The Company’s Semiannual Report to stockholders for the six
months ending June 30, 2022 is filed herewith.
Letter
to Stockholders and Management Discussion of Company Performance
Dear Fellow Stockholders:
We are pleased to provide
you with the enclosed report of Eagle Point Credit Company Inc. (“we,” “us,” “our” or the “Company”)
for the six months ended June 30, 2022.
The Company is a closed-end
management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”) and is advised
by Eagle Point Credit Management LLC (the “Adviser”). The Company’s primary investment objective is to generate high
current income, with a secondary objective to generate capital appreciation. We seek to achieve these objectives by investing primarily
in equity and junior debt tranches of collateralized loan obligations (“CLOs”) and may also invest in other securities or
instruments that are related investments or that are consistent with our investment objectives.
The first six months
of 2022 proved to be challenging as global markets continued to price in increased risk of recession, persistent inflation, geopolitical
instability and the impact of supply chain challenges. For risk assets, it was one of the worst half-year performances on record. We witnessed
the largest first-half decline in the S&P 500 in over 60 years, with the index falling 21%. High yield bonds declined over 14%, the
second-largest six month loss on record (trailing only the second half of 2008). Investment grade bonds also declined over 14%, the largest
six month loss in almost 14 years.
Loans meaningfully
outperformed many other asset classes in the first half of 2022. The senior secured nature of the asset class, along with their floating
rate structure, allowed loans to remain more resilient through the challenging first half.
Despite few corporate
defaults, the value of CLO equity securities generally fell as yields demanded in the secondary market widened meaningfully. While nearly
all CLO securities faced mark-to-market drawdowns during the first half of 2022, our portfolio continued to generate strong cash flows.
Indeed, recurring cash flows from our portfolio totaled $89 million during the first half. Further, it is in environments of loan price
volatility where we believe CLO structures – and CLO equity in particular – are set up to outperform over the medium-term.
Historically, it has been a good time to invest in CLO equity when loan prices are low. This is largely driven by CLOs’ high front-loaded
cash flows and an ability to reinvest loan principal repayments (which are at par) into discounted loans in the secondary market. CLOs
can do this with confidence due to their CLO long-term non-mark-to-market financing structure.
For
the six months ended June 30, 2022, the Company recorded a decrease in net assets resulting from operations of $122 million,
or $2.95 per weighted average common share.1 This represents
Past
performance is not indicative of, or a guarantee of, future performance.
Please
see page 14 for endnotes.
a GAAP ROE of -21.86% during the first half of 2022.2
From December 31, 2021 through June 30, 2022, the Company’s NAV decreased 25% from $13.39 per common share to $10.08 per
common share. During this period, we declared and paid $0.78 per share in regular monthly distributions to our common stockholders. Additionally,
we paid a special distribution of $0.50 per common share on January 24, 2022 to stockholders of record as of December 23, 2021.
Through the market
volatility, we continued to position the portfolio to create long-term shareholder value by using our Adviser’s proactive approach
in managing the Company. Beyond the consistent cash flows generated by our investment portfolio in the first half of 2022, we:
| |
§ | Materially
strengthened the Company’s balance sheet through the issuance of long-term unsecured
debt at our lowest cost of capital to-date. We used the majority of the proceeds to redeem
significantly higher cost of capital preferred stock and unsecured debt. |
| |
§ | Completed several new issue and reset transactions in addition to opportunistically
purchasing investments on the secondary CLO market, enabling the Company to benefit from increased prospective cash flow and extending
the weighted average remaining reinvestment period of the Company’s CLO equity portfolio by approximately four months despite six
months of time decay. |
| |
§ | As a result of the strong cash flows from our portfolio and growing NII,
we increased our monthly common distribution by 17% to $0.14 per share beginning in April 2022. |
| |
§ | Declared a special distribution to stockholders of $0.25 per common share
on August 16, 2022 payable on October 31, 2022 to stockholders of record as of October 11, 2022. This will be the second
special distribution paid during 2022. |
We believe our portfolio
continues to have the potential for further meaningful upside. The loss-adjusted yields on our CLO equity portfolio (excluding called
CLOs) increased 3.57% from December 2021 during the first half of 2022, ending at 22.18% as of June 30, 2022, which we believe
represents an attractive value.
Our recurring cash
flows from our investment portfolio (exclusive of cash flows from called investments) remained strong and totaled $89 million during the
first half of 2022, or $2.15 per weighted average common share, representing a 3% per share increase versus cash flows of $69 million,
or $2.09 per weighted average common share, received in the first half of 2021.
We
continue to prudently and actively manage the Company’s capital structure while raising capital to take advantage of available investment
opportunities. During the first half of 2022, the Company raised $77.6 million of additional common equity through our at-the-market
(“ATM”) program. These issuances were beneficial to the Company as shares were issued at a
Past
performance is not indicative of, or a guarantee of, future performance.
Please
see page 14 for endnotes.
premium to NAV with net proceeds
utilized to, among other things, expand our investment portfolio.
We also utilized the
ATM program to raise an additional $10.1 million of capital through the issuance of shares of our Series C Term Preferred Stock and
Series D Preferred Stock.
In addition, we were
very pleased to capitalize on attractive market conditions at the beginning of the year by issuing $93 million of 5.375% Notes due 2029
(the “ECCV Notes”) in January. This enabled us to considerably lower our cost of capital by 63 basis points, as well as further
extend the weighted average maturity of our outstanding debt and preferred stock by 6 months.
The ECCV Notes represent
the Company’s largest $25-denominated issuance ever and our lowest cost of financing to-date. The Company used the majority of the
proceeds from this offering to fully redeem the remaining 7.75% Series B Term Preferred Stock, the 6.75% Notes due 2027 (the “ECCY
Notes”) and half of the 6.6875% Notes due 2028 (the “ECCX Notes”).
As
a result, we have no financing maturities prior to April 2028. All of our debt and preferred stock is fixed rate and we have no secured
or “repo”-style financing whatsoever. The weighted average maturity of our outstanding financing stood at 7.7 years3
as of June 30, 2022, compared to 7.6 years as of December 31, 2021. Thanks to our strong balance sheet, we actively deployed
$161 million into new CLO equity and debt investments in the first half of 2022.
As of July 31,
2022, management’s unaudited estimate of the range of the Company’s NAV per common share was between $10.79 and $10.89. The
midpoint of this range represents an increase of 7.5% compared to the NAV per common share as of June 30, 2022. As of July 31,
2022, we have over $50 million in cash available for investment.
While the CLO market
continues to command attention from investors worldwide, we believe the CLO market, and CLO equity in particular, remains inefficient
and attractive. In less efficient markets, specialization matters and the Company benefits from the investment experience of our Adviser,
which applies a proprietary, private equity style investment approach to the fixed income market. This approach seeks to maximize returns
while mitigating potential risks. We believe the scale and experience of our Adviser in CLO investing provides the Company with meaningful
advantages.
Past performance
is not indicative of, or a guarantee of, future performance.
Please see page 14
for endnotes.
Company
Overview
Common Stock
The
Company’s common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “ECC.” As of June 30,
2022, the NAV per share of the Company’s common stock was $10.08. The trading price of our common stock may, and often does,
differ from NAV per share. The closing price per share of our common stock was $11.78 on June 30, 2022, representing a 16.87% premium
to NAV per share.4 For the six months ended June 30, 2022, the Company’s total return to common stockholders, on
a market price basis and assuming reinvestment of distributions, was approximately -7.14%.5
From our IPO on October 7,
2014 through June 30, 2022, our common stock has traded on average at a 10.7% premium to NAV. As of July 31, 2022, the closing
price per share of common stock was $11.70, a premium of 7.93% compared to the midpoint of management’s unaudited and estimated
NAV range of $10.79 to $10.89 as of July 31, 2022.
In connection with
our at-the-market offering program, the Company sold 5.8 million shares of our common stock during the six months ended June 30,
2022 for total net proceeds to the Company of approximately $77.6 million.
During
the first half of 2022, the Company paid to common stockholders aggregate distributions totaling $1.28 per share of common stock, inclusive
of a $0.50 per share special distribution. An investor who purchased common stock as part of our IPO at $20.00 per share has received
total cash distributions of $16.54 per share since the IPO. A certain portion of these distributions was comprised of a return of capital
as described at the time of the applicable distribution.6
For the quarters ended
March 31, 2022 and June 30, 2022, the Company recorded net investment income and net realized gains of $0.30 and $0.43 per weighted
average common share, respectively. Excluding non-recurring expenses related to the ECCV Notes offering and the redemption of the Series B
Term Preferred Stock, ECCY Notes and partial redemption of ECCX Notes, our first quarter income per weighted average common share would
have been $0.40.
Given the strength
of the Company’s financial performance and our outlook for future performance, the Company was pleased to raise its common monthly
distribution by 17% to $0.14 per share from $0.12 per share, beginning in April 2022.
We also want to highlight
the Company’s dividend reinvestment plan for common stockholders. This plan allows common stockholders to have their distributions
automatically reinvested into new shares of common stock. If the prevailing market price of our common stock exceeds our NAV per share,
such
Past
performance is not indicative of, or a guarantee of, future performance.
Please
see page 14 for endnotes.
reinvestment is at a discount (up to five percent) to the prevailing market price. If the prevailing market price of our common
stock is less than our NAV per share, such reinvestment is at the prevailing market price subject to certain restrictions. We encourage
all common stockholders to carefully review the terms of the plan. See “Dividend Reinvestment Plan” in the
enclosed report.
Other Securities
In addition to our
common stock, the Company has five other securities which trade on the NYSE, which are summarized below:
| Security | |
NYSE
Symbol | |
Par Amount Outstanding | |
Rate | | |
Payment Frequency | |
Callable | |
Maturity |
| 6.50% Series C Term Preferred Stock due 2031 | |
ECCC | |
$54.2 million | |
| 6.50 | % | |
Monthly | |
June 2024 | |
June 2031 |
| 6.75% Series D Preferred Stock | |
ECC PRD | |
$27.3 million | |
| 6.75 | % | |
Monthly | |
November 2026 | |
Perpetual |
| 6.6875% Notes due 2028 | |
ECCX | |
$32.4 million | |
| 6.6875 | % | |
Quarterly | |
Callable | |
April 2028 |
| 6.75% Notes due 2031 | |
ECCW | |
$44.9 million | |
| 6.75 | % | |
Quarterly | |
March 2024 | |
March 2031 |
| 5.375% Notes due 2029 | |
ECCV | |
$93.3 million | |
| 5.375 | % | |
Quarterly | |
January 2025 | |
January 2029 |
Pursuant to our at-the-market
offering program, the Company sold 323,129 shares of its Series C Term Preferred Stock and 90,937 shares of its Series D Preferred
Stock during the six months ended June 30, 2022 for total net proceeds to the Company of approximately $10.1 million.
