay similar to they are now and we have a lot of runway in front of us, they keep ripping out costs on the right side of the balance sheet.

On the left side of our CLO balance sheet, the spreads have already been reduced. We haven't been able to fully do that yet on the right side of the balance sheet, but we're working very keenly to do.

We haven't done that for every investment in our portfolio, we've done it for a bunch of you know, almost 30 or between reifies and resets, but now we have the opportunity to do it for a lot more still on the right side which will help us lock in even higher yields prospectively we believe..

Okay. That's helpful. And then one more. It looked like in the fourth quarter professional fees jumped a little bit, which drove an overall you know, moderate increase in your total G&A expenses overall. Was there any onetime items in that professional fees expense line, it looked like it went from about 210,000 last quarter to about 370 this quarter.

Were there any onetime items that really drove that increase or should we expect that kind of higher level going forward?.

So the primary driver of that increase is we're going to incur, we have a call above the line cost with the ATM program, legal and audit as we issue shares through the ATM. That fourth quarter amount reflects the basically the third or fourth quarter expenses associated with our ATM.

I don't expect them to be that high going forward, the 160,000 plus that you commented to, but there will be some incremental expense on a quarterly basis going forward in relation to the ATM issuance..

I would expect somewhere between Q3 and Q4 basically?.

Yeah..

Okay. That's helpful. Thanks for taking my questions..

Great. Thanks so much..

Your next question comes from the line of Chris Kotowski with Oppenheimer & Company. Your line is open..

Morning. I was just wondering, I'm looking at page 3 of the presentation, the portfolio cash flow components and I was just curious, there were no first equity distribution even though your portfolio has been growing pretty steadily through the quarters for the last two years.

And I was just curious why that was?.

Yeah. No reason in particular, I'm depending on the timing of when a CLO is closed and when it completes its ramp up will determine whether or not there is exactly when a CLO makes its first payment. Nothing missed a payment in our portfolio that we were expecting to pay.

So put things - typically CLOs pay on October 15, January 15, April or July cycle. The CLOs that could have potentially made first payments in October of 2017 would have been investments from Q2 of 2017 of the new things that went in the ground there.

If anything we've probably been a little conservative in our modeling and outlook in terms of ramp up pace just in that ability to build loan portfolios has been a little slower, but nothing - and we break that out more so you can see when it jumps around because if you look back to Q2 of '17 we had $10 million of distribution and that was distributable, which I think from 2 quarters prior to that most likely, but nothing missed a payment in the portfolio.

And sometimes it takes three to four months for the first payment, sometimes it takes six to seven months for the first payment. We often are very conservative in our modelling, so nothing missed..

Okay. And you know you expressed confidence that the net investment income would soon start matching the distribution level.

And I'm wondering is that - is that you get that confidence from just the way investment income is recognized over the life cycle of a CLO or does it come from the fact that you've been able to drive down the liability costs the way you have with you know, with the recently booked CLOs or is it the rate hikes.

I mean, what gives you the confidence that it's going to lift relative to what we've been seeing the last couple of quarters?.

Sure. And we look at - a very good question.

We look at it on a combined basis between NII and realized gains that certainly you know all income in the bank and perhaps all - the last quarter was the exception I - in the last eight quarters perhaps there has been one or perhaps two quarters where we've not had meaningful realized gains in the portfolio and on average it's been a handful of cents.

We do look at them together first off, so we kind of see this up 9% quarter-over-quarter. In terms of the NIII the actual net interest income component of the earnings, the things that are helping us. In general you should think of these as earning income on a relatively straight line basis if anything it decays ever so slightly each quarter.

So it's not that existing investments when we do nothing, all of a sudden earn more next quarter. It's more about the following items. First the near to medium term i.e., now to next 6 months forward calendar of reifies and resets that we're planning. Obviously there's no assurance we'll complete those if market conditions turn haywire.

We might not be able to complete those, but assuming market conditions stay reasonably strong which we expect we have significant ability to rip out costs on the right side of balance sheet in quite a few of the CLOs in the company's portfolio. So the number one thing we look at is that frankly.

And then B, as we continue to put new things in the ground frankly there are also benefiting from these record low liability costs. And you can see that with higher and higher yields of new investments going in the ground in the portfolio. So loan spread compression has slowed significantly.

