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Edited Transcript of ECC.N earnings conference call or presentation 14-Aug-18 2:00pm GMT

Q2 2018 Eagle Point Credit Company Inc Earnings Call

Aug 31, 2018 (Thomson StreetEvents) -- Edited Transcript of Eagle Point Credit Company Inc earnings conference call or presentation Tuesday, August 14, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Garrett Edson

ICR, LLC - SVP

* Kenneth P. Onorio

Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary

* Thomas P. Majewski

Eagle Point Credit Company Inc. - CEO and Director

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Conference Call Participants

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* Christopher Robert Testa

National Securities Corporation, Research Division - Equity Research Analyst

* Laura Allison Taylor Rudary

Oppenheimer & Co. Inc., Research Division - Associate

* Mickey Max Schleien

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst

* Ryan Patrick Lynch

Keefe, Bruyette, & Woods, Inc., Research Division - MD

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Presentation

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Operator [1]

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Good morning. My name is Lindsay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Eagle Point Credit Company Incorporated Second Quarter 2018 Financial Results Call. (Operator Instructions) Thank you.

Mr. Garrett Edson, Senior Vice President, ICR, you may begin your conference.

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Garrett Edson, ICR, LLC - SVP [2]

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Thank you, Lindsay, and good morning. By now everyone should have access to our earnings announcement and investor presentation, which was released prior to this call, 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 contain 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 N-CSR half year 2018 financial statements and second quarter investor presentation with the Securities and Exchange Commission.

The financial statements in our second quarter investor presentation are also available on the company's website. The financial statements can be found by following the financial statements and reports quick link on our website. 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.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [3]

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Thank you, Garrett, and welcome, everyone, to Eagle Point Credit Company second quarter earnings call. If you haven't done so already, we invite you to download our investor presentation from our website, which provides additional information about the company, including information about our portfolio and underlying corporate loan obligors.

Regular readers will notice certainly that we have made some enhancements and changes to the presentation this quarter, and which we hope will be helpful to all investors. As we've done previously, I'll provide some high-level commentary on the second quarter, then we'll turn the call over to Ken, who will take us through second quarter financials in more details. I'll then return to talk more about the macro environment, our strategy and provide updates on our recent activity and then, of course, we'll open the call to grab questions.

The second quarter was another quarter of considerable activity at Eagle Point with respect to making new investment, sales of existing holdings and resetting CLOs in our portfolio.

During the quarter, we deployed approximately $78.5 million in gross capital into new investments. And once again, the new CLO equity repurchased at a significantly higher weighted average effective yield than the weighted average for our overall portfolio.

Additionally, where we saw opportunities and appropriate pricing, we sold certain CLO equity and debt investments, blocking an $800,000 of realized gains on investments during the quarter. We also leveraged our advisers' competitive strength and size and priced 8 resets and 1 refinancing during the second quarter.

Beyond just our portfolio activity, we completed the effective refinancing of our 7% ECCZ notes with our new fixed rate 6.6875% 10-year ECCX notes. The X has have the lowest cost of funds that the company has ever obtained. The new X notes are over 7 years longer than the Z notes they replaced and were 31.25 basis points less expensive.

With the X notes in place, the weighted-average maturity of our preferred stock and unsecured notes outstanding extended to over 8 years from 6 years prior to those transactions during the quarter. For the second quarter, we generated net investment income, net of realized gains from the company's portfolio and capital losses from the financing activities of $0.34 per common share, which is a $0.16 decrease from the prior quarter and below our common distribution of $0.60 per share per quarter. We noted that we incurred $0.20 per common share of nonrecurring charges and expenses in the quarter related to ECCX issuance and ECCZ redemption.

As we mentioned previously, we made an election to recognize debt issuance cost for the ECCX securities in the period in which they were incurred. We also recognized the remaining unamortized ECCZ issuance cost during the quarter along with the Z note redemption.

Later in the call, Ken will discuss the accounting associated with these nonrecurring cost and the overall second quarter results in further detail. While we've experienced the impact of spread compression over the past few quarters on our results, we've seen the pace of compression continue to slow in recent months.

Most notably, in July, according to a report from JPMorgan, there was not a single syndicated loan that repriced. It has been years since that has last been the case and we're optimistic that stabilization is beginning to occur and we positioned ourselves to rebound well as the cycle of spread compression dissipates given our significant refi and reset activity over the past few years.

During the second quarter, again, we deployed about $78.5 million of capital on a gross basis in both the primary and secondary markets. We made 5 primary CLO equity purchases, representing about $25.3 million in proceeds, 11 strategic CLO debt purchases and made investments in 2 new loan accumulation facilities.

During the quarter, 3 of our loan accumulation facilities were converted into CLOs. The new CLO equity investments that we made had a weighted average effective yield of 16.31% at the time of investment, once again, well above the weighted average effective yield of our overall portfolio, which as of June 30, was 14.08%. This continues to demonstrate our ability to source accretive investments in a strong credit market through our adviser's investment process.

On the monetization side, we sold $10.7 million of CLO equity where we saw strong demand as well as $11.7 million of CLO debt securities.

Together, these sales allowed us to realize $800,000 of net gains on our investments versus their amortized cost.

As we've noted before, when our adviser believes the price available is better than our investment outlook, we opportunistically will sell investments.

Looking back, we're pleased to note that we have had net realized gains on our investment portfolio or from our investment portfolio in 8 of the 9 last quarters.

We've talked about our adviser's capabilities and active management approach on previous calls, which is a powerful advantage that we have at our disposal to create additional value for our investments.

To that end, as we've talked about previously, our adviser has been concentrating extensively on resets this year, using our adviser's maturity ownership of CLOs equity class to direct resets and lower the cost of our CLO debt and lengthen reinvestment periods. We believe there are few other investors with as many majority positions as our adviser.

In the second quarter, we priced 8 resets and 1 refinancing, bringing the total number of resets and refinancings that the company has been involved in since January of 2017, through the end of the second quarter to 18 and 27, respectively. So 18 resets, 27 refis. The resets completed in the second quarter created new reinvestment periods of up to 5 years for those CLOs and reduced those CLOs weighted average cost of debt.

Further, our adviser continues to have a robust pipeline of future resets under evaluation. As a reminder, our reset typically causes a onetime reduction in CLO equity cash flows, as the cost associated with the reset are paid out of the applicable CLOs waterfall on the next payment date. While there may be a -- the near-term cash flow may be reduced as part of a reset, we believe this is money 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, particularly as spread compression continues to slow. Of course, wherever possible our adviser seeks to keep those service provider costs to a minimum.