The Company capitalized
on favorable market conditions in the beginning of the year and issued its ECCV Notes in January 2022 at a fixed coupon of 5.375%,
our lowest cost of capital to date. With the proceeds from the offering, we fully redeemed the remaining outstanding shares of Series B
Term Preferred Stock and ECCY Notes, and redeemed 50% of the ECCX Notes. As a result, we significantly lowered our overall cost of capital
on a prospective basis.
Further, the weighted
average maturity on our outstanding notes and preferred stock as of June 30, 2022 increased to approximately 7.7 years, compared
to 7.6 years at the end of 2021. In addition, all of our financing is fixed rate, providing us with added certainty in a rising rate environment.
As
of June 30, 2022, we had debt and preferred securities outstanding which totaled approximately 37% of our total assets (less
current liabilities). Over the long term, management
Past
performance is not indicative of, or a guarantee of, future performance.
Please
see page 14 for endnotes.
expects to operate the Company generally with leverage within a range of 25% to 35%
of total assets under normal market conditions. As market conditions evolve, or should significant opportunities present themselves, the
Company may incur leverage outside of this range, subject to applicable regulatory and contractual limits.
Monthly Common Distributions
The Company paid three
monthly distributions of $0.12 per share of common stock from January 2022 through March 2022, paid four monthly distributions
of $0.14 per share of common stock from April 2022 through July 2022, and declared monthly distributions of $0.14 per share
of common stock through December 2022. In the aggregate, we paid monthly distributions totaling $0.92 per share of common stock in
2022 as of July 31. Please note the actual frequency, components and amount of such distributions are subject to variation over time.
Special Distributions to Common Stockholders
In order to maintain
our tax status as a regulated investment company (“RIC”), the Company is generally required to pay distributions to holders
of its common stock in an amount equal to substantially all of the Company’s taxable income within one year of the end of its tax
year.
For our tax year ended November 30, 2021, taxable income exceeded the aggregate amount distributed to common stockholders with respect
to such tax year. As a result, the Company paid a special distribution of $0.50 per common share on January 24, 2022 to stockholders of
record as of December 23, 2021.
Based on preliminary estimates, the Company's taxable income for the tax year ending November 30, 2022 is anticipated to exceed the aggregate
regular distributions paid to common stockholders with respect to such tax year. As a result, the Company declared a special distribution
of $0.25 per common share on August 16, 2022 payable on October 31, 2022 to stockholders of record as of October 11, 2022.
Past
performance is not indicative of, or a guarantee of, future performance.
Please
see page 14 for endnotes.
Portfolio
Overview
First Half 2022 Portfolio
Update
Our portfolio continues
to generate strong cash flows. During the six months ended June 30, 2022, the Company received cash distributions from our portfolio,
excluding called CLOs, of $88.9 million, or $2.15 per weighted average common share. When distributions from called CLOs are included,
the totals increase to $107.1 million, or approximately $2.59 per weighted average common share.
During the six months
ended June 30, 2022, the Company made 27 new CLO equity and debt investments with total purchase proceeds of approximately $160.5
million. The Company also sold 3 CLO equity and debt investments, generating aggregate sales proceeds of approximately $11.8 million.
We note that while
the market for CLO AAA spreads is about 200 basis points over Libor or SOFR, the weighted average AAA spread (over Libor or SOFR) of the
CLOs in which we hold equity is 113 basis points. This is very much “in the money” and we believe represents a path for continued
strong earnings for the Company.
Included within this
semiannual report, you will find detailed portfolio information, including certain look-through information related to the underlying
collateral characteristics of the CLO equity and other unrated investments that we held as of June 30, 2022.
Past
performance is not indicative of, or a guarantee of, future performance.
Please
see page 14 for endnotes.
Market
Overview7
Loan Market
Senior
secured loans to larger US companies comprise the vast majority of our CLOs’ underlying portfolios. The Credit Suisse Leverage Loan
Index8 (“CSLLI”), which is a broad index followed by many tracking the corporate loan market, generated
a total return of -4.45% in the first half of 2022. Despite the negative return, U.S. leveraged loans have continued to outperform most
other risk assets.
While nearly all loans
fell in price during the first half, the dispersion between riskier and higher-quality issuers increased, as lower-rated borrowers were
more significantly discounted in the secondary market. Importantly, loan downgrades remain limited with CCC-rated loans accounting for
approximately 4% of the market at quarter end.
The percentage of loans
trading below 80 increased just modestly quarter-over-quarter and they represented less than 3% of the market at June 30. The majority
of loans were priced in the low 90s. As we have stated in the past, we expect CLOs that are within their reinvestment periods that are
able to reinvest par repayments from existing loans into discounted loans in the secondary market will be net beneficiaries over the medium
term. For existing CLOs, an environment of loan price volatility, continued par prepayments on loans and limited defaults allows for greater
relative value trading opportunities. Indeed, during the second quarter, the annualized prepayment rate for loans was over 14%. In these
markets, for newly issued CLOs, it is an attractive environment to ramp portfolios with new, high-quality loans at handsome discounts
to par. For secondary CLO equity purchases, we are able to capitalize on materially discounted prices for CLO equity securities.
As recessionary fears
continue to weigh on the market, concerns over the impact of increasing inflation, rising interest rates and supply chain issues remained
amongst the prevailing risks identified by investors. The retail investor base took to a defensive risk-off position, reversing flows
into loan mutual funds. For the first half of 2022, mutual funds and ETFs investing in U.S. leveraged loans experienced net inflows of
$16.5 billion, compared to $27.7 billion of inflows for the same period in 2021.9
In concert with spread
widening, U.S. leveraged loan issuance slowed significantly and refinancing activity remained quiet. Institutional loan issuance finished
the first half of 2022 at $171.8 billion, compared to $330.7 billion for the first half of 2021. Total institutional loans outstanding
stood at $1.4 trillion as of June 30, 2022.
The loan market recorded
just two defaults in the first half of 2022. While defaults are expected to increase, the par-weighted default rate for U.S. leveraged
loans finished June at 0.28%, near
Past
performance is not indicative of, or a guarantee of, future performance.
Please
see page 14 for endnotes.
all-time
record lows. This compares to 1.25% at the end of June 2021 and the long-term default rate of 2.8%.10
We
remain aware of greater leverage used by many borrowers in the loan market (and in our underlying portfolios). Many corporate borrowers
took advantage of the strong demand for loans to refinance their existing debt, and in return, were able to extend the maturity dates
of their debt outstanding. As such, the vast majority of the loan market matures beyond 2025. Only 8.4% of the loans in the portfolios
of our underlying CLO equity positions mature prior to 2025.
CLO Market
The CLO market maintained
steady momentum of new CLO creation into the second quarter, one of few areas of issuance across risk assets. While CLO liability spreads
widened in parallel with the loan market, the underlying fundamentals for pricing a new CLO remained attractive. Total volumes for U.S.
CLO new issuance were lower year-over-year, but still recorded a healthy figure of $71 billion for the first half of 2022.
In the primary market,
average CLO AAA spreads reached 200 basis points over SOFR at June 30, a 54 basis point increase quarter-over-quarter, and nearly
86 basis points higher from the start of the year. Amidst the challenging macro and technical environment, a handful of U.S. banks –
historically some of the lead buyers of CLO AAAs – paused on new commitments, putting further pressure on pricing. Through July,
liability costs have continued to push wider, breaking the 200-point threshold for the first time since December 2020.
While the new issue
market remained open in the second quarter, many new CLOs were priced with less than optimal structures. In June specifically, the
market saw an increasing number of shorter-dated and static CLOs. As equity investors, we are acutely aware of the relationship between
a demonstrable track record of consistent and strong CLO performance, and a CLO manager’s ability to secure attractive financing
costs in periods like the present. For opportunistic equity investors able to secure CLO debt financing, a number of new “print-and-sprint”
CLOs also priced during the final month of the quarter.
CLO refinancing and
reset activity held to the sidelines for most of the first half of 2022. We expect near-term opportunities to refinance to remain muted
in the wake of widening liability costs. In total, $5 billion in refinancings and $20 billion in resets were completed in the first half
of 2022.
While we have started
to see distressed ratios within the loan market increase, concentrations of CCC-rated loans within CLOs remain low at 4% and overcollateralization
cushions are healthy. Risk of a near-term disruption in cash flows remains minimal.
Past
performance is not indicative of, or a guarantee of, future performance.
Please
see page 14 for endnotes.
As we look into the
back half of the year, we remain constructive on the overall composition of our portfolio, but we acknowledge the uncertainties ahead.
The largest risk for the CLO equity asset class, in our opinion, continues to be mark-to-market volatility, not ultimate loss of capital.
It is this ability of CLOs to buy loans at large discounts to par (without any risk to its financing structure) in a stressed market environment
that have enabled CLOs to exhibit strong performance through multiple market cycles. While past performance is not a prediction of future
results, the proven playbook of CLOs, with locked-in financing longer than its assets, remains unchanged.
Additional
Information
In
addition to the Company’s regulatory requirement to file certain quarterly and annual portfolio information as described further
in the enclosed report, the Company makes a monthly estimate of NAV and certain additional financial information available to investors
via our website (www.eaglepointcreditcompany.com). This information includes (1) an estimated range of the Company’s
net investment income and realized capital gains or losses per share of common stock for each calendar quarter end, generally made available
within the first fifteen days after the applicable calendar month end, (2) an estimated range of the Company’s NAV per share
of common stock for the prior month end and certain additional portfolio-level information, generally made available within the first
fifteen days after the applicable calendar month end, and (3) during the latter part of each month, an updated estimate of NAV,
if applicable, and, with respect to each calendar quarter end, an updated estimate of the Company’s net investment income and realized
capital gains or losses per share for the applicable quarter, if available.
Past
performance is not indicative of, or a guarantee of, future performance.
Please
see page 14 for endnotes.
Subsequent
Developments
Management’s
unaudited estimate of the range of the Company’s NAV per share of common stock was between $10.79 and $10.89 as of July 31,
2022. The midpoint of this range represents an increase of 7.5% compared to the NAV per common share as of June 30, 2022.