It's not zero and it rarely is zero but we think the worst of that is behind us and going back to my granularity comment earlier. If you look at CLOs and if you look on the page 4 of our investor presentation you can kind of see CLOs that are coming off the non-call period in April and July of 2017.

And you can look at the income that they're generating and frankly some of the bigger ones are coming up or many are coming up this year. I mean, nearly you know, again absent a change in the market we have a lot of ability to rip out costs in those deals. And the earnings power has already been reduced by the loans have already compressed.

Now we're - we've got a catch up as those deals run off their non-call periods..

Okay.

And then just curious on the kind of rate sensitivity, I mean, you must be through most of the LIBOR floors now, so I'm curious do you get a benefit from each incremental rate hike here or does most of that go to the liability holders on the right?.

A very good question. So if in a very simplified example in a CLO there might be $100 of loans, $90 of CLO debt and $10 of CLO equity. The $10 of CLO equity would get its share of the increase in LIBOR, so today we're looking at three month LIBOR kind of one [indiscernible] last look on the screen. So LIBOR floors were certainly through that.

Holding all else constant i.e., no other change in behavior or defaults, CLO equity investors like LIBOR is far away from one is possible and that the higher the rate goes now the more cash flows will get. In full disclosure however our effective yields do assume the forward curve, which predicts probably around three increases this year.

So when we quote a yield it does reflect the market's expectation of forward interest rates. However, like what we would actually expect to see is cash flows continue to trickle up. If anything our view is maybe there's more upward rate bias than is priced into the market today. We're not experts at rate forecasting either..

Okay. All right. Fair enough. Thank you. That's it for me..

Appreciate it. Thanks so much for the questions Chris..

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

Good morning Tom. Thanks for taking my questions.

Just curious could you quantify what the refinance costs were for the fourth quarter of '17?.

Sure. It's Ken here and anticipating that you have the number to the heading. Approximately 1 million or 5….

Okay. Got it. And just curious you know, can you comment on something that's kind of been talked about in the market with the power flush, you know how much are you seeing that's utilized, are you guys utilizing it and to the extent that the power flush is utilized.

Can you can you just provide an overview on how that gets calculated into the effective yield or if it is calculated into it?.

Sure. A very good question and maybe I'll spend a minute of background on just providing a definition for call participants.

In some CLOs in the market and certainly many if not the vast majority in our portfolio have something called the power flush mechanics which allows on often the first or second payment date to CLO collateral manager to designate a certain amount of principal, re-categorized as interest and then pay it out as a special distribution to the equity holders.

That's something that can be quite a creative to equity IRR and that it allows money to come to the equity holders sooner than it would otherwise have done. I will share some color on one other recent transaction which is also notable. But to your question Chris.

Typically when we look at making a new issue CLO equity investment we do not assume any power flush in the effective yield. That said, we like to get power flushes and we do everything we can to make sure as much as prudently available can be paid out to the equity on special dates early.

Now to the extent our forecasts were otherwise perfect in all regards, which of course we know, they never will be. What that would do is, let's say we get a nice juicy flush payment which could be up to 1% in many CLOs, extrapolate that 10 times levered and theory could be up to 10 points on the CLO equity.

What that would be treated during the first year of the CLO is just a reduction in principal, as a return of principal and that income is accrued on the effective yield which didn't model that.

Then when we get to the next refreshed date which would be typically a year after we made the purchase, we would recast the cash flows and let's say nothing else changed in the market. So the cash flows are the same.

We have a lower basis because we can treated the flush as a return of capital so the effective yields would go up at one year hence as a result of making a flush payment. So it's not….

Got it.

So it's really just treated the way a regular cash distribution over what you're modeling in the GAAP effective yield is treated as a reduction of cost?.

Correct. And if our model holds perfect and we got one of these big payments on the next re-evaluation date all else equal the prospect of effective yield would be higher than it otherwise would have been because we now have a lower amortized cost..

Got it. Okay, that makes sense. Thank you..

Let me just add one other bit on that. You know, typically I said these things kind of happen in the next - you know, in the first one or two payments in a typical CLO.

