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- **Active Portfolio Management**: Deployed $200 million in new investments and completed 27 resets/refis, with over 20% of the portfolio set to undergo similar actions. Maintained $0.14 per share distributions despite lower cash flows.
- **Market Challenges**: Loan spreads compressed by 8 bps Q/Q, but M&A activity is rising, potentially supporting wider spreads. First Brands default caused a 30 bps increase in default rate, but defaults remain below the long-term average.
- **Competitive Funding**: 7% perpetual preferred stock program provides a cost advantage, while Series F preferred stock (callable in 2026) remains the most expensive liability.
- **NAV Dynamics**: Ended Q3 at $7.00 per share, down 4.2% from Q2, due to distributions exceeding cash flows. Recovery will depend on resets/refis and higher-yielding investments.

**【CEO Summary Section】**
- **Portfolio Activity**: Deployed $200 million in new investments, with a weighted average yield of 16.9% on CLO equity. Completed 16 refinancings and 11 resets to strengthen cash flows, with over 20% of the portfolio expected to undergo similar actions in the next 1-2 quarters.
- **Cash Flows**: Third-quarter recurring cash flows of $77 million ($0.59 per share), down from $85 million ($0.69 per share) in Q2 due to spread compression and one-time costs from resets/refis. Maintained monthly distributions at $0.14 per share despite lower cash flows.
- **Market Impact**: First Brands default (small exposure for ECC) caused a 30 bps increase in the trailing 12-month default rate to 1.5%, but defaults remain below the long-term average of 2.6%. Loan spreads have compressed by 8 bps quarter-over-quarter, but M&A activity is picking up, supporting new loan issuance.

**【CFO Commentary】**
- **Financial Results**: Net investment income less realized losses of $0.16 per share ($21 million), down from $0.24 per share in Q2 due to realized losses from portfolio rotations. GAAP net income of $0.12 per share, driven by unrealized gains on investments and forward currency contracts.
- **Leverage**: Debt and preferred securities at 42% of total assets, above the target range of 27.5%-37.5%, but all financing is fixed-rate with no maturities until 2028. Issued $13 million of 7% Series AA/AB perpetual preferred stock at a competitive cost of capital.
- **NAV**: Ended Q3 at $7.00 per share, down 4.2% from $7.31 in Q2, primarily due to distributions exceeding cash flows and mark-to-market losses on underperforming CLO equity positions.

**【Q&A Highlights】**
- **Reset/Refi Pipeline**: Over 20% of the portfolio (by notional) expected to undergo resets or refinancings in the next 1-2 quarters, targeting deals with AAA spreads above the market average of 120-125 bps. This could lower funding costs and extend reinvestment periods.
- **Market Trends**: Loan spreads have compressed by 50 bps over the past year, but M&A activity is rising, potentially supporting wider spreads. CLO equity market remains active, with selective opportunities in primary and secondary markets.
- **Funding Strategy**: Series F preferred stock (callable in January 2026) is the most expensive liability, but the company's 7% perpetual preferred program provides a competitive advantage. No immediate plans to refinance Series F, but decisions will depend on market conditions.
- **NAV Recovery**: NAV decline driven by distributions exceeding cash flows and realized losses from portfolio rotations. Management expects to recapture value through resets/refis and higher-yielding investments, but timing is uncertain.


Eagle Point Credit Co LLC (ECC) Q3 2025 Earnings Call Transcript

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