On July 29, 2022,
the Company paid a monthly distribution of $0.14 per common share to holders of record on July 11, 2022. Additionally, and as previously
announced, the Company declared distributions of $0.14 per share of common stock payable on each of August 31, 2022, September 30,
2022, October 31, 2022, November 30, 2022 and December 30, 2022 to holders of record on August 11, 2022, September 12,
2022, October 11, 2022, November 10, 2022 and December 12, 2022, respectively.
On August 16,
2022, the Company declared a special distribution of $0.25 per share payable on October 31, 2022 to holders of record as of October 11,
2022.
On July 29, 2022,
the Company paid a monthly distribution of $0.135417 per share of the Company’s Series C Term Preferred Stock to holders of
record on July 11, 2022. Additionally, and as previously announced, the Company declared distributions of $0.135417 per share on
Series C Term Preferred Stock, payable on each of August 31, 2022, September 30, 2022, October 31, 2022, November 30,
2022 and December 30, 2022 to holders of record on August 11, 2022, September 12, 2022, October 11, 2022, November 10,
2022 and December 12, 2022, respectively.
On July 29, 2022,
the Company paid a monthly distribution of $0.140625 per share of the Company’s Series D Preferred Stock to holders of record
on July 11, 2022. Additionally, and as previously announced, the Company declared distributions of $0.140625 per share on Series D
Preferred Stock, payable on each of August 31, 2022, September 30, 2022, October 31, 2022, November 30, 2022 and December 30,
2022 to holders of record on August 11, 2022, September 12, 2022, October 11, 2022, November 10, 2022 and December 12,
2022, respectively.
Pursuant to the “at-the-market”
offering, in the period from July 1, 2022 through July 31, 2022, the Company issued 1 million shares of our common stock for
total net proceeds to the Company of approximately $11.9 million.
In
the period from July 1, 2022 through July 31, 2022, the Company received recurring cash distributions on its investment portfolio
(exclusive of cash flows from called investments) of $38.8 million. During that same period, the Company deployed $11.1 million in net
capital into CLO debt and equity investments. As of July 31, 2022, the Company had over $50 million of cash available for
investment.
Past
performance is not indicative of, or a guarantee of, future performance.
Please
see page 14 for endnotes.
*
* * * *
Management remains
keenly focused on continuing to create value for our stockholders. We appreciate the trust and confidence our fellow stockholders have
placed in the Company.
Thomas Majewski
Chief Executive Officer
This
letter is intended to assist stockholders in understanding the Company’s performance during the six months ended June 30, 2022.
The views and opinions in this letter were current as of July 31, 2022. Statements other than those of historical facts included
herein may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks
and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors.
The Company undertakes no duty to update any forward-looking statement made herein. Information contained on our website
is not incorporated by reference into this stockholder letter and you should not consider information contained on our website to be part
of this stockholder letter or any other report we file with the Securities and Exchange Commission.
Past
performance is not indicative of, or a guarantee of, future performance.
Please
see page 14 for endnotes.
ABOUT
OUR ADVISER
Eagle
Point Credit Management LLC is a specialist asset manager focused on investing in CLO Securities and other income-oriented credit investments.
As of June 30, 2022, our Adviser had approximately $7.2 billion of assets under management (inclusive of undrawn capital commitments).11
Notes
| 1 | “Weighted
average common share” is calculated based on the average daily number of shares of
common stock outstanding during the period and “per common share” refers to per
share of the Company’s common stock. |
| 2 | Return
on our common equity reflects the Company’s cumulative monthly performance net of applicable
expenses and fees measured against beginning capital adjusted for any common equity issued
during the period. |
| 3 | For
purposes of the weighted average maturity calculation, a 10-year maturity is assumed for
the Series D Preferred Stock. The Company’s Series D Preferred Stock is “perpetual”
and has no fixed maturity date. |
| 4 | An
investment company trades at a premium when the market price at which its shares trade is
more than its net asset value per share. Alternatively, an investment company trades at a
discount when the market price at which its shares trade is less than its net asset value
per share. |
| 5 | Total
return based on market value is calculated assuming shares of the Company’s common
stock were purchased at the market price as of the beginning of the period, and distributions
paid to common stockholders during the period were reinvested at prices obtained by the Company’s
dividend reinvestment plan, and the total number of shares were sold at the closing market
price per share on the last day of the period. Total return does not reflect any sales load. |
| 6 | To
date, a portion of common stock distributions has been estimated to be a return of capital
as noted under the Tax Information section on the Company’s website. The actual components
of the Company's distributions for U.S. tax reporting purposes can only be finally determined
as of the end of each fiscal year of the Company and are thereafter reported on Form 1099-DIV.
A distribution comprised in whole or in part by a return of capital does not necessarily
reflect the Company’s investment performance and should not be confused with “yield”
or “income”. Future distributions may consist of a return of capital. Not
a guarantee of future distributions or yield. |
| 7 | JPMorgan
Chase & Co.; S&P Capital IQ; S&P LCD; Credit Suisse. |
| 8 | The
CSLLI tracks the investable universe of the US dollar-denominated leveraged loan market.
The performance of an index is not an exact representation of any particular investment,
as you cannot invest directly in an index. |
| 9 | JPMorgan
Chase & Co. North American Credit Research – JPM High Yield and Leveraged
Loan Research (cumulative 2022 reports). |
| 10 | “Par-weighted default
rate” represents the rate of obligors who fail to remain current on their loans based
on the par amount. |
| 11 | Calculated in the aggregate
with its affiliate Eagle Point Income Management LLC. |
Page Intentionally Left Blank
Important
Information about this Report and Eagle Point Credit Company Inc.
This report is transmitted to the stockholders
of Eagle Point Credit Company Inc. (“we”, “us”, “our” or the “Company”) and is furnished
pursuant to certain regulatory requirements. This report and the information and views herein do not constitute investment advice, or
a recommendation or an offer to enter into any transaction with the Company or any of its affiliates. This report is provided for informational
purposes only, does not constitute an offer to sell securities of the Company and is not a prospectus. From time to time, the Company
may have a registration statement relating to one or more of its securities on file with the US Securities and Exchange Commission (“SEC”).
Any registration statement that has not yet been declared effective by the SEC, and any prospectus relating thereto, is not complete
and may be changed. Any securities that are the subject of such a registration statement may not be sold until the registration statement
filed with the SEC is effective.
The information and its contents are the property
of Eagle Point Credit Management LLC (the “Adviser”) and/or the Company. Any unauthorized dissemination, copying or use of
this presentation is strictly prohibited and may be in violation of law. This presentation is being provided for informational purposes
only.
Investors
should read the Company’s prospectus and SEC filings (which are publicly available on the EDGAR Database on the SEC website at
http://www.sec.gov) carefully and consider their investment goals, time horizons and risk tolerance before investing in the Company.
Investors should consider the Company’s investment objectives, risks, charges and expenses carefully before investing in securities
of the Company. There is no guarantee that any of the goals, targets or objectives described in this report will be achieved.
An investment in the Company is not appropriate
for all investors. The investment program of the Company is speculative, entails substantial risk and includes investment techniques
not employed by traditional mutual funds. An investment in the Company is not intended to be a complete investment program. Shares of
closed-end investment companies, such as the Company, frequently trade at a discount from their net asset value (“NAV”),
which may increase investors’ risk of loss. Past performance is not indicative of, or a guarantee of, future performance. The performance
and certain other portfolio information quoted herein represents information as of June 30, 2022. Nothing herein should be relied
upon as a representation as to the future performance or portfolio holdings of the Company. Investment return and principal value of
an investment will fluctuate, and shares, when sold, may be worth more or less than their original cost. The Company’s performance
is subject to change since the end of the period noted in this report and may be lower or higher than the performance data shown herein.
Neither the Adviser nor the Company provide legal,
accounting or tax advice. Any statement regarding such matters is explanatory and may not be relied upon as definitive advice. Investors
should consult with their legal, accounting and tax advisors regarding any potential investment. The information presented herein is
as of the dates noted herein and is derived from financial and other information of the Company, and, in certain cases, from third party
sources and reports (including reports of third party custodians, CLO managers and trustees) that have not been independently verified
by the Company. As noted herein, certain of this information is estimated and unaudited, and therefore subject to change. We do not represent
that such information is accurate or complete, and it should not be relied upon as such.
Forward-Looking Statements
This report may contain “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical
facts included in this report may constitute forward-looking statements and are not guarantees of future performance or results and involve
a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of
a number of factors, including those described in the Company’s filings with the SEC. The Company undertakes no duty to update
any forward-looking statement made herein. All forward-looking statements speak only as of the date of this report.
Notes
| 1 | The
summary of portfolio investments shown is based on the estimated fair value of the underlying
positions and cash net of pending settlements as of June 30, 2022. |
| 2 | The
information presented herein is on a look-through basis to the collateralized loan obligation,
or “CLO”, equity held by the Company as of June 30, 2022 (except as otherwise
noted) and reflects the aggregate underlying exposure of the Company based on the portfolios
of those investments. The data is estimated and unaudited and is derived from CLO trustee
reports received by the Company relating to June 2022 and from custody statements and/or
other information received from CLO collateral managers and other third party sources. Information
relating to the market price of underlying collateral is as of month end; however, with respect
to other information shown, depending on when such information was received, the data may
reflect a lag in the information reported. As such, while this information was obtained from
third party data sources, June 2022 trustee reports and similar reports, other than
market price, it does not reflect actual underlying portfolio characteristics as of June 30,
2022 and this data may not be representative of current or future holdings. The weighted
average remaining reinvestment period information is based on the fair value of CLO equity
investments held by the Company as of June 30, 2022. |
| 3 | We
obtain exposure in underlying senior secured loans indirectly through CLOs and related investments. |
| 4 | Credit
ratings shown are based on those assigned by Standard & Poor’s Rating Group,
or “S&P,” or, for comparison and informational purposes, if S&P does
not assign a rating to a particular obligor, the weighted average rating shown reflects the
S&P equivalent rating of a rating agency that rated the obligor provided that such other
rating is available with respect to a CLO equity or related investment held by us. In the
event multiple ratings are available, the lowest S&P rating, or if there is no S&P
rating, the lowest equivalent rating, is used. The ratings of specific borrowings by an obligor
may differ from the rating assigned to the obligor and may differ among rating agencies.