As of June 30, the weighted average effective yield on our CLO equity portfolio was 14.08%, that compares to 14.54% in the prior quarter and 15.68% in the prior year. As I've noted previously, the weighted average effective yield includes an allowance for future credit losses. A summary of the investment-by-investment changes in the expected yield are included in our quarterly investor presentation.

On the capital front, in addition to the ECCX notes issuance that I mentioned earlier, we utilized our at-the-market program during the quarter to issue approximately 360,000 common shares all at a premium to NAV.

And we'll provide more on the particulars, but since we began the program last summer, through June of 2018, we have received net proceeds from the sale of new stock through the program of approximately $23 million.

In July, and thus far in August, we've deployed $8.4 million of capital across CLO equity and debt investments. Through August 8, 2 additional CLOs in our portfolio have been reset and 1 of the company's CLOs was refinanced. That's quarter-to-date activity through August 8.

In addition to resetting existing investments, we remain active in pursuing new and attract primary investments, which we expect to price into CLOs, and we expect to benefit from the continued low CLO debt financing spreads.

Overall, our long-term outlook for the portfolio remains favorable. After Ken's remarks, I'll take you through the current state of the corporate loan and CLO markets and share some of our outlook for the remainder of 2018.

I'll now turn the call over to Ken.

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [4]

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Thanks, Tom. Let's go through the second quarter in a bit more detail. For the second quarter of 2018, the company recorded net investment income, net of capital gains and losses of approximately $7.2 million or $0.34 per common share. This was comprised of net investment income of $0.37 per common share, combined with net realized capital gains from the company's portfolio of $0.04 per common share, offset by a realized loss of $0.07 per common share from financing activity.

Please note, NII was reduced by $0.13 per share due to issuance cost and other nonrecurring expenses associated with the ECCX issuance. The current quarter compares to net investment income and net realized capital gains was $0.50 per common share in the first quarter of 2018 and $0.53 per common share in the second quarter of 2017.

The company's NII and realized capital gains for the second quarter were net of $4.3 million or $0.20 per weighted average common share of nonrecurring losses and expenses. Given the significant nonrecurring losses and expenses reflected in our results this quarter. I will take a moment to provide some additional insight. In the current quarter, we recorded a $1.5 million realized loss or $0.07 per share related to the early redemption of our Z bonds. Upon redemption of such debt, GAAP accounting requires any previously unamortized deferred debt issuance cost to be accelerated as a realized loss on extinguishment of debt and the statement of operations. This cost is required on the GAAP to be presented below the net investment income line.

Additionally, we recognized a onetime $2.4 million expense or $0.11 per share related to the issuance of our ECCX bonds. As we noted on our last call, the company has changed its accounting policy to permit the option to elect fair value accounting on perspective debt issuances. By electing fair value accounting, the company can recognize cost associated with new debt issuances in the period they are incurred. These costs are reflected in the respected expense line items within the statement of operations, all of which are above the net investment income line.

Since we had not made such an election previously, issuance cost related to ECCA, B and Y will continue to be accounted for on a deferred basis and amortized over time. In addition, there was a approximately $0.3 million or $0.02 per share, a nonrecurring interest expense for the period, both the Z and X bonds were outstanding. Please note to assist the readers on our second quarter financial statements, we have added supplemental disclosure within the statement of operations, illustrating the aforementioned nonrecurring losses and expenses.

For the current quarter, the adviser of the company voluntarily waived approximately $0.3 million of its incentive fee. The waiver is associated with the early redemption of the Z notes and represents an incentive fee reduction, as if the remaining unamortized issuance cost on the Z notes has been expensed at a time of issuance.

Continuing with second quarter results, when unrealized portfolio appreciation is included, the company recorded GAAP net income of approximately $9.5 million or $0.44 per weighted average common share. This compares to net income of $0.39 per common share in the first quarter of 2018 and $0.88 per common share in the second quarter of 2017. The company second quarter net income was comprised of total investment income of $17.4 million and net unrealized appreciation or mark-to-market gains of $2.3 million, partially offset by total net expenses of $9.5 million and net realized losses of $0.7 million.

At the beginning of the second quarter, the company held $8.3 million of cash net of pending investment transactions. As of June 30, that amount was $2.8 million, reflecting almost full deployment of our capital into investments. As a result of deploying $31.3 million in net capital during the second quarter, there was a significant amount of capital that only generated income for a portion of the quarter, which we expect to now generate full income going forward.

As of June 30, the company's net asset value was approximately $358 million or $16.51 per common share. Each month, we publish on our website an unaudited management estimate of the company's monthly NAV as well as quarterly NII and realized capital gains or losses. Management's unaudited estimate of the range of the company's NAV as of July 31, was between $16.64 and $16.74 per common share stock. Based on arrangement point, this is an increase of approximately 1.1% since June.

Nonannualized net GAAP return on common equity in the second quarter was 2.69%. The company's asset coverage ratios at June 30, a preferred stock and debt as calculated pursuant to investment company at requirements were 284% and 550%, respectively. These measures are above the statutory minimum coverage requirements of 200% and 300%. As of June 30, the company had debt and preferred securities outstanding totaling approximately 35% of the company's total assets less current liabilities, which is consistent with the prior quarter. We previously communicated management's expectations under current market conditions of generally operating the company within leverage in the form of debt and/or preferred stock within a range of 25% to 35% of total assets.

Moving on to our portfolio activity in the third quarter through August 8. Investments that have reached their first payment date are generating cash flows in line with our expectations. In the third quarter of 2018, as of August 8, the company receives total cash flows on its investment portfolio, excluding proceeds from called investments totaling $19 million or $0.86 per common share. This compares to $25.4 million or $1.18 per common share received during the full second quarter of 2018.

Consistent with the prior quarter, we want to highlight that some of our investments are expected to make payments later in the quarter. During the second quarter, we paid 3 monthly distributions of $0.20 per share of common stock as scheduled. And on July 2, we paid monthly distributions of $0.20 per share of common stock for each of July, August and September.

