Eagle Point Credit Company Inc. (NYSE:ECC) Q3 2019 Earnings Conference Call - Final Transcript

Nov 19, 2019 • 10:00 am ET


Eagle Point Credit Company Inc. (NYSE:ECC) Q3 2019 Earnings Conference Call - Final Transcript


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Q & A
Thomas P. Majewski

those. The OC tests are interesting all the time, but they only matter on four days of the year on the payment determination date.

So even if a CLO were to fail its OC tests on an interim basis during the period, that's nice. But it doesn't do anything. It's only calculated with any effect on the determination date for the quarterly payments. And one of the things that's very important to remember in the CLO, in typically any CLO is the ability to build par through discounted purchases and relative value trading. And what that means is typically in a CLO, any loan purchased in the 80s is going to get 100 cents [Phonetic] on the dollar credit, in the OC test.

So if you're own a loan at -- that's maybe traded to 95 [Phonetic] you could sell that by a different loan that's trading at 85 [Phonetic], all of a sudden you've built 10 points of par related to that loan. And where I go with all of this is, it's a very manageable test. Not saying we couldn't have downgrades that ultimately tripped some CLOs for a period of time, but what we've seen -- and many of the collateral managers that are in our portfolio, frankly didn't miss payments to be equity during the '08, '09 cycle. Some have track records going back even further in many cases without the same payments.

I'm not saying that none have and some in the portfolio had missed payment, but a very high concentration of them frankly hadn't missed payments through the '08, '09 cycle. There, there were certainly significant amounts of Triple Cs and a greater -- and a great amount of defaults, but through managing the portfolio and other discounted purchasing, they were able to keep those CLOs on size.

So as we look forward, you also pointed to slowing revenue and EBITDA growth, I mean, you kind of talked about that, and that is an interesting one. Indeed, many companies are bought assuming by private equity sponsors with charts that go up into the right. No one ever has a chart that goes down to the right in terms of revenue and -- revenue and EBITDA and we are seeing it slow to some -- the rate of growth slowing versus where it was a year ago.

In our opinion, and this is a broad statement, not specific to any one credit although representative we believe the rates we saw a year, the rates of growth, we saw a year ago were driven frankly by -- maybe a shorter term initial stimulus from some of the tax changes that went into effect at the beginning of 2018 on both changes in tax rates, depreciation, and also, very importantly, changes in code which encouraged off investors who had large amounts of cash the proverbial Microsoft's and Google's large amounts of cash offshore to repatriate that money which ultimately circulated through the economy in the US, be