For certain obligors, no rating is available in the reports received by the Company. Such
obligors are not shown in the graphs and, accordingly, the sum of the percentages in the
graphs may not equal 100%. Ratings below BBB- are below investment grade. Further information
regarding S&P’s rating methodology and definitions may be found on its website
(www.standardandpoors.com). This data includes underlying portfolio characteristics
of the Company’s CLO equity and loan accumulation facility portfolio. |
| 5 | Industry
categories are based on the S&P industry categorization of each obligor as reported in
CLO trustee reports to the extent so reported. Certain CLO trustee reports do not report
the industry category of all of the underlying obligors and where such information is not
reported, it is not included in the summary look-through industry information shown. As such,
the Company’s exposure to a particular industry may be higher than that shown if industry
categories were available for all underlying obligors. In addition, certain underlying obligors
may be re-classified from time to time based on developments in their respective businesses
and/or market practices. Accordingly, certain underlying borrowers that are currently, or
were previously, summarized as a single borrower in a particular industry may in current
or future periods be reflected as multiple borrowers or in a different industry, as applicable. |
| 6 | Certain
CLO trustee reports do not provide the industry classification for certain underlying obligors.
These obligors are not summarized in the look-through industry data shown; if they were reflected,
they would represent 7.4%. |
Summary of Certain Unaudited Portfolio Characteristics
The information presented below
is on a look–through basis to the collateralized loan obligation, or “CLO”, equity and related investments held by the
Company as of June 30, 2022 (except as otherwise noted) and reflects the aggregate underlying exposure of the Company based on the
portfolios of those investments. The data is estimated and unaudited and is derived from CLO trustee reports received by the Company relating
to June 2022 and from custody statements and/or other information received from CLO collateral managers, or other third party sources.
| Summary
of Portfolio Investments (as of 6/30/2022)1 |
Please see footnote
disclosures on page 17.
Eagle Point Credit Company Inc. & Subsidiaries
(expressed in U.S. dollars)
| INVESTMENT INCOME | |
| |
| Interest
income | |
$ | 52,087,169 | |
| Other
income | |
| 3,636,687 | |
| Total
Investment Income | |
| 55,723,856 | |
| | |
| | |
| EXPENSES | |
| | |
| Incentive
fee | |
| 7,496,922 | |
| Interest
expense | |
| 7,312,095 | |
| Management
fee | |
| 4,879,595 | |
| Commission
expense | |
| 3,076,865 | |
| Professional
fees | |
| 775,828 | |
| Administration
fees | |
| 585,540 | |
| Directors'
fees | |
| 198,750 | |
| Tax
expense | |
| 50,406 | |
| Other
expenses | |
| 457,076 | |
| Total
Expenses | |
| 24,833,077 | |
| | |
| | |
| Incentive
fee voluntarily waived by the Adviser | |
| (302,087 | ) |
| | |
| | |
| Net
Expenses | |
| 24,530,990 | |
| | |
| | |
| NET
INVESTMENT INCOME | |
| 31,192,866 | |
| | |
| | |
| 6.75%
Series D Preferred Stock distributions | |
| (903,089 | ) |
| | |
| | |
| REALIZED AND UNREALIZED
GAIN (LOSS) | |
| | |
| Net
realized gain (loss) on investments, foreign currency and cash equivalents | |
| 1,679,814 | |
| Net
realized gain (loss) on extinguishment of Preferred Stock (Note 6) | |
| (744,281 | ) |
| Net
realized gain (loss) on extinguishment of Unsecured Notes (Note 7) | |
| (766,155 | ) |
| Net
change in unrealized appreciation (depreciation) on investments, foreign currency and cash equivalents | |
| (158,498,131 | ) |
| Net
change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option | |
| 5,953,050 | |
| NET
REALIZED AND UNREALIZED GAIN (LOSS) | |
| (152,375,703 | ) |
| | |
| | |
| NET
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
$ | (122,085,926 | ) |
See accompanying notes to the consolidated financial statements
Eagle Point Credit Company
Inc. & Subsidiaries
Consolidated
Statement of Comprehensive Income
For the six months ended June 30, 2022
(expressed in U.S. dollars)
(Unaudited)
| NET INCREASE
(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
$ | (122,085,926 | ) |
| | |
| | |
| OTHER
COMPREHENSIVE INCOME (LOSS) (1) | |
| | |
| Change
in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option | |
| 10,527,217 | |
| Total
Other Comprehensive Income (Loss) | |
| 10,527,217 | |
| | |
| | |
| NET
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM COMPREHENSIVE INCOME | |
$ | (111,558,709 | ) |
| (1) | See Note 2 "Summary of Significant Accounting Policies-
Other Financial Assets and Financial Liabilities at Fair Value" for further discussion relating to other comprehensive income. |
See accompanying notes
to the consolidated financial statements
Eagle Point Credit Company
Inc. & Subsidiaries
Consolidated
Statements of Operations
(expressed in U.S. dollars)
(Unaudited)
| | |
For the | | |
For the | |
| | |
six months
ended | | |
six months
ended | |
| | |
June 30, 2022 | | |
June 30, 2021 | |
| INVESTMENT INCOME | |
| | | |
| | |
| Interest income | |
$ | 52,087,169 | | |
$ | 34,197,570 | |
| Other income | |
| 3,636,687 | | |
| 2,939,892 | |
| Total Investment Income | |
| 55,723,856 | | |
| 37,137,462 | |
| | |
| | | |
| | |
| EXPENSES | |
| | | |
| | |
| Incentive fee | |
| 7,496,922 | | |
| 4,439,656 | |
| Interest expense | |
| 7,312,095 | | |
| 6,164,356 | |
| Management fee | |
| 4,879,595 | | |
| 4,118,388 | |
| Commission expense | |
| 3,076,865 | | |
| 2,344,636 | |
| Professional fees | |
| 775,828 | | |
| 995,607 | |
| Administration fees | |
| 585,540 | | |
| 487,031 | |
| Directors' fees | |
| 198,750 | | |
| 198,750 | |
| Tax expense | |
| 50,406 | | |
| 50,389 | |
| Other expenses | |
| 457,076 | | |
| 580,025 | |
| Total Expenses | |
| 24,833,077 | | |
| 19,378,838 | |
| | |
| | | |
| | |
| Incentive fee voluntarily waived by the Adviser | |
| (302,087 | ) | |
| - | |
| | |
| | | |
| | |
| Net Expenses | |
| 24,530,990 | | |
| 19,378,838 | |
| | |
| | | |
| | |
| NET INVESTMENT INCOME | |
| 31,192,866 | | |
| 17,758,624 | |
| | |
| | | |
| | |
| 6.75% Series D Preferred Stock distributions | |
| (903,089 | ) | |
| - | |
| | |
| | | |
| | |
| REALIZED AND UNREALIZED GAIN (LOSS) | |
| | | |
| | |
| Net realized gain (loss) on investments, foreign currency and cash equivalents | |
| 1,679,814 | | |
| 2,192,526 | |
| Net realized gain (loss) on extinguishment of Preferred Stock (Note 6) | |
| (744,281 | ) | |
| - | |
| Net realized gain (loss) on extinguishment of Unsecured Notes (Note 7) | |
| (766,155 | ) | |
| - | |
| Net change in unrealized appreciation (depreciation) on investments, foreign currency and cash equivalents | |
| (158,498,131 | ) | |
| 57,807,573 | |
| Net change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option | |
| 5,953,050 | | |
| (590,314 | ) |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | |
| (152,375,703 | ) | |
| 59,409,785 | |
| | |
| | | |
| | |
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
$ | (122,085,926 | ) | |
$ | 77,168,409 | |
Note: The above Consolidated Statements of Operations represents the six months ended June 30, 2022, and the six months ended June 30, 2021 and has been provided as supplemental information to the consolidated financial statements.
See accompanying notes
to the consolidated financial statements
Eagle Point Credit Company
Inc. & Subsidiaries
Consolidated
Statements of Operations
(expressed in U.S. dollars)
(Unaudited)
| | |
For the | | |
For the | | |
For the | |
| | |
three months ended | | |
three months ended | | |
six months ended | |
| | |
June 30,
2022 | | |
March 31,
2022 | | |
June 30,
2022 | |
| INVESTMENT INCOME | |
| | | |
| | | |
| | |
| Interest
income | |
$ | 27,102,482 | | |
$ | 24,984,687 | | |
$ | 52,087,169 | |
| Other
income | |
| 1,809,549 | | |
| 1,827,138 | | |
| 3,636,687 | |
| Total
Investment Income | |
| 28,912,031 | | |
| 26,811,825 | | |
| 55,723,856 | |
| | |
| | | |
| | | |
| | |
| EXPENSES | |
| | | |
| | | |
| | |
| Incentive fee | |
| 4,363,132 | | |
| 3,133,790 | | |
| 7,496,922 | |
| Interest expense | |
| 3,404,940 | | |
| 3,907,155 | | |
| 7,312,095 | |
| Management fee | |
| 2,263,363 | | |
| 2,616,232 | | |
| 4,879,595 | |
| Commission expense | |
| 21,730 | | |
| 3,055,135 | | |
| 3,076,865 | |
| Professional fees | |
| 288,363 | | |
| 487,465 | | |
| 775,828 | |
| Administration fees | |
| 270,404 | | |
| 315,136 | | |
| 585,540 | |
| Directors' fees | |
| 99,375 | | |
| 99,375 | | |
| 198,750 | |
| Tax expense | |
| 25,356 | | |
| 25,050 | | |
| 50,406 | |
| Other
expenses | |
| 262,596 | | |
| 194,480 | | |
| 457,076 | |
| Total
Expenses | |
| 10,999,259 | | |
| 13,833,818 | | |
| 24,833,077 | |
| | |
| | | |
| | | |
| | |
| Incentive fee voluntarily
waived by the Adviser | |
| - | | |
| (302,087 | ) | |
| (302,087 | ) |
| | |
| | | |
| | | |
| | |
| Net
Expenses | |
| 10,999,259 | | |
| 13,531,731 | | |
| 24,530,990 | |
| | |
| | | |
| | | |
| | |
| NET INVESTMENT INCOME | |
| 17,912,772 | | |
| 13,280,094 | | |
| 31,192,866 | |
| | |
| | | |
| | | |
| | |
| 6.75% Series D
Preferred Stock Distributions | |
| (460,239 | ) | |
| (442,850 | ) | |
| (903,089 | ) |
| | |
| | | |
| | | |
| | |
| REALIZED AND UNREALIZED GAIN (LOSS) | |
| | | |
| | | |
| | |
| Net realized gain (loss)
on investments, foreign currency and cash equivalents | |
| 1,018,570 | | |
| 661,244 | | |
| 1,679,814 | |
| Net realized gain (loss)
on extinguishment of Preferred Stock (Note 6) | |
| - | | |
| (744,281 | ) | |
| (744,281 | ) |
| Net realized gain (loss)
on extinguishment of Unsecured Notes (Note 7) | |
| - | | |
| (766,155 | ) | |
| (766,155 | ) |
| Net change in unrealized
appreciation (depreciation) on investments, foreign currency and cash equivalents | |
| (123,487,229 | ) | |
| (35,010,902 | ) | |
| (158,498,131 | ) |
| Net
change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option | |
| 4,151,369 | | |
| 1,801,681 | | |
| 5,953,050 | |
| NET REALIZED AND UNREALIZED
GAIN (LOSS) | |
| (118,317,290 | ) | |
| (34,058,413 | ) | |
| (152,375,703 | ) |
| | |
| | | |
| | | |
| | |
| NET INCREASE (DECREASE)
IN NET ASSETS RESULTING FROM OPERATIONS | |
$ | (100,864,757 | ) | |
$ | (21,221,169 | ) | |
$ | (122,085,926 | ) |
Note:
The above Consolidated Statements of Operations represents the three months ended June 30, 2022, the three months ended March 31,
2022, and the six months ended June 30, 2022 and has been provided as supplemental information to the consolidated financial statements.