During the quarter, the company closed an underwritten public offering of 6.6875% unsecured notes due 2028, resulting in net proceeds to the company of approximately $65 million, inclusive of the partial exercise of the greenshoe. The new notes trade on the New York Stock Exchange under the symbol ECCX. The company use the vast majority of proceeds from the offering to redeem 100% or $60 million aggregate principal amount of its 7% 2020 Z notes, effectively conducting a refinancing.

This resulted in lowering the company's ongoing interest cost while also extending its debt maturities. Pursuant to our at-the-market offering program for common stock and 7.75% series B term preferred stock, during the second quarter, the company sold approximately 360,000 shares of its common stock all at a premium to NAV for total net proceeds to the company of approximately $6.4 million. Additionally, for the period from July 1, through August 8, the company has sold approximately 560,000 shares of its common stock also at a premium to NAV for total net proceeds to the company of approximately $10.1 million.

That said, I would like now to hand the call back over to Tom.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [5]

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Great. Thank you, Ken. Now let me take the call participants through some of the macro loan and CLO market observations and how they may impact the company. And then I'll touch a further on some of our recent portfolio activity.

Through July 23, the CS leverage loan index generated a total return of 3.02%, tracking slightly ahead of where the CS leverage loan index was at that time last year. According to JPMorgan, 42% of its index was trading above par, which is down from the 70% figure we noted on our last earnings call. As prices of loans have declined slightly, as CLO liabilities have widened slightly. Causing investors to become a little more selective and require a little bit of higher returns in the loan market.

During the second quarter, we saw loan fund inflows continue with funds growing by about $5.6 billion according to data from JPMorgan. The muted amounts of fund inflows is still acting as a bit of a headwind for further loan refinancing and repricing activity. We view that as a positive. The total amount of institutional corporate loans outstanding exceeded $1 trillion and reach $1.05 trillion as of June 30, and that's an 11% increase versus the prior year and a 5% increase from the end of the first quarter according to S&P Capital IQ.

Institutional new issue loan volume was $142 billion in the second quarter of 2018 and $271 billion for the first half of 2018, slightly outpacing last year's performance, driven in part by refinancings, which did make up a significant part of the activity. We note the pace and severity of refinancing, however, continues to slow.

Institutional corporate loan market remains large, and is a large and dynamic investable market for our CLOs.

In terms of defaults, rates of our defaults -- instances of default remain quite low with a lagging 12-month default rate of 1.95% at the end of June according to S&P Capital IQ. We expect rates to remain around these levels due to minimal impending maturities and increasingly robust economy, and a large majority of the loan market consisting of covenant-lite loans.

The company's overall credit expense remains well below long-term averages. Should volatility and price dislocations occur, we believe the company and its investments are well positioned to take advantage of those opportunities. In the CLO market through July 23, we have seen $74 billion of new CLO issuance -- new CLO issuance, along with $74 billion of reset activity and $23 billion of refinancings, putting new issue on the pace to beat last year's record. And for resets, we've already exceeded last year's total, according to data from Deutsche Bank.

With expectations for rates to continue to rise for the foreseeable future, loading rate CLO debt activity remains strong, with new issue CLO AAA's often pricing in the LIBOR plus 110 basis point range for some of the most well-known collateral managers. BBs have also been resilient, despite the elevated CLO debt supply. CLO equity remains reasonably well bid despite the liability widening as spread compression has subsided. We continue to have a robust reset pipeline and expect to direct additional resets in the second half of 2018, as I mentioned earlier, we've already done a few this quarter and more to come, we believe. As always our adviser's deep CLO investing experience provides us with a notable advantage as we seek to generate additional value for our portfolio on stockholders.

So far in the third quarter, we reset 2 CLOs and refinanced 1, and we deployed gross capital of $8.4 million across CLO equity and debt so far in this quarter. And we are putting undeployed capital to use as opportunistically as possible. Beyond seeking to maximize the value of our existing investments, we continue to make a good visibility on our new investment pipeline for the next few quarters.

To sum up, we're pleased with the way our portfolio is currently constructed and we continue to opportunistically invest in CLOs with effective yields well above the portfolios current weighted average effective yield. We continue to utilize our adviser's strength and proactively directed additional resets, which should increase future cash flows to our CLO equity securities. We've also significantly improved the company's debt maturity profile, while reducing -- while issuing debt at the lowest cost we've ever achieved, lengthening our maturities and lowering our cost to capital. We will continue to be proactive in our management of our portfolio and our balance sheet to continue to create additional long-term value for shareholders. We thank you for your time and interest in Eagle Point. Ken and I will now open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Mickey Schleien with Ladenburg.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [2]

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Clearly, the high leverage of loan issuance this year has been translating to an extent into lower quality assets in terms of covenants and multiples that we're seeing, and I think you mentioned that in your prepared remarks. Since you've been investors in the CLO market for a long time, I'm sure you've seen this movie before, so I'd be interested in understanding how this environment is affecting your investment strategy currently?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [3]

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Sure. It's certainly fair to say, in the loan market, it's a borrower's market, overall. While we are pleased that there have been -- there were no repricings in July which was a pretty momentous nonevent here, I guess. The tenor in terms of loans are still skewed in borrower's favor. Against that, what we're seeing is it's helping -- a couple of things are helping to -- that's 2 things are going the right way which we -- right now in our opinion offset the negative that you have just cited. The first is what we're seeing is, companies using runway when they do get in trouble to right the ship, and an example will often point to as a company Weight Watchers, which I'm sure many people know. A few years ago, that first lien loan was trading at distressed prices and the stock was below $5 a share. Had that loan had maintenance covenants, it nearly certainly would have defaulted them, the company was roughly 10x levered at its low point. Instead, they went out and brought in a strategic investor and that company has turned around and the stock, as of right now, has gone from $5 -- below $5 up to $77.70 on my screen right now. They have turned it around, a lot of that loan has paid down and the balance of the loan remaining has -- it's trading around par. And that's a loan that hadn't had heavy covenants, nearly certainly would have been a default, and might have been a pretty bad recovery. So we share that as an example, that's not indicative of how every loan will work out unfortunately, but what the point of that -- of the story, and there's other loans like it, is that with the benefit of some runway, what we are seeing is some companies are actually able to, kind of, turn the corner. So I would be disingenuous if I said credit quality is robust and we as lenders are getting all the terms we want, but unfortunately, is not the case. But we are seeing with many companies that those who do get into some trouble, runway has been helping them. And then B, an additional statistic, that probably overrides all of this and is something we keep a really close eye on, you can see this in Page 33 of our current quarter investor presentation, and you'll recall, we use to, kind of, have a financial supplement and then, kind of, company overview. We just put it all together this time and added some additional disclosures. But on Page 33 of the power -- of the PDF deck, one of the things that gives us a really good bit of confidence right now or feeling good is the continued quarter-over-quarter change in revenue for below investment grade companies. I mean, you will see it according to last quarter we have data, revenue actually increased 11.8% quarter-over-quarter and that's on top of 9.6% quarter-over-quarter increase in the previous quarter. And at the end of the day, substantially all of the borrowers in our CLOs are B and BB rated. The #1 thing that helps those companies is revenue and EBITDA growth. And in general, we're seeing that in the market right now, regardless of your view on the things going on in Washington, certainly a number of the policies that have been put into place have been pretty business oriented. And we're seeing fairly significant growth coming, overall, in the economy and quite high GDP growth. And all of those things go to, in our view, mitigate the risk of near-to-medium term credit events. Not saying it won't be bad at some point, because we know it will be, but what we look into the near-to-medium term, frankly, we see growing revenue for most companies, which is certainly a net credit positive and then the later documentation standards, so the later ongoing maintenance covenants, at least, affording some companies additional runway.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [4]