The last CLO investment the company made in the fourth quarter we were able to achieve something that I would actually put is almost unthinkable a year prior where we were able to get in one of our CLOs that the flush could happen on any payment date during the reinvestment period, as long as there were net gains.

So in that CLO to the extent gains continue to get generated subject to meeting certain tests in those transaction documents, all of the gains throughout the life can be paid on a current basis to the equity investors. Obviously there's no assurance that CLO will generate gains throughout its entire life.

But when we talk - we certainly have talked a bunch about how it's a borrower's market for corporate borrowers wherever possible we've tried to do similar things in the CLO market in terms of within reason pushing that - pushing the envelope on terms. And that was a particular milestone transaction for the market.

Sadly I don't think we'll be able to get that on every CLO prospectively, but I can assure you we're going to try. But I do think it will be the minority of deals that get that. But that's some of the things that we're doing through our advisors process to kind of push the envelope to be as equity friendly as possible..

Got it. And given how equity friendly the power flushes were as effectively that gain is skipping the waterfall.

Is there any sort of implication on the right hand side of those CLO balance sheet and implementing that type of feature within the document?.

So within the context of a normal power flush, be it one or two quarters, as long as it's kind of pre baked into the transaction documents before they're broadly offered to the market. There doesn't seem to be any substantive differentiation in that CLO debt pricing.

Obviously all similar debt investors will evaluate the terms and make their own decision. But there doesn't - does not appear to be a convention where you want the power flush, you know, it cost a 5 basis points more. An efficient markets theorists could suggest that there should be some sort of premium. The reality is that there doesn't seem to be.

Against that, you know every debt investor evaluates the transactions each one on their own terms. Looking at some with a perpetual flush in some cases you might have turned off some investors. But other investors look overall at the portfolio, the collateral manager and a lot of other factors around the transaction while making their investment.

I don't think we suffered any meaningful debt spread widening in exchange for that option in that particular….

Got it. Okay, that makes sense.

And you know, I think one of the points of confusion around a lot of people in the market is you know, they don't seem to quite understand that CLO equity - that the cash income which is really you know taxable income is always generally higher than what you're reporting is GAAP income that you guys are forced to basically level yield.

So just wondering if you could provide some context in, when you report the portfolio cash distributions and we could see the portfolio cash distributions per share, how proximal is that to basically your taxable earnings in a given quarter?.

And this is gross cash flow, mindful there's obviously expenses via per share.

If you look at Q4 of '17, $33 million in cash flow that did include the proceeds, the bulk of the proceeds of one called CLO as well, what might make sense is to look back even to Q3, as maybe a little more proximate of give or take and mindful stuff to move around the $26.3 million of total, subtract from that all the expenses which we obviously lay out in the financial statements.

Ballpark proxy for taxable income. One, a couple of variables to that though and this is where it gets very tricky the forecast stuff like this in an extreme case, let's say the day before a CLO ends it tax year, the collateral manager had bought a loan at par and sells it at 60.

All of a sudden you create a big loss which distorts things where they bought something at 60 and now sold it at 100 could create a big gain which would otherwise distort things. So actual portfolio behavior is a non-trivial factor in driving this.

The other variable which makes it a little difficult, although we have a better handle on this is when you do a refi or reset within a CLO typically, not always, but typically the prior unamortized debt issuance costs get expensed for tax purposes, get rid of ordinary sometimes capital and rules that we have a whole department that studies carefully.

So there's a number of factors beyond just the cash and I know other similar vehicles have often said we think cash is a very good proxy. I think they've even changed their language recently. It's the best ballpark thing we've got. But there's even static around that, is that a fair….

Yes, and the other the other variables I would add is the capture of the underlying CLOs tax year, that for example in March ends November 30th, if the CLO reports December 31, the taxable income we could - we wouldn't capture we could be recording cash from a GAAP perspective all year..

Got it. Okay. Now that's helpful. I know it's a complex question. I was just trying to get a feel for how the portfolio of cash stacks up, I know that there was a lot of nuances. It makes me happy, I don't have your job Ken..

That's for sure.

We did put in the annual letter and we expect that to be - one of the nice parts about that November tax year end is we have a lot of - a lot of the tax information is already in from January - from December of 2017 gets caught in our November, December of '16 taxable, you know, K1s and [indiscernible] statements get caught in our November 2017 year end.

