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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Thomas P. Majewski

yield demands and lower loan prices. During the quarter, our NAV fell by $2 a share.

As we've noted previously, however, short-term changes in NAV typically don't imply a change in our portfolio cash flow, the way such moves could with the BDC. As Ken will elaborate on later, recurring cash flows received from our portfolio so far in the fourth quarter have actually exceeded the total recurring cash flows received during the third quarter.

Despite the recent price movements, we continue to believe that there is no fundamental issue with the corporate loan market or the Company's portfolio. Frankly, we believe the drawdown during the quarter was principally driven by a market wide repricing of risk, not an increase in risk. Indeed, to that end, corporate loan default rates remain near historic lows and few are predicting significant increases in defaults in the near term. The lagging 12 month default rate actually decreased on a quarter-over-quarter basis, down to 1.29% from 1.34% as of June 30th, as reported by S&P.

As a reminder, periods of loan price dislocation keenly underscore a key advantage offered by CLOs in such an environment, that we have locked in long-term non-mark to market financing. The locked-in financing of CLO provides us with stability and allows many CLOs to profit by reinvesting principal paydowns from loans in their portfolios into new additional loans typically at lower prices and/or with wider spreads. In other words, we view the long-term debt of the CLOs in our portfolio to be more in the money in volatile markets like these, and like those of 2008.

To put some numbers on this, the weighted average spread of the AAAs issued by our CLOs in our equity portfolio is 121 basis points. Today, many new CLOs are issued with AAAs in the mid 130s, so the debt in our CLOs is in the money, which is a beneficial for the Company. While retail loan mutual funds continued during the quarter with approximately $8.5 billion of outflows for JP Morgan, we believe the pressure from those four sellers continues to be partially offset by demand from loans -- for loans from institutional investors.

Indeed, despite the retail outflows through September 30th, the Credit Suisse Leveraged Loan Index has delivered a total return of 6.39%. During the quarter we issued $22.3 million of new common stock via our ATM program capturing approximately $0.19 per common share of NAV accretion, that NAV accretion of course benefits all shareholders. In the third quarter, we continue to remain proactive with respect to our portfolio. We deployed approximately $24.6 million in gross capital and to new investments.

The new CLO equity added to our portfolio continues to have a higher weighted average effective yield than the weighted average for our overall portfolio of CLO equity securities. During the two -- during the quarter, two of our loan accumulation facilities were converted into CLOs.

For the third quarter, we generated net investment income of $0.37 per common