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I appreciate that example and your insight, Tom. I guess, I just want to follow-up with what happens beyond the near-to-medium term. I probably should have asked, with some expectation of a downturn at some point and we could all argue about when that's going to happen, nobody really knows. I guess the concern in the market is that these loose terms and the high multiples down the road, when the economy does decelerate, could show up in some more meaningful defaults. So is there anything specifically you are doing now to preempt that down the road or not?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [5]

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Yes, so to look at multiples, and this is on Page 31 of that same deck, while there's a lot of talk of leverage multiples inching up, what you'll see is, it really, since 2014, the leverage multiples really haven't moved around that much, they have moved up or down or enter -- 1x or 2x -- or 0.1x, 0.2x or 0.3x. So we haven't seen a tremendous increase in leverage. We're certainly not seeing a hockey stick there. When things do get ugly and we do agree it's a when not an if, our view on when is it's a little later versus the little sooner. But we do agree it's a when not an if. The #1 thing we're working on in our portfolio is to buy as much reinvestment period as possible. And one of the things and lengthening the reinvestment period of our portfolio, and that our view is when that day of credit dislocation occurs, there will be a commensurate amount or may hopefully even a greater amount of price volatility. And it's -- if you -- we looked to history, certainly through the '08, '09 cycle, CLOs that were in the reinvestment period during '08 and '09 did very well, and frankly the CLOs from 2006 and 2007, on average, were some of the best performing vintages. In many cases, they had many of the worst credits, the weakest credits at the end of the last cycle, but their ability to keep proactively reinvesting during the time of distress, when defaults go up, nearly certainly prices fall and the ability to reinvest proceeds in those discounted prices was very, very powerful. So I think, quarter-over-quarter or over the last 6 months, normally you'd expect a weighted average reinvestment period to decay by about 6 months. Ours actually went up slightly, the weighted average into reinvestment period versus where we were at the beginning of the year. And that's a function of our new issuance, new CLOs coming in and resetting existing CLOs. We have been able to actually lengthen and totally mitigate the decay, and modestly lengthen the reinvestment period remaining in our portfolio. And a lot of our strategy is to keep pushing that forward, we want as much runway as possible for when that inevitable day of reckoning occurs, that we want to be able to have our CLOs on offense on that day. Finally, what does it look like on that day? That's a common question. And how bad will it be? And what do these loans really do on that dark day? If we look at S&P data or Moody's data, what we see is, kind of, over the last 20 to 25 years, loans on average have recovered $80 billion and unsecured bonds have recovered in the high-40s on average. And the 2 key differences, historically, between loans and bonds have been collateral and covenants. Unfortunately, for many loans, as you're pointing out, ongoing maintenance covenants are just a relic of history. As a lender if you can have only 1 thing, you would certainly take collateral over covenants. So we know where unsecured uncovenanted has recovered and that's just a little less than $50 billion and we know where secured covenant is -- and that's a little more than $80 billion. The right answer is probably somewhere in between for what will happen next time. And if you look at our footnotes in our financials, the recovery rate that we use in our base case is very, very high-60s is my recollection, currently. We will look at the exact number here.

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [6]

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Almost $70 billion.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [7]

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69.85 is the prevailing recovery rate that we're using in our model, it's a very precise number. But kind of, what that would suggest is our view is 2/3 of the outperformance of loans versus bond recoveries has been attributable to collateral and 1/3 to covenants. That's a management estimate. But we think that's a reasonable basis, and that as a lender, we'd rather have collateral all day than covenants if we can only have 1.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [8]

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That's very helpful, Tom. Just a couple of more questions if I may. In -- from my perspective or I guess from an investor's perspective, in general, there is a lot of moving pieces right now with CLO managers, refinancing and resetting, but spreads backing up, at least a little bit recently although we'll see if that sticks. In the end, your portfolio's weighted average spread fell only 3 basis points this quarter. I think that might actually be the lowest number in quite a while. So looking at the portfolio as it stands now, what do you think is the outlook for the weighted average spread? Since in the end, that's what really supports the cash flow for CLO equity?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [9]

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Yes, I guess, there is 2 sides of the ledger. There's the weighted average spread on the assets and weighted average spread on the CLO ...

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [10]

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I'm referring to the -- Tom, I'm referring to the arbitrage between the yield on the assets and the cost of the debt on the CLO balance sheet.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [11]

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Correct. And the number you said, I think that the weighted average spread on the portfolio fell 3 bps quarter-over-quarter.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [12]

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Perhaps, I don't have it in front of me. But you get -- you see what I'm getting at, right?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [13]