See accompanying notes
to the consolidated financial statements
Eagle Point Credit Company
Inc. & Subsidiaries
Consolidated
Statements of Changes in Net Assets
(expressed in U.S. dollars, except share amounts)
(Unaudited)
| | |
For the | | |
For the | |
| | |
six months ended | | |
year ended | |
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Net increase (decrease)
in net assets resulting from operations: | |
| | | |
| | |
| Net
investment income | |
$ | 31,192,866 | | |
$ | 44,678,902 | |
| 6.75%
Series D Preferred Stock distributions | |
| (903,089 | ) | |
| (150,000 | ) |
| Net
realized gain (loss) on investments, foreign currency and cash equivalents | |
| 1,679,814 | | |
| 3,365,121 | |
| Net
realized gain (loss) on extinguishment of Preferred Stock (Note 6) | |
| (744,281 | ) | |
| (766,122 | ) |
| Net
realized gain (loss) on extinguishment of Unsecured Notes (Note 7) | |
| (766,155 | ) | |
| - | |
| Net
change in unrealized appreciation (depreciation) on investments, foreign currency and cash equivalents | |
| (158,498,131 | ) | |
| 85,334,382 | |
| Net change in unrealized
(appreciation) depreciation on liabilities at fair value under
the fair value option | |
| 5,953,050 | | |
| (756,021 | ) |
| Total
net increase (decrease) in net assets resulting from operations | |
| (122,085,926 | ) | |
| 131,706,262 | |
| | |
| | | |
| | |
| Other comprehensive
income (loss): | |
| | | |
| | |
| Net
change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option | |
| 10,527,217 | | |
| (2,739,575 | ) |
| Total
other comprehensive income (loss) | |
| 10,527,217 | | |
| (2,739,575 | ) |
| | |
| | | |
| | |
| Common stock distributions: | |
| | | |
| | |
| Total
earnings distributed | |
| (32,350,068 | ) | |
| (57,679,486 | ) |
| Common
stock distributions from tax return of capital | |
| - | | |
| - | |
| Total
common stock distributions | |
| (32,350,068 | ) | |
| (57,679,486 | ) |
| | |
| | | |
| | |
| Capital share transactions: | |
| | | |
| | |
| Issuance
of shares of common stock pursuant to the Company's "at the market" program, net
of commissions and offering expenses | |
| 77,597,241 | | |
| 67,073,258 | |
| Issuance
of shares of common stock pursuant to the Company's dividend reinvestment plan | |
| 4,209,958 | | |
| 2,283,188 | |
| Total
capital share transactions | |
| 81,807,199 | | |
| 69,356,446 | |
| | |
| | | |
| | |
| Total increase (decrease)
in net assets | |
| (62,101,578 | ) | |
| 140,643,647 | |
| Net
assets at beginning of period | |
| 502,304,335 | | |
| 361,660,688 | |
| Net
assets at end of period | |
$ | 440,202,757 | | |
$ | 502,304,335 | |
| | |
| | | |
| | |
| Capital share activity: | |
| | | |
| | |
| Shares
of common stock sold pursuant to the Company's "at the market" program | |
| 5,825,761 | | |
| 5,001,120 | |
| Shares
of common stock issued pursuant to the Company's dividend reinvestment plan | |
| 329,566 | | |
| 170,800 | |
| Total
increase (decrease) in capital share activity | |
| 6,155,327 | | |
| 5,171,920 | |
See accompanying notes
to the consolidated financial statements
Eagle
Point Credit Company Inc. & Subsidiaries
Consolidated Statement of Cash Flows
For the six months ended June 30, 2022
(expressed in U.S. dollars)
(Unaudited)
| CASH FLOWS FROM OPERATING ACTIVITIES | |
| |
| Net increase
(decrease) in net assets resulting from operations | |
$ | (122,085,926 | ) |
| | |
| | |
| Adjustments
to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: | |
| | |
| Purchases of investments | |
| (218,802,295 | ) |
| Proceeds
from sales of investments and repayments of principal (1) | |
| 145,768,473 | |
| Payment-in-kind interest | |
| (37,161 | ) |
| Net realized (gain)
loss on investments, foreign currency and cash equivalents | |
| (1,679,814 | ) |
| Net realized (gain)
loss on extinguishment of Preferred Stock (Note 6) | |
| 744,281 | |
| Net realized gain (loss)
on extinguishment of Unsecured Notes (Note 7) | |
| 766,155 | |
| Net change in unrealized
(appreciation) depreciation on investments, foreign currency and cash equivalents | |
| 158,498,131 | |
| Net change in unrealized
appreciation (depreciation) on liabilities at fair value under the fair value option | |
| (5,953,050 | ) |
| Amortization (accretion)
included in interest expense | |
| (13,629 | ) |
| Amortization (accretion)
of premiums or discounts on debt securities | |
| (12,288 | ) |
| Changes in assets and
liabilities: | |
| | |
| Interest receivable | |
| (2,113,224 | ) |
| Prepaid expenses | |
| 58,139 | |
| Incentive fee payable | |
| 1,558,548 | |
| Management fee payable | |
| (343,330 | ) |
| Professional fees payable | |
| (271,016 | ) |
| Administration fees
payable | |
| 42,342 | |
| Due to affiliates | |
| 34,090 | |
| Tax expense payable | |
| (2,217,114 | ) |
| Other
expenses payable | |
| (35,358 | ) |
| Net
cash provided by (used in) operating activities | |
| (46,094,046 | ) |
| | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| Common
stock distributions, net of change in common stock distribution payable | |
| (50,814,950 | ) |
| Issuance
of shares of common stock pursuant to the Company's "at the market" program, net of commissions and offering expenses | |
| 77,597,241 | |
| Issuance
of shares of common stock pursuant to the Company's dividend reinvestment plan, net of change in receivable for shares of common
stock issued | |
| 4,053,457 | |
| Issuance
of 6.50% Series C Term Preferred Stock due 2031 pursuant to the Company's "at the market" program | |
| 8,078,225 | |
| Share
issuance premium associated with 6.50% Series C Term Preferred Stock due 2031 | |
| 44,077 | |
| Issuance
of 6.75% Series D Term Preferred Stock pursuant to the Company's "at the market" program | |
| 2,251,135 | |
| Issuance
of 5.375% Unsecured Notes due 2029 | |
| 93,250,000 | |
| Partial
Redemption of 6.6875% Unsecured Notes due 2028 | |
| (32,423,775 | ) |
| Redemption
of 6.75% Unsecured Notes due 2027 | |
| (28,887,200 | ) |
| Redemption
of Series B Term Preferred Stock due 2026 | |
| (26,959,550 | ) |
| Net
cash provided by (used in) financing activities | |
| 46,188,660 | |
| | |
| | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | |
| 94,614 | |
| | |
| | |
| EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | |
| (12,498 | ) |
| | |
| | |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | |
| 13,916,601 | |
| | |
| | |
| CASH AND CASH EQUIVALENTS, END OF PERIOD | |
$ | 13,998,717 | |
| | |
| | |
| Supplemental disclosures: | |
| | |
| Cash paid for interest expense | |
$ | 7,325,724 | |
| Cash paid for excise tax | |
$ | 2,170,000 | |
| Cash paid for 6.75% Series D Preferred Stock distributions | |
$ | 903,089 | |
| Cash paid for franchise taxes | |
$ | 60,050 | |
| (1) | Proceeds
from sales or maturity of investments includes $52,960,067 of return of capital on CLO equity
investments from recurring cash flows and distributions from called deals |
See accompanying notes
to the consolidated financial statements
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
Eagle Point Credit
Company Inc. (the “Company”) is an externally managed, non-diversified closed-end management investment company registered
under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’s primary investment objective is
to generate high current income, with a secondary objective to generate capital appreciation. The Company seeks to achieve its investment
objectives by investing primarily in equity and junior debt tranches of collateralized loan obligations (“CLOs”) that are
collateralized by a portfolio consisting primarily of below investment grade U.S. senior secured loans with a large number of distinct
underlying borrowers across various industry sectors. The Company may also invest in other related securities and instruments or other
securities and instruments that Eagle Point Credit Management LLC (the “Adviser”) believes are consistent with the Company’s
investment objectives, including senior debt tranches of CLOs, loan accumulation facilities (“LAFs”) and securities and instruments
of corporate issuers. From time to time, in connection with the acquisition of CLO equity, the Company may receive fee rebates from the
CLO issuer. The CLO securities in which the Company primarily seeks to invest are unrated or rated below investment grade and are considered
speculative with respect to timely payment of interest and repayment of principal. The Company’s common stock is listed on the
New York Stock Exchange (the “NYSE”) under the symbol “ECC.”
As of June 30,
2022, the Company had two wholly-owned subsidiaries: Eagle Point Credit Company Sub (Cayman) Ltd. (“Sub I”), a Cayman Islands
exempted company, and Eagle Point Credit Company Sub II (Cayman) Ltd (“Sub II”), a Cayman Islands exempted company. As of
June 30, 2022, Sub I and Sub II represent 42.2% and 5.2% of the Company’s net assets, respectively.
The Company was initially
formed on March 24, 2014 as Eagle Point Credit Company LLC, a Delaware limited liability company and a wholly-owned subsidiary of
Eagle Point Credit Partners Sub Ltd., a Cayman Island exempted company (the “Sole Member”), which, in turn, is a subsidiary
of Eagle Point Credit Partners LP, a private fund managed by the Adviser.
The Company commenced
operations on June 6, 2014, the date the Sole Member contributed, at fair value, a portfolio of cash and securities to the Company.
