Greetings, and welcome to the Eagle Point Income Company's first quarter 2020 financial results. [Operator Instructions].I would now like to turn the conference over to Garrett Edson of ICR. Thank you. Please begin..

Thank you, and good morning.

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.

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

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

A replay of this call can be accessed for 30 days via the company's website, www.eaglepointincome.com.Earlier today, we filed our first quarter 2020 financial statements and our first quarter investor presentation with the Securities and Exchange Commission.

Financial statements and our first quarter investor presentation are also available within the Investor Relations section of the company's website.

Financial statements can be found by following the financial update and the investor presentation can be found by following the Presentation and Events link.I would now like to introduce Tom Majewski, Chairman and Chief Executive Officer of Eagle Point Income Company..

Thank you, Garrett, and welcome, everyone, to Eagle Point Income Company's first quarter earnings call. We appreciate your interest in Eagle Point Income Company, or EIC. If you haven't done so already, we invite you to download our investor presentation from our website at eaglepointincome.com, which I'll refer to in a portion of my remarks.

The presentation provides an introduction to EIC as well as additional information about the company including additional details about our portfolio.On the call, I'll provide some high-level commentary on the first quarter and recent activity, then I'll turn the call over to Ken, who will take us through the first quarter financials.

We'll then open the call up to your questions.Before we begin, we hope certainly that you and your families continue to be safe and healthy during these challenging times. I also want to especially thank our entire Eagle Point team and note how proud I am of them.

We've been in a 100% remote environment, and the team has done an absolutely tremendous job keeping our operations, both investing and operationally, completely seamless.

As a result, we've been able to proactively manage our portfolio of CLO securities through what's been a very difficult economic environment.When we last spoke to you in late February, COVID-19 was a serious concern for many in the market, but to that point, there were relatively few cases reported in the United States.

When we look back to past pandemics, the MERS, SARS, Ebola, while many people in certain regions of the world were impacted by the illness, the United States was quite fortunate to have largely been spared. This time, however, nearly everyone around the globe has been impacted by this pandemic, including the United States.

The lockdowns and economic reaction was sudden and at times unforgiving, and we headed into an immediate recession, and are now really just beginning the process of reopening domestic and global economy.

While process is beginning, there's certainly plenty more to go.During the first quarter, we deployed $17.3 million in new CLO debt and equity investments. As the scope of the COVID-19 pandemic became clearer in March, however, we sold just shy of $19 million of CLO debt securities with the goal of reducing the company's leverage.

In doing so, while we recorded some realized capital losses, we believe we gave the company meaningful amount of extra headroom against the covenants on our revolving credit facility. The company has been in compliance with its loan covenants and minimum asset coverage ratios under the '40 Act on all measurement dates.

At present, we have over $19 million of undrawn availability on our revolving credit facility.Outside of the realized losses, we recorded net investment income of $0.43 per common share during the first quarter in excess of the distributions that we paid during the quarter.

Due to the reduction in LIBOR and the lower level of leverage that the company is currently operating at, we expect recurring net investment income to be lower in the second quarter and for the foreseeable future.

And to that end, after careful consideration and deliberation, the adviser and the Board ultimately made the prudent decision to adjust our monthly distribution beginning in April to $0.08 per common share or $0.24 in total per quarter.Earlier this month, we declared common distributions for the third quarter in the same amount.

We also declared 2 special distributions for later this year related to spillover income from 2019. Ken will elaborate on these later. Our portfolio in the overall CLO BB market saw a major spread widening at the end of the first quarter.

The discount margin on the JPMorgan CLOIE BB Index more than doubled from year-end reaching 1,756 basis points at its wide on March 25.As loans in the stock market have rallied, the CLO BB market also enjoyed a price recovery.

As of May 14, the JPMorgan BB index DM stood at 1,305 basis points.Beginning in late March, the rating agencies took very rapid action and downgraded or placed on watch almost 1/4 of all syndicated corporate loans outstanding.