I mean, the annual or May call will provide a kind of a first cut update on taxable income and the potential need for any specials. But so still kind of in the - in the calculation mode at present..

Got it. Okay, that's helpful. Thank you. And you know, looking at how there has been these kind of little bouts of volatility, so like the BB, OAS was you know, 192 bps at the end of January. It jumped to 220 as of February 8.

So when that type of you know, just couple of weak pocket where you have this 30 bps jump in kind of the option adjusted spread, I mean how much opportunity set does that present you guys in the reinvestment environment, how much you're able to take advantage of these little bouts of volatility in terms of making relative value trades?.

To be completely candid in this most recent one, it was although not much. Somewhere between zero and very little, if you are okay - if you roll back, back certainly the Q1 of '16 we'd have a different answer.

And even if you roll back to December of 2014 there was a little more violent of a drawdown that some of the CLOs were able to do some pretty interesting things then. If you think about the continuum of the markets you know, at one extreme there's treasuries and the S&P 500.

And you know you see the Dow moving around a thousand points in a day sometimes, that's very, very fast and typically first to move. Loans kind of catch on if that stuff continues for an extended period of time and then CLO kept on from loans.

Loans had a few down days during the throes of that volle [ph] but it was not - you know talking to our traders you know, probably the worst day was down a quarter point. And you know that means that they are now part a quarter.

So it was not a - we did not see in the loan or CLO markets, perhaps unfortunately anywhere near the volatility that you would have seen if you're looking at the Dow or even high yield bonds..

Okay. That's helpful. And you know, with risk retention, you know, one of the things that I was hearing in the market is that, it seemed that managers would actually be more willing to accept lower yields because they're getting higher fees for performing the CLOs and taking the obvious 5% chunk of it, per the risk retention rules.

Now if with the appeals court ruling against risk retention and if indeed this thing is actually killed, could there actually potentially be a backup yield.

As now these managers may not be so willing to accept you know, the lower yields because they're getting more fee income from having to form these and take a chunk of these?.

You're making me chuckle Chris, you're highlighting some of the agency risk in some of those - some of those other transactions where maybe in some cases things are done that you know, very competitive yields. Kind of - the risk retention decision is a very important one that in our view will have relatively little impact.

It is between there in that folks that have dedicated CLO equity capital in most cases to sponsor their own deals. We would expect them to continue to deploy that, we're unaware of anyone saying okay we're disbanding our vehicle and returning the capital.

So the situations were likely to occur, they probably will still occur with existing capital that's been raised. Overall however, we would expect the part of the appeal of these vehicles was for pension and endowment type investors you know, using your pension capital to solve the regulatory problem. That's an attractive proposition to many investors.

There's no - most likely no longer a regulatory problem to solve and what that suggests in our view is future formation of captive CLO equity vehicles will slow. I don't actually think it goes away, but I do think the pace will slow significantly over the coming years.

Finally to frame it, depending on what data sources you look at, the numbers I've seen suggest there were $6 billion to $8 billion of horizontal retention pools raised in a $120 billion market roughly last year. That suggests the amount of equity capital needed to support the market would have been about $12 billion just using a rough 10 to 1 ratio.

Mindful that that horizontal capital was typically targeted for two to three years of use, it wasn't what's deployed all in one year type money. What that suggests is despite the headlines that those efforts grab and it certainly helped with investor education. And frankly that's only about enough capital to support about third of the market.

So it was an - it had an impact on the market. But you can see from the things we put in the ground throughout 2017. You know, Eagle Point, our adviser sponsored 11 new majority investments not too dissimilar to what it did the year before that. Going forward it modestly improves the opportunity set in our expectation.

But the short answer is that it's a big decision that doesn't have a lot of impact..

Got it. Okay, that's helpful. And that is all for me. Thanks for taking my questions..

We appreciate it, Chris. Thank you very much..

I will now turn the conference back over to our presenters..

Great. Thank you very much everyone for joining for this morning's call. I'm very pleased with the company's performance in the fourth quarter. To the extent anyone has any other follow up questions, please feel free to give Ken or me a call in the office and we appreciate your continued interest in Eagle Point Credit Company. Thank you very much..

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