For the period of June 6,
2014 to October 5, 2014, the Company was a wholly-owned subsidiary of the Sole Member. As of October 5, 2014, the Company had
2,500,000 units issued and outstanding, all of which were held by the Sole Member.
On October 6,
2014, the Company converted from a Delaware limited liability company into a Delaware corporation (the “Conversion”). At
the time of the Conversion, the Sole Member became a stockholder of Eagle Point Credit Company Inc. In connection with the Conversion,
the Sole Member converted 2,500,000 units of the Delaware limited liability company into shares of common stock in the Delaware corporation
at $20 per share, resulting in 8,656,057 shares and an effective conversion rate of 3.4668 shares per unit. On October 7, 2014,
the Company priced its initial public offering (the “IPO”) and sold an additional 5,155,301 shares of its common stock at
a public offering price of $20 per share. On October 8, 2014, the Company’s shares began trading on the NYSE.
Computershare Corporate
Trust serves as the Company’s custodian.
The Company intends
to operate so as to qualify to be taxed as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue
Code of 1986, as amended (the “Code”), for federal income tax purposes.
The Adviser is the
investment adviser of the Company and manages the investments of the Company subject to the supervision of the Company’s Board
of Directors (the “Board”). The Adviser is registered as an investment adviser with the U.S. Securities and Exchange Commission
(the “SEC”) under the Investment Advisers Act of 1940, as amended. Eagle Point Administration LLC, an affiliate of the Adviser,
is the administrator of the Company (the “Administrator”).
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES |
Basis of Accounting
The consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts have been eliminated upon
consolidation. The Company is considered an investment company under accounting principles generally accepted in the United States of
America (“U.S. GAAP”). The Company follows the accounting and reporting guidance applicable to investment companies in the
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 Financial
Services – Investment Companies. Items included in the consolidated financial statements are measured and presented in United
States dollars.
Use of Estimates
The preparation of
the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions which affect
the reported amounts included in the consolidated financial statements and accompanying notes as of the reporting date. Actual results
may differ from those estimates.
Valuation of Investments
The most significant
estimate inherent in the preparation of the consolidated financial statements is the valuation of investments. In the absence of readily
determinable fair values, fair value of the Company’s investments is determined in accordance with the Company’s valuation
policy. Due to the uncertainty of valuation, this estimate may differ significantly from the value that would have been used had a ready
market for the investments existed, and the differences could be material.
There is no single
method for determining fair value in good faith. As a result, determining fair value requires judgment be applied to the specific facts
and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments
held by the Company.
The Company accounts
for its investments in accordance with U.S. GAAP, and fair values its investment portfolio in accordance with the provisions of the FASB
ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value
and requires enhanced disclosures about fair value measurements. Investments are reflected in the consolidated financial statements at
fair value. Fair value is the estimated amount that would be received to sell an asset, or paid to transfer a liability, in an orderly
transaction between market participants at the measurement date (i.e., the exit price). The Company’s fair valuation process is
reviewed and approved by the Board.
The fair value hierarchy
prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability
is impacted by a number of factors, including the type of investment, the characteristics specific to the investment and the state of
the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available
actively quoted prices, or for which fair value can be measured from actively quoted prices in an orderly market, will generally have
a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured
and reported at fair value are classified and disclosed in one of the following categories based on inputs:
| · | Level
I – Observable, quoted prices for identical investments in active markets as of
the reporting date. |
| · | Level
II – Quoted prices for similar investments in active markets or quoted prices for
identical investments in markets that are not active as of the reporting date. |
| · | Level
III – Pricing inputs are unobservable for the investment and little, if any, active
market exists as of the reporting date. Fair value inputs require significant judgment or
estimation from the Adviser. |
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
In certain cases, inputs
used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category
within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input significant to that fair
value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment
and consideration of factors specific to the investment.
Investments for which
observable, quoted prices in active markets do not exist are reported at fair value based on Level III inputs. The amount determined
to be fair value may incorporate the Adviser’s own assumptions (including assumptions the Adviser believes market participants
would use in valuing investments and assumptions relating to appropriate risk adjustments for nonperformance and lack of marketability),
as provided for in the Company’s valuation policy and accepted by the Board.
An estimate of fair
value is made for each investment at least monthly taking into account information available as of the reporting date. For financial
reporting purposes, valuations are determined by the Board on a quarterly basis.
See Note 3 “Investments”
for further discussion relating to the Company’s investments.
In valuing the Company’s
investments in CLO debt, CLO equity and LAFs, the Adviser considers a variety of relevant factors, including, as applicable, price indications
from a third-party pricing service, recent trading prices for specific investments, recent purchases and sales known to the Adviser in
similar securities and output from a third-party financial model. The third-party financial model contains detailed information on the
characteristics of CLOs, including recent information about assets and liabilities, and is used to project future cash flows. Key inputs
to the model, including, but not limited to assumptions for future loan default rates, recovery rates, prepayment rates, reinvestment
rates and discount rates are determined by considering both observable and third-party market data and prevailing general market assumptions
and conventions as well as those of the Adviser.
The Company engages
a third-party independent valuation firm as an input to the Company’s valuation of the fair value of its investments in CLO equity.
The valuation firm’s advice is only one factor considered in the valuation of such investments, and the Board does not solely rely
on such advice in determining the fair value of the Company’s investments in accordance with the 1940 Act.
Temporary Equity
The
Company’s 6.75% Series D Preferred Stock (the “Series D Preferred Stock”) is accounted for in the Company’s
Consolidated Statement of Assets and Liabilities as temporary equity. FASB ASC Topic 480-10-S99, Distinguishing Liabilities from Equity
(“ASC 480”), requires preferred stock that is contingently redeemable upon an occurrence of an event outside the Company’s
control to be classified as temporary equity. Deferred issuance costs on the Series D Preferred Stock consist of fees and
expenses incurred in connection with the issuance net of issuance premiums/(discounts), which are capitalized into temporary equity,
and are amortized only when it is probable the Series D Preferred Stock will become redeemable. As of June 30, 2022, the Company
is compliant with all contingent redemption provisions of the preferred offering; therefore, no deferred issuance costs have been amortized.
The following table reflects Series D Preferred Stock balances as of June 30, 2022.
| | |
Shares
Outstanding | | |
Liquidation
Preference | | |
Deferred
Issuance Costs | | |
Carrying Value | |
| Series D Preferred Stock | |
| 1,090,937 | | |
$ | 27,273,425 | | |
$ | (1,133,540 | ) | |
$ | 26,139,885 | |
Distributions paid
on the Series D Preferred Stock are included in the Consolidated Statement of Operations as a component of net increase (decrease)
in net assets resulting from operations.
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
Other Financial
Assets and Financial Liabilities at Fair Value
The
Fair Value Option (“FVO”) under FASB ASC Subtopic 825-10, Fair Value Option (“ASC 825”), allows companies
an irrevocable election to use fair value as the initial and subsequent accounting measurement for certain financial assets and liabilities.
The decision to elect the FVO is determined on an instrument-by-instrument basis and must be applied to an entire instrument. Assets
and liabilities measured at fair value are required to be reported separately from those instruments measured using another accounting
method and changes in fair value attributable to instrument-specific credit risk on financial liabilities for which the FVO is elected
are required to be presented separately in other comprehensive income. Additionally, upfront offering costs related to such instruments,
inclusive of the costs associated with issuances under the Company’s at-the-market (“ATM”) program, are recognized
in earnings as incurred and are not deferred.
The
Company elected to account for its 6.6875% Unsecured Notes due 2028 (the “Series 2028 Notes”), the 5.375% Unsecured
Notes due 2029 (the “Series 2029 Notes”), 6.75% Unsecured Notes due 2031 (the “Series 2031 Notes”),
and 6.50% Series C Term Preferred Stock due 2031 (the “Series C Term Preferred Stock”) utilizing the FVO under
ASC 825. The primary reason for electing the FVO is to reflect economic events in the same period in which they are incurred and
address simplification of reporting and presentation.
Investment Income
Recognition
Interest income from
investments in CLO debt is recorded using the accrual basis of accounting to the extent such amounts are expected to be collected. Interest
income on investments in CLO debt is generally expected to be received in cash. Amortization of premium or accretion of discount is recognized
using the effective interest method. The Company applies the provisions of Accounting Standards Update No. 2017-08 Premium Amortization
on Purchased Callable Debt Securities (“ASU 2017-08”) in calculating amortization of premium for purchased CLO debt securities.
In certain circumstances,
interest income may be paid in the form of additional investment principal, often referred to as payment-in-kind (“PIK”)
interest. PIK interest is included in interest income and interest receivable through the payment date. The PIK interest rate for CLO
debt securities represents the coupon rate at payment date when PIK interest is received. On the payment date, interest receivable is
capitalized as additional investment principal in the CLO debt security. To the extent the Company does not believe it will be able to
collect PIK interest, the CLO debt security will be placed on non-accrual status, and previously recorded PIK interest income will be
reversed.
CLO equity investments
and fee rebates recognize investment income for U.S. GAAP purposes on the accrual basis utilizing an effective interest methodology based
upon an effective yield to maturity utilizing projected cash flows. ASC Topic 325-40, Beneficial Interests in Securitized Financial
Assets, requires investment income from CLO equity investments and fee rebates to be recognized under the effective interest method,
with any difference between cash distributed and the amount calculated pursuant to the effective interest method being recorded as an
adjustment to the cost basis of the investment. It is the Company’s policy to update the effective yield for each CLO equity position
held within the Company’s portfolio at the initiation of each investment and each subsequent quarter thereafter.
LAFs
recognize interest income according to the guidance noted in ASC Topic 325-40-35-1, Beneficial Interest in Securitized Financial
Assets, which states that the holder of a beneficial interest in securitized financial assets shall determine interest income over
the life of the beneficial interest in accordance with the effective yield method, provided such amounts are expected to be collected.
FASB ASC 325-40-20 further defines “beneficial interests,” among other things, as “rights to receive all or portions
of specified cash inflows received by a trust or other entity.” FASB ASC 325-40-15-7 also states that for income recognition purposes,
beneficial interests in securitized financial assets (such as those in LAFs) are within the scope of ASC 325-40 because it is customary
for certain industries, such as investment companies, to report interest income as a separate item in their income statements even though
the investments are accounted for at fair value. The amount of interest income from loan accumulation facilities recorded for the six
months ended June 30, 2022 was $4.9 million.