Some of the downgrades were multiple notches, and I don't believe I've ever seen such a rapid and far-reaching set of rating actions in the loan market ever before.Following the mass downgrade of loans in March and April, later in April, the rating agencies started placing certain CLO securities on watch for a potential downgrade.

In total, roughly 45% of all CLO BB tranches market wide were placed on downgrade watch. Our portfolio fared much better than the broader market. At present, only 20% of EIC's CLO BB portfolio is on credit watch.Of course, we are not a rating-sensitive holder.

We evaluate our portfolio of securities and evaluate the potential sale of any security based on our assessment of it, not based on the views of a third-party rating firm.Frankly, in general, we believe the rating agency models give little to no credit to the ability of a CLO to reinvest in loans at discounted prices during periods of increased loan defaults.

In our view, it's hard to imagine a scenario where 10% of all loans have defaulted, yet all other loans are trading at par.

Yet, we understand that this internally inconsistent scenario like these are often used in rating agency stress tests.When we evaluate how our portfolio is doing today, our investments are performing in line with or perhaps even better in some cases than how we would expect them to act in such a market.

Overall, despite the drop in loan prices, and March was one of the worst months on record in the loan market and rapid downgrades of loans from the rating agencies, every single investment in our portfolio which was scheduled to make a payment in April did so.

And we have far fewer of our CLO securities put on watch than the broader market.While we are pleased that all of our investments paid as scheduled in April, it is, of course, possible that in the future that some CLO securities in our portfolio will fail their over-collateralization test for a period of time.

While we prefer that our CLOs continue to make junior debt and equity distributions, if a CLO is failing its OC test, the only substantive consequence is the use of what would have been our distribution to as either a BB holder or equity holder to instead repay senior debt on that payment date.

When an OC test is failing, a CLO doesn't go into any sort of lockup mode nor are there forced sales of loans.

For CLOs in the reinvestment period, which all of our holdings are, the collateral manager can continue to actively manage the CLO's loan portfolio even if the OC tests are failing.While the price of loans have fallen and CCCs have increased, the trailing 12-month default rate for syndicated loans has moved up less than 1% at the end of April versus where it stood at the end of 2019.

Quite a few of the companies that defaulted recently were companies that many considered to be near defaults even prior to COVID-19.Many in the market, including us, anticipate a further increase in corporate defaults in the months ahead. When evaluating a CLO, the loan default rate, however, is only a part of the equation.

Equally importantly are loan repayment rates and the reinvestment opportunity set on that day. Indeed since the onset of COVID-19, billions and billions of dollars of syndicated loans continue to be repaid in full or a part at par.

CLO collateral managers can take those par dollars and reinvest them in loans today at discounted prices.In markets like these, they can also make par building trades, selling one loan and buying a different loan at a lower price that perhaps they consider to be misunderstood by the market.

We believe what the market does not fully value is the stability of the right side of CLO's balance sheet. We believe our CLO debt and equity portfolio can withstand a prolonged recession and that our lightly seasoned CLO equity has the potential to thrive in it.

This is not because we're blind to default, but because we value and we understand the value that can be recreated reinvesting in CLO structures during choppy markets.Members of our team have been through difficult markets before, the 2002 tech telecom cycle, the '08, '09 financial crisis and plenty of smaller ones in between.

While past performance is obviously not a guarantee of future results and there are a few important distinctions between today's situation and then, we do take some comfort in the past.When we look back on what occurred in the '08, '09 cycle, CLOs securities saw significant rating downgrades and price declines in 2008, similar to perhaps what we've been seeing lately.

But when the dust settled, the long-term default rate for CLO BB remained very low. Indeed, according to data from S&P, out of the 1,347 CLO BB tranches issued between 1996 and the second quarter of 2018, a mere 20 have failed to return full principal and interest.

A very, very low default rate.And for CLO equity investors, which EIC is, because we invest up to 20% of our portfolio in CLO equity, history is on your side, too.