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Yes, yes. So the reality is we can sustain any weighted average loan spread as long as we have a commensurate low weighted average CLO debt spread. One of the things we're working on, including in future quarters, is the weighted average cost of debt within the CLOs as well. In this presentation, we haven't included it yet. We want to make sure we have all the number scrubbed perfectly, but in the coming quarters, that's something we're going to include as well, so people can kind of see both sides of the ledger for us. Overall, the spread compression has abated. It's not gone away completely, but compared to where we were a year ago, the overwhelming tide is closer to a trickle at this point. Obviously, that could change tomorrow as well. But that's been a good fact, and while that's come down a little bit or a few basis points quarter-over-quarter, we have been very proactive. We got 8 resets done during the second quarter and 2 more already this quarter. And there's other stuff in the market. If you look at what's going on in the market right now, you can line it up to our portfolio pretty easily. We're doing everything we can to rip out cost on the right side of the balance sheet, which will help increase our yield and even more importantly, to your earlier question, position us defensively for when the cycle turns, and that certainly all of our 2014 vintage CLOs we are keenly seeking to reset all of those, to the extent market conditions permit, to get 5 more years of reinvestment period on those, which as we talked about when not if, that runway is the most important thing we can get. So if we can save cost and buy runway, that's obviously great. That's the same thing we did within our balance sheet, paying off the Zs and issuing the Xs, lowered our cost and got 7 more years. That's the trade we like and that's how we are positioning our portfolio both within each CLO, lengthening the deals and then within ECC, lengthening the runway that we have on our balance sheet.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [14]

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Okay. And my last question is more of a housekeeping question. Can you help us understand how an unrealized gain was generated for the quarter at the same time that the forecast effective yields were actually coming down? I think you would generally expect the opposite to be the case.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [15]

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Let's see. The -- probably the best way to put it, CLO equity was pretty well bid. It wasn't a radical unrealized gain, but it was couple of million dollars. And it's -- the unrealized movement in price is not something we've been -- our -- we price everything fairly and accurately every single quarter. We don't spend countless hours looking at the dollar amounts of that magnitude. We -- while the yield on the portfolio fell in aggregate, the bid, all else equal, that the yield that investors were demanding to buy CLO equity was even lower -- moved by an even greater amount, I guess, would be the, kind of, the bond theorist answer as to what happened.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [16]

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So if I could paraphrase, the market's been more optimistic than you actually have been. Would that be correct?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [17]

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I wouldn't say -- the market has been more keenly bidding CLO equity over the past few months. And we alluded to that in the prepared remarks, that it does remain pretty strong. And that's how we've been able to continue to generate realized gains in the portfolio. There's always some special way to create or -- so historically, there has been a special way to create some gains in the portfolio, and that's due to the active trading in and out on the portfolio. We keep the core majority blocks typically as set. But then do a lot of trading around the margins to help generate some of those gains. And overall, we have seen the demand remain strong and I think, a lot of equity investors are appreciating that the compression which was thought as a big risk a year ago has subsided significantly. There's just lower yield and higher marks.

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Operator [18]

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And our next question comes from the line of Allison Rudary with Oppenheimer.

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Laura Allison Taylor Rudary, Oppenheimer & Co. Inc., Research Division - Associate [19]

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You guys have covered a lot of my kind of questions on increase, but I -- briefly, I'd like to touch on the $1.4 million payment that the adviser made to the company for the incentive fees that were mentioned in your semiannual report. Is that related to the debt issuance or above and beyond the $323,000 or was that something separate? And maybe you can walk me through a little bit about what was going on there?

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [20]

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Sure. Allison, it's Ken here. It's totally separate. The reimbursement you're referring to in our subsequent event note in the financials was a result of the SEC regular review. It's a technical approval issue, and a technical approval is around timing versus whether -- the timing of the approval versus whether an investment was approved or not. This relates to a position on the books several years ago. The reimbursement is a byproduct of working with the staff on the issue and reflects a very conservative approach by the adviser. But the 2 are separate, the 2 items you raise, 2 separate events.

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Laura Allison Taylor Rudary, Oppenheimer & Co. Inc., Research Division - Associate [21]

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Okay. And was that reflected in the financials this quarter?

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [22]

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Not in this quarter. It's -- we noted as a subsequent event in our financial statement, it occurred in July. It would be something in the third quarter financial statements.

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Laura Allison Taylor Rudary, Oppenheimer & Co. Inc., Research Division - Associate [23]

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Okay. So I guess one of the reasons why I was asking this is, because of the incentive fee X waiver this quarter was tracking substantially lower than it had been. And then I -- that could be because of some of the expenses associated with the issuance. But I was trying to get a feel for some of the moving parts there.

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [24]

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Sure. So it will impact the incentive fee a little bit. So the incentive fee was lower this quarter, primarily as a the result of the above the line charges with the ECCX issuance.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [25]

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All of the upfront cost we expensed, that all appears in interest expense, and that has the effect of lowering NII, which have the effect of lowering our incentive fee. And then the partial waiver, just to expand upon that, the unamortized cost, that write-off related to the old Z cost, according to GAAP, is a below the line expense, which in -- so capital gains and losses, realized and unrealized, are not included in -- under the letter of the law and determining our incentive fee. And as we kind of looked at ourselves, having a below the line expense somehow escaped a reduction in the incentive fee, also didn't -- that would've been above the line, had it just been amortized over the -- had we paid off the Zs on the last day. That just didn't feel right. So what we ended up doing was we -- I asked Ken to calculate what the reduction and incentive fee would've been, had we expense the unamortized amounts back on the days, the days we issued the Zs, 2 or 3 years ago. And let's take that as a voluntary reduction in the fee. We are not obligated to do that. But it's also a little cheeky to move an above the line expense, below the line. And so we went back and recalculated. That's what the papers say, and we -- I guess, we, in theory, had every right to do it. But it's just -- that's not the way we treat the company. So we went back and said, let's see what it would have been, had we taken the charge, the remaining unamortized charges upfront, what would that have reduced our fee and we offered to waive it and the company accepted.