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
Interest income from
investments in bank debt term loans and corporate bonds are recorded using the accrual basis of accounting to the extent such amounts
are expected to be collected. Interest income on investments in bank debt term loans and corporate bonds is generally expected to be
received in cash. Amortization of premium or accretion of discount is recognized using the effective interest method.
Other Income
Other income includes
the Company’s share of income under the terms of fee rebate agreements.
Interest Expense
Interest expense includes
the Company’s distributions associated with its 7.75% Series B Term Preferred Stock due 2026 (the “Series B Term
Preferred Stock”) and Series C Term Preferred Stock, and interest paid associated with its 6.75% Unsecured Notes due 2027
(the “Series 2027 Notes”), Series 2028 Notes, Series 2029 Notes and Series 2031 Notes (collectively with
the Series 2027 Notes, Series 2028 Notes and Series 2029 Notes, the “Unsecured Notes”).
Interest expense also
includes the Company’s amortization of deferred issuance costs associated with its Series B Term Preferred Stock and Series 2027
Notes, as well as amortization of original issue premiums associated with its Series B Term Preferred Stock and Series C Term
Preferred Stock.
The following table
summarizes the components of interest expense for the six months ended June 30, 2022:
| | |
Series B Term
Preferred Stock | | |
Series C Term
Preferred Stock | | |
Series 2027
Notes | | |
Series 2028
Notes | | |
Series 2029
Notes | | |
Series 2031
Notes | | |
Total | |
| Distributions declared and paid | |
$ | 348,229 | | |
$ | 1,690,426 | | |
$ | 238,319 | | |
$ | 1,349,190 | | |
$ | 2,185,871 | | |
$ | 1,513,689 | | |
$ | 7,325,724 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Amortization of deferred issuance costs | |
| 22,590 | | |
| - | | |
| 13,614 | | |
| - | | |
| - | | |
| - | | |
| 36,204 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Amortization of issuance premium | |
| (748 | ) | |
| (49,085 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (49,833 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total interest expense | |
$ | 370,071 | | |
$ | 1,641,341 | | |
$ | 251,933 | | |
$ | 1,349,190 | | |
$ | 2,185,871 | | |
$ | 1,513,689 | | |
$ | 7,312,095 | |
The Company’s
Series B Term Preferred Stock, Series C Term Preferred Stock and Unsecured Notes had no interest payable outstanding as of
June 30, 2022.
See Note 6 “Preferred
Stock” and Note 7 “Unsecured Notes” for further discussion relating to preferred stock issuances and Unsecured Notes
issuances, respectively.
Deferred Issuance
Costs
Deferred
issuance costs on liabilities, which the Company does not measure at fair value under the FVO, consist of fees and expenses incurred
in connection with the issuance of the Series 2027 Notes and Series B Term Preferred Stock. The deferred issuance costs are
capitalized at the time of issuance and amortized using the effective interest method over the respective terms of the Series 2027
Notes and Series B Term Preferred Stock. Amortization of deferred issuance costs is reflected in interest expense in the Consolidated
Statement of Operations. Upon the redemption of the Series 2027 Notes and Series B Term Preferred Stock on February 14,
2022 and February 28, 2022, respectively, the remaining balance of unamortized deferred issuance costs associated with such securities
was accelerated into net realized loss. See Note 6 “Preferred Stock” and Note 7 “Unsecured Notes” for
further discussion on the redemption of the Series B Term Preferred Stock and Series 2027 Notes, respectively.
Original Issue Premiums
Consistent
with FASB ASC Topic 835-30-35-2, original issue premiums on liabilities consist of premiums received in connection with the issuance
of the Series B Term Preferred Stock and Series C Term Preferred Stock as part of the Company’s ATM program. The original
issue premiums are capitalized at the time of issuance and amortized using the effective interest method over the respective terms of
the Series B Term Preferred Stock and
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
Series C Term
Preferred Stock. Amortization of original issue premium is reflected as a contra expense under interest expense in the Consolidated Statement
of Operations.
Repurchase of Debt
Securities
The
Company records any gains from the repurchase of the Company’s debt at a discount through open market transactions and subsequent
retirement as a realized gain in the Consolidated Statement of Operations.
Securities Transactions
The Company records
the purchases and sales of securities on trade date. Realized gains and losses on investments sold are recorded on the basis of the specific
identification method.
In certain circumstances
where the Adviser determines it is unlikely to fully amortize a CLO equity or CLO debt investment’s remaining amortized cost, such
remaining cost is written-down to its current fair value and recognized as a realized loss in the Consolidated Statement of Operations.
Cash and Cash Equivalents
The Company has defined
cash and cash equivalents as cash and short-term, highly liquid investments with original maturities of three months or less from the
date of purchase. The Company maintains its cash in bank accounts, which, at times, may exceed federal insured limits. The Adviser monitors
the performance of the financial institution where the accounts are held in order to manage any risk associated with such accounts.
As of June 30,
2022, the Company held cash in a Computershare Corporate Trust interest earning money market account with a balance of $13.9 million.
This money market account is classified as Level I in the fair value hierarchy.
Foreign Currency
The Company does not
isolate the portion of its results of operations resulting from changes in foreign exchange rates on investments from the fluctuations
arising from changes in the market price of such investments. Such fluctuations are included with the net change in unrealized appreciation
(depreciation) on investments, foreign currency and cash equivalents. Reported net realized foreign exchange gains or losses may arise
from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on investment transactions,
and the difference between the amounts of dividends and interest income recorded on the Company’s books and the U.S. dollar equivalent
of the amounts actually received.
Expense Recognition
Expenses are recorded
on the accrual basis of accounting.
Prepaid Expenses
Prepaid expenses consist
primarily of insurance premiums, filing fees, shelf registration expenses and ATM program expenses. Insurance premiums are amortized
over the term of the current policy. Prepaid shelf registration expenses and ATM program expenses represent fees and expenses incurred
in connection with maintaining the Company’s current shelf registration and ATM program. Such costs are allocated to paid-in-capital
or expensed, depending on the security being issued pursuant to the ATM program and shelf registration, for each transaction pro-rata
based on the amount issued relative to the total respective offering amount.
Any unallocated prepaid
expense balance associated with the shelf registration and the ATM program are accelerated into expense at the earlier of the end of
the program period or at the effective date of a new shelf registration or ATM program.
Offering Expenses
Offering expenses associated
with the issuance and sale of shares of common stock, inclusive of expenses incurred associated with offerings under the ATM program,
are charged to paid-in capital at the time the shares are sold in accordance with guidance noted in FASB ASC Topic 946-20-25-5, Investment
Companies – Investment Company
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
Activities
– Recognition, during the period incurred.
Federal and Other
Taxes
The Company intends
to continue to operate so as to qualify to be taxed as a RIC under subchapter M of the Code and, as such, to not be subject to federal
income tax on the portion of its taxable income and gains distributed to stockholders. To qualify for RIC tax treatment, among other
requirements, the Company is required to distribute at least 90% of its investment company taxable income, as defined by the Code.
Because U.S. federal
income tax regulations differ from U.S. GAAP, distributions in accordance with tax regulations may differ from net investment income
and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise
when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also
result from the treatment of short-term gains as ordinary income for federal income tax purposes. The tax basis components of distributable
earnings differ from the amounts reflected in the Consolidated Statement of Assets and Liabilities due to temporary book/tax differences
arising primarily from partnerships and passive foreign investment company investments.
As of June 30, 2022, the federal income
tax cost and net unrealized depreciation on securities were as follows:
| Cost for federal income tax purposes | |
$ | 818,587,308 | |
| | |
| | |
| Gross unrealized appreciation | |
$ | 19,924,204 | |
| Gross unrealized depreciation | |
| (188,703,854 | ) |
| Net unrealized depreciation | |
$ | (168,779,650 | ) |
For the six months
ended June 30, 2022, the Company incurred $50,050 in Delaware franchise tax expense.
Distributions
The composition of
distributions paid to common stockholders from net investment income and capital gains are determined in accordance with U.S. federal
income tax regulations, which differ from U.S. GAAP. Distributions to common stockholders are comprised of net investment income, net
realized capital gains and return of capital for U.S. federal income tax purposes and are intended to be paid monthly. Distributions
payable to common stockholders are recorded as a liability on ex-dividend date. Unless a common stockholder opts out of the Company’s
dividend reinvestment plan (the “DRIP”), distributions are automatically reinvested in full shares of the Company as of the
payment date, pursuant to the DRIP. The Company’s common stockholders who opt-out of participation in the DRIP (including those
common stockholders whose shares are held through a broker who has opted out of participation in the DRIP) generally will receive all
distributions in cash.
In addition to the
regular monthly distributions, and subject to available taxable earnings of the Company, the Company may make periodic special distributions
representing the excess of the Company’s net taxable income over the Company’s aggregate monthly distributions paid during
the year (or for other purposes).
For
the six months ended June 30, 2022, the Company declared and paid monthly distributions on common stock of $32.4 million
or $0.78 per share. In addition, the Company paid a special distribution on common stock of $18.5 million or $0.50 per share, which was
payable on January 24, 2022 to shareholders of record as of December 23, 2021.
For
the six months ended June 30, 2022, the Company declared and paid dividends on the Series B Term Preferred Stock of
$0.3 million or approximately $0.32 per share.
For
the six months ended June 30, 2022, the Company declared and paid dividends on the Series C Term Preferred
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
Stock
of $1.7 million or approximately $0.81 per share.
For
the six months ended June 30, 2022, the Company declared and paid dividends on the Series D Preferred Stock of $0.9
million or approximately $0.84 per share.
The characterization
of distributions paid to common stockholders, as set forth in the Consolidated Financial Highlights, reflect estimates made by the Company
for federal income tax purposes. Such estimates are subject to change once the final determination of the source of all distributions
has been made by the Company.
