Eagle Point Credit Company Inc (ECC) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals a GAAP net loss, high leverage ratio, and management's vague responses about future outlooks, which overshadow positive aspects like cash distributions and investment yields. The Q&A section highlights uncertainties in credit quality and refinancing outlooks, and the company's strategic pivot away from CLO equity indicates potential instability. These factors suggest a negative sentiment towards the stock price over the next two weeks.
Key Financial Performance
GAAP return on common equity Negative 14.6% during 2025, modestly better than Nomura's market-wide assessment of negative 15%. This was due to difficult market conditions, spread compression in the loan market, and negative sentiment towards credit.
Net Asset Value (NAV) $5.70 per share as of December 31, down from $7 per share on September 30. The decline reflects market challenges and realized losses.
Net Investment Income (NII) less realized losses Negative $0.26 per share in Q4 2025, comprised of $0.23 per share in NII offset by $0.49 per share in realized losses. This compares to $0.16 per share in Q3 2025.
Recurring cash flows $80 million or $0.61 per share in Q4 2025, up from $77 million or $0.59 per share in Q3 2025. The increase was due to portfolio performance.
Total cash distributions $1.68 per common share during 2025. This reflects the company's ability to generate cash flow despite market challenges.
CLO resets and refinancings 10 resets and 3 refinancings in Q4 2025, and 34 resets and 27 refinancings for the full year. This activity led to 42 basis points of CLO debt cost savings on average.
Gross capital investment $184 million in Q4 2025 at a weighted average effective yield of 15.4%. Of this, $147 million was invested in non-CLO credit assets.
Non-CLO portfolio Approximately 26% of the total investment portfolio as of year-end 2025. Investments in this category have generated a gross IRR of approximately 18% on fully realized investments.
Leverage ratio 48% at the end of Q4 2025, above the target range of 27.5% to 37.5%. The company plans to bring this back to the target range over time.
GAAP net loss attributable to common stock $110 million or $0.84 per share in Q4 2025, driven by unrealized and realized losses, financing costs, and operating expenses.
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Operating Highlights
New investments in other credit assets: During the fourth quarter, $184 million was invested in gross capital at a weighted average effective yield of 15.4%. Of this, $147 million was allocated to new investments in other credit assets, increasing the non-CLO portion of the portfolio to 26%.
Private credit investments: Since 2022, private credit investments have been made, yielding a gross IRR of approximately 18% on $97 million of fully realized investments.
CLO market activity: CLO new issuance volumes rose to $209 billion in 2025, surpassing 2024's record of $202 billion. Combined full-year CLO issuance, including resets and refinancings, reached $546 billion.
Loan market fundamentals: The U.S. leveraged loan index posted a 5.9% return for 2025. The trailing 12-month default rate decreased to 1.2%, below the long-term average of 2.6%.
Capital structure optimization: Redeemed 8% Series F term preferred stock and repurchased $9 million of $25 par securities at discounts. Issued $29 million of 7% Series AA and BB convertible perpetual preferred stock.
Portfolio management: Completed 34 resets and 27 refinancings in 2025, achieving 42 basis points of CLO debt cost savings on average.
Strategic portfolio diversification: Increased investments in non-CLO credit assets to 26% of the portfolio, with plans to further expand this segment.
Partnerships and joint ventures: Supported Muzinich's U.S. and European CLO collateral management platforms with over $40 million in commitments. Launched a new joint venture for regulatory capital relief transactions.
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Risk or Challenges
Market Conditions: Difficult market conditions for CLO equity in 2025, including spread compression in the loan market and negative sentiment towards credit, adversely impacted financial performance and shareholder returns.
CLO Equity Arbitrage: Loan spreads compressed faster than CLO liabilities tightened, significantly reducing CLO equity arbitrage and negatively affecting returns.
Financial Performance: The company reported a GAAP return on common equity of negative 14.6% for 2025, with a decline in NAV from $7 per share to $5.70 per share by year-end.
Realized Losses: Realized losses of $0.49 per share in Q4 2025, primarily due to rotation out of underperforming collateral managers and reclassification of unrealized losses to realized for called legacy CLO equity positions.