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Laura Allison Taylor Rudary, Oppenheimer & Co. Inc., Research Division - Associate [26]

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As I think about the, kind of, the earnings profile of the company going forward. I'm aware that there are only a few levers that you guys can pull when it comes to assessing your -- the revenue line item and how your yields are calculated. So as we try to think about what's left in the portfolio, what's resettable and what you guys can do to drive that weighted average yield up, obviously, the point that I'm driving at is what can you guys do to affect whether or not your portfolio as it is now or as it may grow can cover that $0.20 monthly distribution? Can you just walk me through some of the dynamics? And like maybe what the next couple of quarters could look at -- look like kind of going forward from here?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [27]

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Sure. And maybe just to kind of put a couple of reference points. So in the second or the first quarter, we were $0.41 of NII and $0.09 of realized gains to be at $0.50. In second quarter, we were $0.37 of NII, and that -- make sure I'm right here, Ken, that included $0.11 for the ECCX issuance cost and $0.02 because we had 35 days or something of the double interest when we had the Zs and Xs outstanding. So if you added all that back, that's a significant increase to the $0.37. Now mindful of performance fee would have been attracted to some of it as well, so it's not -- it doesn't go directly from $0.41 to $0.50. But it certainly goes directionally up. One of the things we talked about in the first quarter, we had the drag from the proceeds of the January common stock issuance. As we said on the prior call, we're probably -- on the call back in May, we're probably going to do a little less of those overnight deals and -- both because of the impact on the stock price -- not saying we won't ever do it, but the impact on the stock price and then the cash drag that it takes a while to get all the money deployed. What we have been focused on more recently, Ken shared with you some of the ATM stats, we have been using the ATM prudently, but with the goal of -- even though the yield was down a little bit on the portfolio, having the portfolio not have the cash drag from that big overnight deal, frankly, has let us inch the earnings up, simply by virtue of being closer to fully invested. So that's A. And then B, as you look through the investments, this is on Page 23 and 24 of the supplemental presentation. One of the things we have done, you recall in the past, we masked the deal names, equity 1, 2, 3, 4. We've gotten over that and where we're just lifting the whole portfolio name by name, so you see what the earnings and cash were from each individual position. And what you will see, though, is a lot of the 2016 vintage deals have not yet reached the day, only a small number of them have been refied or reset. And the 2016 vintage deals have amongst the highest debt cost of any deals we have ever issued. So 1 CLO, that was reset or reified -- that was a -- you can find on Bloomberg, just occurred, it happened in the third quarter. THL '16-1, on which was a 2016 vintage deal as the name would suggest, we did a refi of that in the third quarter. So it hasn't yet appeared here, and we lowered our average weighted cost of debt somewhere between 70 and 75 basis points, if I recall correctly. So the potency of ripping out the cost, particularly on the '16 vintage deals, is going to be very impactful, we believe, over the coming months to the extent loan spreads stay unchanged or even trickle a little bit tighter. That refi was the most powerful refi we have ever done here. And then similarly, the reset we have done reduced the cost, let's say, on average around 40 basis points within each CLO. So we still have a lot more to go. The '16s and the early '17s have a lot of room for cost reduction as we shave on the right side.

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Operator [28]

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(Operator Instructions) Our next question comes from the line of Christopher Testa with National Securities.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [29]

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Just want to follow up a little. I appreciate the detail that you gave Mickey on the recovery rates. Tom, as we keep seeing a market where it's not just [cov wide] and there is a very [parity past due] debt and unrestricting subsidiaries which are diluting collateral pools. Is there anything that we can look at as a potential indicator of when you might actually be forced to take that recovery rate as something down further? Or do you think that probably (inaudible)?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [30]

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That's a good question. We continue to look at and watch what happens with loans that do get into trouble. In general, I'll say there are very few average recoveries, either they're very, very good or very, very bad. I don't remember the last [80.6] or 69.7, or whatever recovery rate there has been. Particularly, the thing with unrestricted subsidiary that you may be referring to the J.Crew loan, which they were able to dividend their intellectual -- or distribute their intellectual property, their brands down to a new sub and pledge it to someone else other than us. People in the loan market call that getting J.Crewed. That's now a -- it exists, in our view, in a very small number of loans, the ability to do that. That certainly would be example of what Mickey was getting at of weaker and weaker documents. In general, I think, the loan market recoiled so strongly when that was actually done, that I think, many of the loan market will say that will never happen again, at least for a few years. And in that kind of (inaudible) will get into loan documents. So situations like that do exist in the market, but I would say it is, by no means, the norm, and if anything I would say, those kind of extreme things like that are outlier events. So we do watch how loans that we own and loans that we don't own, how their recoveries play out, we look at dealer forecasts, we look at rating agency forecasts. That number hasn't moved around much in the past few years, but it is something we keep an eye on. There is a degree of judgment in it. Obviously, our accountants review our financial statements as well and looking at both the default and recovery rates that we use. So we keep an eye on as many market data points. I can't tell you that the bright line will be to say if it will move that higher or lower, but it is an assumption we watch ourselves on every one of these. And you'll see these numbers, if you look at Page 16 of the footnotes, a bunch of the different assumptions there. You'll see if you track those quarter-over-quarter, they do move around a bunch. Probably the recovery rate has moved around the least, but the balance of those do move around quite regularly.

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [31]

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(inaudible) weighted average of the recovery rate as well as the range.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [32]

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Okay. And you guys had mentioned that there's a still a good amount of the 2016 vintages, which are, obviously, going to be about the highest octane refinances that has not been refied. Just wondering, A, what was the cost of your refis and resets during the second quarter? And B, what do you see in terms of the refis and resets through the remainder of the year? Are you guys waiting for AAAs to maybe come back in? Or are these just not eligible to be refinanced yet?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [33]

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Ken, why don't you answer the first one and I will answer the second.

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [34]

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Sure. For the estimated cost for the second quarter of the resets and refis was $0.14 per share.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [35]

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And that's that cash flow.

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [36]

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And keep in mind, it's what we executed in the second quarter. So it may show up a quarter or 2 down the road.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [37]

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So that is weighted average cost per ECC share of banker and lawyer and rating fees for resets [and refis] and most of that would came out in the July 15 payment, because those are related to Q2 events. So one of the things if you would have picked up on during our prepared remarks, the cash we received so far in Q3 was less than the cash we received in Q2. A portion of that is attributable to that $0.14.

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [38]

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Got it. Okay. That makes sense.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [39]

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And then strategically, hopefully, there is no AAA investors listening on the call right now. The decision you make, and this is one of the benefits of the scale of our portfolio, we don't know where AAAs are going 3 months from now. They could be wider or they could be tighter or they could be the same. And anyone who tells you otherwise, either has a lot of money they're going to put to work and got to tighten things or it doesn't know either. So what we look at, we kind of make a decision, okay, we have CLO X, does -- how much of the savings is going to be today if we lock, if we do a refi or a reset today? And I will use that THL '16-1 example again, that was a refi. It's the only one we've done recently. And there, if we're able to save more than 70 basis points, every day we wait costs us money to see if things are -- maybe we're wrong and spreads are going to rip tighter tomorrow and we're going to regret having done that. Against that, if spreads rip tighter tomorrow, we have 5 more deals to do. So what we've kind of done is we're never -- we have never said we are vintage callers or market timers. The diversity of vintage in our portfolio allows us to capitalize on whatever market opportunities present themselves at different times. While we will push in a little harder at sometimes than others, if we were wrong on that deal and we refied it too soon, then we'll get THL '17-1. That one we will refi something like that right on the follow-up, that we have quite a few ready to go at any time and if we can save -- if you're only going to save 5 bps, maybe you don't do it. If you're going to save 50 bps, it's hard to see an argument where you don't do it. We can't worry about the foregone opportunity of having saved 60 the next day.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [40]

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Right. Okay. That make sense. And Ken, what was the dollar amount of those CLO equity inaugural distributions in the quarter?