Had you invested in CLO equity generically at the beginning of 2009, according to research from Citibank, your IRR over the next 3 years was nearly 80%, well above the returns from many other asset classes.I'll come back and share a little more detail on a bit, but let me turn the call over to Ken to walk us through some of the details on our financials.

Please?.

Sure. Thanks, Tom. For the first quarter of 2020, the company recorded net investment income of approximately $2.6 million or $0.43 per common share. Net investment income combined with realized capital losses resulted in a loss of $12.4 million or $2.05 per common share.

When unrealized portfolio depreciation is included, company recorded a GAAP net loss of approximately $60 million or $9.96 per common share.

Please note, our short-term cash flow generation is largely unaffected by the unrealized changes in fair value that we record in any given quarter.Company's first quarter net loss was comprised of total investment income of $2.6 million, which was more than offset by unrealized mark-to-market losses on investments of $47.5 million, realized capital losses of $15 million and total expenses of $0.9 million.

During the first quarter, the company had initially borrowed against the large majority of its revolving credit facility.

But as the pandemic progressed, the company prioritized liquidity by selling certain CLO positions to partially repay the credit facility.As of May 14, net of pending investment transactions -- investment transactions, the company has approximately $20 million of cash and revolver capacity available for investment.

As of March 31, the company's net asset value was approximately $54 million or $8.99 per common share.

Each month, we publish on our website an unaudited management estimate of the company's monthly NAV as well as quarterly net investment income and realized capital gains or losses.Management's unaudited estimate of the company's NAV as of April 30, was between $10.59 and $10.63 per share of common stock, reflecting an 18% increase from March 31.

During the first quarter, we paid three monthly distributions totaling approximately $0.40 per share of common stock.

On April 1, we declared monthly distributions of $0.08 per share of common stock for each of April, May and June, as we made a prudent decision to lower our monthly distribution level to reflect the current environment and preserve liquidity.Earlier this week, we declared monthly common distributions for the third quarter in the same amount.

As one of the requirements to maintain its ability to be accepted as a regulated investment company, the company is required to pay distribution to holders of its common stock, an amount equal to substantially all of its taxable income within one year of its tax year-end.

The company has determined that its taxable income for the tax year ending December 31, 2019, exceeded the aggregate amount of distributions paid to common stockholders during 2019.

As a result, the company was required to distribute approximately $2.3 million or $0.38 per common share.As previously announced, a special distribution will be paid in 2 separate distributions of $0.19 per common share on July 31 and October 30 to stockholders of record on July 13 and October 13, respectively.

So far in the second quarter, as of May 14, the company sold approximately 82,000 shares of its common stock pursuant to its ATM issuance program for total net proceeds of approximately $0.8 million.I will now turn the call back over to Tom..

Great. Thank you, Ken. Yes, March 2020 was truly an unprecedented time for the global economy. Our market experienced incredible volatility, and we acted quickly and prudently to reduce our borrowings and overall stabilized the company's balance sheet.

We have ample liquidity and availability on our credit facility to be able to invest when we see cheap opportunities, but we'll do so in a cautious and prudent manner. All of our CLO debt and equity holdings, which were scheduled to make payments in April did so.

Only 20% of our portfolio of CLO BBs were placed on downgrade watch, which was less than half the wide market average -- market-wide average.

And while we expect a challenging time for the economy for the foreseeable future, we have a cash-generating portfolio and ample capacity on our balance sheet to make opportunistic investments when we see them.I'm pleased to have announced the distribution for the third quarter and also provide investors clarity on the nontrivial special distribution, which would be payable over the balance of the year.We thank you for your time and interest in Eagle Point Income Company.

If there are any questions, Ken and I would be happy to field them now..

Great. We appreciate everyone's time and interest today in Eagle Point Income Company. We have some very challenging times in the market, but hopefully, you believe and would concur with us that the portfolio was set up in very good shape and has performed very well so far.

We believe we are set up very well, depending on the direction and turns that the market takes. We appreciate everyone's participation today. And if there are follow-up questions afterwards, please feel free to reach out to ICR to get in touch with Ken or myself. Thank you very much..

This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day..