Leverage Ratio: Leverage ratio increased to 48% at the end of Q4 2025, above the target range of 27.5% to 37.5%, posing potential risks to financial stability.
Regulatory and Financing Covenants: While the company remains in compliance, the elevated leverage ratio could pose future risks to covenant adherence.
Distribution Adjustments: Reduction in distribution rate to $0.06 per share for Q2 2026, reflecting near-term earnings potential and the need to retain capital for investments.
Economic Uncertainty: Volatility due to geopolitical factors, tariffs, and interest rate changes could impact loan market fundamentals and credit performance.
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Guidance & Outlook
Capital Deployment in 2026: The company sees attractive opportunities for capital deployment in both CLO equity and other credit asset classes. By resetting the distribution rate, the company plans to retain more capital for investments with attractive risk-adjusted returns.
Portfolio Diversification: The company plans to increase the portion of its portfolio invested in credit assets other than CLO equity over time, based on attractive investment opportunities.
European CLO Platform Growth: The European partnership is in its beginning stages, with the first loan accumulation facility open and ramping. Due to Muzinich's strong presence in Europe, the company anticipates a faster growth trajectory compared to the U.S. venture.
Joint Ventures Expansion: The company launched a new joint venture in Q1 2026 to invest in regulatory capital relief transactions and plans to add more JVs to its portfolio over time.
Capital Structure Optimization: The company plans to evaluate other perpetual preferred issuance opportunities with potentially lower costs in the future.
Market Conditions and Default Rates: Anticipated rate declines are expected to support a low default rate environment, benefiting issuers with reduced interest costs.
CLO Refinancings and Resets: The company remains excited about its robust pipeline of refinancings and resets of CLOs in its portfolio, which are expected to add value.
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Shareholder Return Plan
Total cash distributions in 2025: $1.68 per common share
Fourth quarter distributions: $0.42 per share, paid in 3 monthly distributions of $0.14 each
First quarter 2026 distributions: Declared 3 monthly distributions of $0.14 per share
Second quarter 2026 distributions: Declared 3 monthly distributions of $0.06 per share
New distribution rate: Adjusted to align with near-term earnings potential
Common stock repurchase program: Authorized a $100 million program to buy back stock if it trades at a material discount to NAV
Preferred stock repurchase: Redeemed 8% Series F term preferred stock and repurchased $9 million of other $25 par securities at discounts to par
Issuance of perpetual preferred stock: Issued $29 million of 7% Series AA and BB convertible perpetual preferred stock in Q4 2025, totaling $155 million by year-end
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Key Q&A
Q:How do you see the structure of captive CLO equity funds impacting fee structures for third-party CLOs, and what is your outlook for third-party competition?
A:Thomas Majewski acknowledged the impact of captive CLO equity funds on fee structures, noting that CLOs without internal management fees could outperform those with such fees. He highlighted the significant market share of captive funds in recent CLO creation and discussed the challenges posed by spread compression. He also mentioned the company's strategy to pivot investments towards areas with top-line revenue shares in CLO collateral managers and credit asset classes beyond CLO equity.
Q:How does the Board feel about potentially changing the fund's investment objective to allow for more diversification away from CLO equity?
A:Thomas Majewski stated that the Board has been supportive of gradually increasing the allocation away from CLO equity, focusing on core credit competencies. He emphasized that the company is not completely moving away from CLO equity but is exploring opportunities in other credit asset classes.
Q:What is your outlook on credit quality and trends in credit expenses for this year?
A:Thomas Majewski expects credit quality and expenses to remain similar to last year. He noted that companies are working through challenges at a measured pace and that weaker documents provide more runway. He does not predict a significant uptick or improvement in credit expenses.
Q:What is the company's approach to the new stock repurchase program?
A:Thomas Majewski explained that the decision to use the stock repurchase program depends on various factors, including share price, leverage ratios, and relative investment opportunities. He emphasized that it is an art, not a science, and that the company will use the program when it makes sense.
Q:What needs to change for NAV to be more stable, and are there any signs of improvement?