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [41]

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I got that here. I guess we don't have information in the deck. I could certainly follow-up.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [42]

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Okay. Sure. No problem.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [43]

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And Chris, to hit on that -- we didn't have -- we converted 3 -- there hasn't been going back to 1 -- there hasn't been a boatload of new deals. More of it has been resets. So we'll figure out the exact amount...

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [44]

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But it's not going to move the needle. Got it.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [45]

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I wouldn't expect it to be a distorting number based on the number of new deals.

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [46]

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Okay. All right. Got it. And Tom, you talked about, in your prepared remarks, some of the backup and spreads in the DSL market and some debtor returns. Just wondering, in your opinion, what differentiates whether what we've seen in terms of what could be optimistic about for you guys, in CLOs in general, what differentiates it from either being a blip or this being sustained through the fall? Like what do you think really is going to be kind of the defining moment when we know this.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [47]

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As to when we know...

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Christopher Robert Testa, National Securities Corporation, Research Division - Equity Research Analyst [48]

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Whether you think that this is something that's just to know a couple of months and it's a little bit of a backup in spreads, or this is the start of kind of more to come? I mean, what would you look at as an indicator that we're going to be seeing some credit market dislocation or just even more -- just borrower friendly terms?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [49]

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Yes, the biggest swing factor of late and we think will be prospectively in the near term is these retail inflows. If you're running an open-ended loan fund, then you get $1 billion of inflows, you have 2 choices. You can either invest and buy the best loans you can find or go off index. So that is -- that's the dilemma those money managers face and their customers make the timing decisions and, in general, I think, most are loathed to go off index. So if we were to look at, if you were to say what would be a leading correlate of spreads ripping tighter on loans again, I would say, it would be a big uptick in retail inflows versus the flip side, -- while we wouldn't see spreads widen radically, if we saw retail outflows, we'd likely see loan prices fall. The spreads would stay the same for a while and there would probably be no repricings. But loan prices would actually drop during such a period. So mutual fund flows is certainly the biggest things we would focus on. Obviously, there could be other factors as well but that's first one on my list.

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Operator [50]

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Our next question comes from the line of Ryan Lynch with KBW.

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Ryan Patrick Lynch, Keefe, Bruyette, & Woods, Inc., Research Division - MD [51]

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Just had 2 questions. Most of my other ones have been answered. Can you just explain what was the thought process behind -- with the ECCX notes, choosing to account for them using the fair value option method and taking those costs upfront? And then also along with that, does that mean that now because these notes trade that quarterly fluctuations that happen in the future, whether those bonds or notes essentially trade up, that would increase your guys' liability costs, potentially putting some pressure on NAV and conversely, if they ever traded down, could that also reduce your liabilities and put some upward movement to NAV?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [52]

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Sure, let me address the first part and then Ken can address the NAV and GAAP impacts. The kind of the rationale for making the transition as we were -- one of the things hopefully you've heard from us, both in our CLOs and in our management of the ECC's balance sheet is that we put high value on tenor, and whereas if you look at like the KBW report that lists all the baby bond and preferred issuances, a lot of firms do 5 and 7 years. We're one of the few that goes out to 10 years. And our coupon is a little bit higher probably than it otherwise would have been, but for a 3-year noncall 10-year paper, that's so-so valuable. So that's something we focus on first and foremost. As we are deciding what to do with [Aziz] which went off of non-call at the beginning of the year, admittedly, we have a number of debates and discussions, internally, gee, we've got this $1.5 million, whatever the amount was, unamortized cost. And is that's going -- yes, I guess it does create static. Does that -- how should we tackle that? What does that mean? It became too much of a -- I wouldn't say too much of a distraction, but we ended up spending a lot of time talking about that versus just -- I mean, the money was spent back in 2015 when we paid the bankers the fees. It's just a recognition question. Let's just take that off the table prospectively. So there will come a time between 3 and 10 years from now that we'll do something with the Xs and that just won't even be a factor of our discussion. And I think that's kind of the right way to think about it. If we can lock in much cheaper, much longer financing, hopefully, the markets will cooperate on that day. We (inaudible) won't have to debate this unamortized cost and [how does this impact us] is this the right quarter to take it? And things like that, that shouldn't ultimately, were not a factor in our decision but were things we discussed. To your point (inaudible) now there is a fair valuing and maybe getting a price [break I see the price right now is (sic) [$24.85], maybe Ken, you can [sort of lead us] through.

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [53]

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Sure. So the [Xs since we are like] the share value option will be mark-to-market (inaudible) exchange price. And as the financial viability, the prices-- the prices will only go up, NAV will go down and vice versa if prices go down. So yes, it will have an impact (inaudible) only and would they show up as any change (inaudible).

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Ryan Patrick Lynch, Keefe, Bruyette, & Woods, Inc., Research Division - MD [54]

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Okay. That makes sense and that's helpful. And just one, this is probably going to be tough to answer, but I'm just trying to get a sense on, I guess, last year at this time, you guys had already declared a special dividend due to taxable income higher than GAAP income. I'm just trying to get a sense of where we are and that sort of comparable with GAAP versus tax. In the past couple of years, if I look at the end 2016, you guys had about $1.2 million tax expense. I would assume that due to excise taxes from taxable income running higher, and in 2017 it was almost $800,000. If I look at the first 2 quarters of this year, of course, there was a one-time items in Q2, taxes were about $67,000. So they seem to be -- you guys seem to be recording less tax expense in 2018 so far. I'm just trying to get a sense -- to me that would maybe indicate that maybe taxable earnings and GAAP earnings are a little more in sync running closer together. Is that right way to -- am I thinking about this correctly? And any color you could provide on that would definitely be helpful as we kind of think about dividends and -- going forward.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [55]

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Sure. A couple of things, slightly mixing concepts. The tax expense that you would see on the statement of operations, that is related to Delaware franchise tax and other de minimis taxes, nothing to do or little -- it's just based on like shares outstanding or existing or assets. So it's not so much income tax and we made some tweaks to our structure earlier this year to lower those ongoing taxes and, I think, that's what you're seeing why the number is lower quarter-over-quarter. So that was some good advice from our lawyers and accountants how to lower that. But that's not what's driving the taxable income and special distribution requirements, if any. On the last call, we did say we were not expecting to make a special distribution. We're not expecting to need to make one for the tax year ended November 2017, which the distribution you're referring to from August of 2017 was related to the tax year ended November 2016. The drivers of that have been, kind of, as follows: The principal driver has been the costs or the -- we're learning a lot about amortization of issuance costs here. Within each of the underlying CLOs, and we've shared we've done -- I lost track, something 40 or 50 refis and resets together. When you do a CLO refi or reset within each CLO, there are issuance costs which are amortized over the life, not unlike how we deal with our issuance costs at ECC. An early retirement of that debt, via a refi or reset, causes a tax acceleration of those costs. It doesn't interfere with GAAP but it does come into play with tax. So a fair number of our CLOs for the tax year ended November 2017, delivered K-1s or PFIC information statements that had 0 taxable income. Not that there weren't lots of profits, but that the write-off associated with the refi or reset sheltered a bunch of that income. We do expect, as we have done a lot of transactions this year as well, there will be some zeros that flow through -- 0 taxable incomes that flow through the year ended November 2018. So where we look right now, we don't expect the need to pay a distribution, a special related to the year ended November '17. The year ended November '18, we don't know yet. We have a bunch of information in, but we don't have all of the information. We haven't offered any guidance on that yet, but we did so much activity in the year ending '17 that we were able to shelter a fair bit of taxable income.

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Ryan Patrick Lynch, Keefe, Bruyette, & Woods, Inc., Research Division - MD [56]

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Okay. that's helpful. On that, there was kind of a little bit directed towards potentially special dividends. But is the taxable income so far, then, tracking at least at or above the regular distribution?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [57]

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We haven't given formal guidance on that. That is something we discuss with the board regularly. I think we're comfortable saying our -- ignoring refis and resets, the taxable income right now is running above the common distribution. And then the question is what is the impact of the refis and resets below, which could push us below the common distribution in the short term? As you can see from looking at Pages 23 and 24 of the portfolio, I think we've reopened the majority of the deals at this point, so it's maybe 60% of the deals have been reopened for refi or reset. So that suggests we're a lot of the way through at this point. One of the things we noted last year, the market basically gave no credit or the special distribution. And the shareholder who was lucky enough to have bought the stock the night before we declared it got, what, $0.40 or $0.45 windfall. The stock went up $0.45 or something that day and went back down the day it was X. So we're -- all else equal, the market doesn't seem to reward specials and we obviously want to reward long term shareholders, not the person who bought it the day before. So as we look at things, what we look at is what we think is the sustainable GAAP income, which I think you hopefully can see some green shoots from some of the numbers we talked about, looking at from 41 to 37 plus 11 plus 2 minus some additional performance fee, certainly trending in the right direction there, we believe. And then from a taxable income perspective, the bulk of the expense of the special acceleration we believe is behind us and we think over time, the taxable income will exceed the 240 per year.

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Operator [58]

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Our next question comes from [Steven Bevarria] a private investor.

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Unidentified Participant, [59]

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I'm following with probably the main question that a lot of your retail investors like me and the guys who -- people who follow you on SeekingAlpha and other places have. When I -- I know that GAAP income doesn't tell the whole story, obviously, with CLOs. When I see in your release that you received $1.65 per weighted average common share, and then when you take out the called investments which is, obviously, return of capital, you had cash distribution of $1.18, which is almost twice your distributions to us. Am I to read that as it would appear, obviously, that, that in terms of real money coming in the door to pay the money that goes out to your investors, you are really very well covered? Is that the right way to read that?

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [60]

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Yes. As far as from a cash distribution perspective, yes.

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Unidentified Participant, [61]

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That means that, obviously, long-term, your GAAP has to equalize with all of that. But there are a lot of timing issues that takes years to work out on that. So that in terms of your -- covering your distribution looking out, this looks pretty solid. These numbers sort of tell the story, right?

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [62]

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And those cash flows, admittedly, are reduced by the one-time refi and reset expenses. So as I mentioned to one of the prior call persons with questions, the cash flow was actually down. The Q3 cash flows to-date is below Q2 cash flows, but that's somewhat attributable to us having done 8 refis and 1 reset in the second quarter, the costs of which are [reducted] from the July payment in the third quarter. There could be other factors moving around in the portfolio, but that's a leading factor of what would move that around. So if anything, all else equal with no further resets, you would expect the cash to actually be higher in subsequent quarters if everything stayed unchanged. Obviously, things will move around beyond just that, but your statement is correct, the portfolio is generating very strong cash flow and, frankly, some of that cash flow is muted on a one-time basis because of resets and refis.

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Unidentified Participant, [63]

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So we will keep clipping our coupons and reinvesting.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [64]

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Actually, Lindsay, we have -- there was one question asked earlier from Chris Testa, we have the answer, which we'll share.

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Kenneth P. Onorio, Eagle Point Credit Company Inc. - CFO, Chief Compliance Officer and Secretary [65]

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This relates to Q2 and CLO equities making their first payment, the amount was $1.6 million or $0.07 per weighted average common share.

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Operator [66]

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And there are no further questions in queue at this time. I'll turn the call over to Tom Majewski for closing comments.

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Thomas P. Majewski, Eagle Point Credit Company Inc. - CEO and Director [67]

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Great. Thank you, everyone. And we appreciate your time and attention to the company. Had a couple of new GAAP things that we got to talk about today, with the Xs and Zs. Hopefully the trend in theme you hear from all of this is -- continues to be very long term focused, continue generating strong cash flow and stronger credit markets and position ourselves as best we can when things turn a little choppier in the future. But we believe the company is well-positioned for both these smoother seas and the eventual more choppy waters whenever they do occur. We appreciate everyone's time and attention and interest in the company this morning. If there is any further follow-up question, please feel free to reach out to Ken or me. Thank you.

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Operator [68]

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This concludes today's conference call. And you may now disconnect.