A:Thomas Majewski mentioned that reducing cash payouts in excess of net investment income and focusing on investments with potential gains could help stabilize NAV. He noted that the company is husbanding capital and exploring opportunities in private credit investments to create gains.
Q:What is the outlook for resets and refinances in 2026?
A:Thomas Majewski stated that the outlook depends on AAA spreads and the steepness of the curve for refinancings. He noted that the company has a robust calendar of investments and will focus on opportunities as they arise, but it is difficult to predict the exact level of resets and refinances.
Q:What private credit investments is the company interested in for 2026 and 2027?
A:Thomas Majewski highlighted various private credit investments, including asset-backed securities, collateralized fund obligations, equipment leases, venture lending joint ventures, and regulatory capital relief transactions. He emphasized the company's experience in these asset classes and their potential for mid-teens returns.
Q:What are the company's leverage expectations and sources of capital for deployment this year?
A:Thomas Majewski stated that the portfolio generates significant cash flow, which will be used for investments and portfolio rotations. He does not anticipate raising new debt or equity but mentioned the possibility of using financing for joint ventures.
Q:Was the redemption of the preferred stock done with cash?
A:Yes, the redemption of the preferred stock was completed with cash.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer to the question about the specific outlook for resets and refinances in 2026, as it depends on unpredictable factors like AAA spreads and market conditions. Additionally, the response to the question about dividend supplements was vague, with no clear prediction provided.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AA BB
BB AB
CLO collateral
Instructions
NII loss
Nomura
Officer Chief
Series AA
Series term
adviser
asset CLO
asset class
beginning
capital relief
collateral platform
credit asset
credit investment
distribution rate
equity investor
fund
income loss
income share
investment portfolio
investment share
leverage ratio
loss investment
market discount
portfolio credit
portfolio investment
portion portfolio
redemption Series
repurchase program
reset refinancings
stage
stock distribution
term stock
today Chief
venture
ECC Transcript
Eagle Point Credit Company Inc (ECC) Q4 2025 Earnings Call Transcript
Unknown2-17
The earnings call reveals a GAAP net loss, high leverage ratio, and management's vague responses about future outlooks, which overshadow positive aspects like cash distributions and investment yields. The Q&A section highlights uncertainties in credit quality and refinancing outlooks, and the company's strategic pivot away from CLO equity indicates potential instability. These factors suggest a negative sentiment towards the stock price over the next two weeks.
Eagle Point Credit Co LLC (ECC) Q2 2025 Earnings Call Transcript
Unknown8-12
The earnings call summary reflects a balanced view. Positive aspects include strong asset coverage ratios, a strategic focus on new investments, and optimistic guidance on cash flow generation. However, concerns about realized losses, market risk aversion, and spread compression offset these positives. The Q&A highlights management's efforts to address risks but also notes uncertainties, such as the recent sell-off in CLO equity funds. Overall, the sentiment is mixed, with no strong catalysts for significant stock price movement, leading to a neutral rating.
Eagle Point Credit Company Inc. (NYSE:ECC) Q1 2025 Earnings Call Transcript
Unknown5-29
The earnings call reveals mixed signals. Financial performance is slightly positive, with EPS exceeding expectations and net investment income growth. However, concerns arise from a significant NAV decline, a GAAP net loss, and leverage above target due to portfolio value drops. The Q&A highlights stable CLO cash flows but lacks clarity on market recognition. The market strategy and shareholder return plan seem stable, yet economic factors like tariff policy pose risks. Overall, the sentiment is neutral, with both positive and negative elements balancing each other out.
Eagle Point Credit Company Inc. (NYSE:ECC) Q4 2024 Earnings Call Transcript
Unknown2-21
The earnings call summary presented mixed signals: strong recurring cash flows and a robust CLO strategy were offset by missed EPS expectations and realized losses. The Q&A revealed some analyst concerns about management's transparency and specific strategies. Despite positive developments like the ECCU notes offering and increased distributions, the unclear guidance and missed EPS likely neutralize the positive effects, resulting in a neutral sentiment.
ECC Slides
Frequently Asked Questions
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