Fair Value Measurement
The following tables
summarize the valuation of the Company’s investments measured and reported at fair value under the fair value hierarchy levels
described in Note 2 “Summary of Significant Accounting Policies” as of June 30, 2022:
| Fair Value Measurement (in millions) | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| |
| | |
Level I | | |
Level II | | |
Level III | | |
Total | |
| Assets at Fair Value | |
| | | |
| | | |
| | | |
| | |
| Cash Equivalents | |
$ | 13.9 | | |
$ | - | | |
$ | - | | |
$ | 13.9 | |
| | |
| | | |
| | | |
| | | |
| | |
| CLO Debt | |
| - | | |
| 47.8 | | |
| - | | |
| 47.8 | |
| | |
| | | |
| | | |
| | | |
| | |
| CLO Equity | |
| - | | |
| - | | |
| 566.4 | | |
| 566.4 | |
| | |
| | | |
| | | |
| | | |
| | |
| Loan Accumulation Facilities | |
| - | | |
| - | | |
| 30.5 | | |
| 30.5 | |
| | |
| | | |
| | | |
| | | |
| | |
| Bank Debt Term Loan | |
| - | | |
| 0.5 | | |
| - | | |
| 0.5 | |
| | |
| | | |
| | | |
| | | |
| | |
| Common Stock | |
| - | | |
| 0.1 | | |
| - | | |
| 0.1 | |
| | |
| | | |
| | | |
| | | |
| | |
| Corporate Bonds | |
| - | | |
| 4.3 | | |
| - | | |
| 4.3 | |
| | |
| | | |
| | | |
| | | |
| | |
| Warrants | |
| - | | |
| 0.2 | | |
| - | | |
| 0.2 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total Assets at Fair Value | |
$ | 13.9 | | |
$ | 52.9 | | |
$ | 596.9 | | |
$ | 663.7 | |
| | |
| | | |
| | | |
| | | |
| | |
| Liabilities at Fair Value | |
| | | |
| | | |
| | | |
| | |
| 6.6875% Unsecured Notes due 2028 | |
$ | 31.6 | | |
$ | - | | |
$ | - | | |
$ | 31.6 | |
| | |
| | | |
| | | |
| | | |
| | |
| 5.375% Unsecured Notes due 2029 | |
| 86.2 | | |
| - | | |
| - | | |
| 86.2 | |
| | |
| | | |
| | | |
| | | |
| | |
| 6.75% Unsecured Notes due 2031 | |
| 43.0 | | |
| - | | |
| - | | |
| 43.0 | |
| | |
| | | |
| | | |
| | | |
| | |
| 6.50% Series C Term Preferred Stock due 2031 | |
| 51.0 | | |
| - | | |
| - | | |
| 51.0 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total Liabilities at Fair Value | |
$ | 211.8 | | |
$ | - | | |
$ | - | | |
$ | 211.8 | |
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
The changes in investments
classified as Level III are as follows for the six months ended June 30, 2022:
| Change in Investments Classified as Level III (in millions) | |
| | |
| |
| | |
| | |
| |
| | |
CLO Equity | | |
Loan
Accumulation
Facilities | | |
Total | |
| Balance as of January 1, 2022 | |
$ | 632.7 | | |
$ | 47.4 | | |
$ | 680.1 | |
| | |
| | | |
| | | |
| | |
| Purchases of investments | |
| 140.1 | (1) | |
| 58.4 | | |
| 198.5 | |
| | |
| | | |
| | | |
| | |
| Proceeds from sales or maturity of investments | |
| (53.8 | )(2) | |
| (75.4 | )(1) | |
| (129.2 | ) |
| | |
| | | |
| | | |
| | |
| Net realized gains (losses) and net change in unrealized appreciation (depreciation) | |
| (152.6 | ) | |
| 0.1 | | |
| (152.5 | ) |
| | |
| | | |
| | | |
| | |
| Balance as of June 30, 2022(3) | |
$ | 566.4 | | |
$ | 30.5 | | |
$ | 596.9 | |
| | |
| | | |
| | | |
| | |
| Change in unrealized appreciation (depreciation) on investments still held as of June 30, 2022 | |
$ | (153.3 | ) | |
$ | - | | |
$ | (153.3 | ) |
| (1) | Includes $54.1 million of proceeds
from sales or maturity of investments in loan accumulation facilities transferred to purchases of
investments in CLO equity. |
| (2) | Includes $53.0 million of return
of capital on CLO equity investments from recurring cash flows and distributions from called deals. |
| (3) | There were no transfers into or
out of level III investments during the period. |
The net realized gains
(losses) recorded for Level III investments are reported in the net realized gain (loss) on investments, foreign currency and cash equivalents
balance in the Consolidated Statement of Operations. Net changes in unrealized appreciation (depreciation) are reported in the net change
in unrealized appreciation (depreciation) on investments, foreign currency and cash equivalents balance in the Consolidated Statement
of Operations.
Valuation of
CLO Equity
The Adviser utilizes
the output of a third-party financial model to estimate the fair value of CLO equity investments. The model contains detailed information
on the characteristics of each CLO, including recent information about assets and liabilities from data sources such as trustee reports,
and is used to project future cash flows to the CLO note tranches, as well as management fees.
The following table
summarizes the quantitative inputs and assumptions used for investments categorized as Level III of the fair value hierarchy as of June 30,
2022. In addition to the techniques and inputs noted in the table below, the Adviser may use other valuation techniques and methodologies
when determining the Company’s fair value measurements as provided for in the valuation policy approved by the Board. The table
below is not intended to be all-inclusive, but rather provides information on the significant Level III inputs as they relate to the
Company’s fair value measurements as of June 30, 2022. Unobservable inputs and assumptions are periodically reviewed and updated
as necessary to reflect current market conditions.
Increases (decreases)
in the annual default rate, reinvestment price and expected yield in isolation would result in a lower (higher) fair value measurement.
Increases (decreases) in the reinvestment spread and recovery rate in isolation would result in a higher (lower) fair value measurement.
Changes in the annual prepayment rate may result in a higher (lower) fair value, depending on the circumstances. Generally, a change
in the assumption used for the annual default rate may be accompanied by a directionally opposite change in the assumption used for the
annual prepayment rate and recovery rate.
The Adviser categorizes
CLO equity as Level III investments. Certain pricing inputs may be unobservable. An active market may exist, but not necessarily for
CLO equity investments the Company holds as of the reporting date.
The Company’s
investments in CLO debt have been valued using an independent pricing service. The valuation methodology of the independent pricing service
includes incorporating data comprised of observable market transactions, executable bids, broker quotes from dealers with two sided markets,
as well as transaction activity from comparable securities to those being valued. As the independent pricing service contemplates real
time market data and no unobservable inputs or significant judgment has been used by the Adviser in the valuation of the Company’s
investment in CLO debt, such positions are considered Level II assets.
Bank debt term loans,
corporate bonds and warrants held by the Company are generally valued using the mid-point of an indicative broker quotation as of the
reporting date. The Adviser categorizes bank debt term loans, corporate bonds and warrants held by the Company as Level II investments
as an active market exists for the reporting period.
Common stock held by
the Company is valued using the mid-point of an indicative broker quotation as of the reporting date. The Adviser categorizes common
stock held by the Company as a Level II investment as it is traded in over the counter markets and not listed on a major exchange as
of the reporting date.
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
Valuation of
Loan Accumulation Facilities
The Adviser determines
the fair value of LAFs in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures, utilizing the income approach
as noted in ASC 820-10-55-3F (the “Income Approach”), in which fair value measurement reflects current market expectations
about the receipt of future amounts (i.e. exit price). LAFs are typically short- to medium-term in nature and formed to acquire loans
on an interim basis that are expected to form part of a specific CLO transaction. Pursuant to LAF governing documents, loans acquired
by the LAF are typically required to be transferred to the contemplated CLO transaction at original cost plus accrued interest. In such
situations, because the LAF will receive its full cost basis in the underlying loan assets and the accrued interest thereon upon the
consummation of the CLO transaction, the Adviser determines the fair value of the LAF as follows: (A) the cost of the Company’s
investment (i.e., the principal amount invested), and (B) to the extent the LAF has realized gains (losses) on its underlying loan
assets which are reported by the Trustee during the applicable reporting period, its attributable portion of such realized gains (losses).
In certain circumstances,
the LAF documents can contemplate transferring the underlying loans at a price other than original cost plus accrued interest or the
Adviser may determine that, despite the initial expectation that a CLO transaction would result from a LAF, such a transaction is in
fact unlikely to occur and, accordingly, it is unlikely the loans held by the LAF will be transferred at cost. Rather, the loans held
by the LAF will most likely be sold at market value. In such situations, the Adviser will continue to fair value the LAF consistent with
the Income Approach, but modify the fair value measurement to reflect the change in exit strategy of the LAF to incorporate market expectations
of the receipt of future amounts (i.e. exit price). As such, the fair value of the LAF is most appropriately determined by reference
to the market value of the LAF’s underlying loans, which is reflective of the price at which the LAF could sell its loan assets
in an orderly transaction between market participants. As such, in these situations, the Adviser will continue utilizing the Income Approach
and determine the fair value of the LAF as follows: (A) the cost of the Company’s investment (i.e., the principal amount invested),
(B) the Company’s attributable portion of the unrealized gain (loss) on the LAF’s underlying loan assets, and (C) to
the extent the LAF has realized gains (losses) on its underlying loan assets which are reported by the Trustee during the applicable
reporting period, its attributable portion of such realized gains (losses). The Adviser’s measure of the Company’s attributable
portion of the unrealized gain (loss) on the LAF’s underlying loan assets takes into account the Adviser’s current market
expectations of the receipt of future amounts on such assets, which may be impacted by various factors including any applicable change
in market conditions or new information.
The Adviser categorizes
LAFs as Level III investments. There is no active market and prices are unobservable.
Valuation of
Series 2028 Notes, Series 2029 Notes, Series 2031 Notes and Series C Term Preferred Stock
The Series 2028
Notes, Series 2029 Notes, Series 2031 Notes and Series C Term Preferred Stock are considered Level I securities and are
valued at their official closing price, taken from the NYSE.
Investment Risk
Factors and Concentration of Investments
The following list
is not intended to be a comprehensive list of all of the potential risks associated with the Company. The Company’s prospectus
provides a detailed discussion of the Company’s risks and considerations. The risks described in the prospectus are not the only
risks the Company faces. Additional risks and uncertainties not currently known to the Company or that are currently deemed to be immaterial
also may materially and adversely affect its business, financial condition and/or operating results.
Global Economic
Risks
Terrorist acts, acts
of war, natural disasters, outbreaks or pandemics may disrupt the Company’s operations, as well as the operations of the businesses
in which it invests. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global
economic instability. For example, many countries have experienced outbreaks of infectious illnesses in recent decades, including swine
flu, avian influenza, SARS and COVID-19. Since December 2019, the spread of COVID-19 has caused social unrest and commercial disruption
on a global scale.
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
Global economies and
financial markets are highly interconnected, and conditions and events in one country, region or financial market may adversely impact
issuers in a different country, region or financial market. The COVID-19 pandemic has magnified these risks and has had, and may continue
to have, a material adverse impact on local economies in the affected jurisdictions and also on the global economy, as cross border commercial
activity and market sentiment have been impacted by the outbreak and government and other measures seeking to contain its spread. The
effects of the COVID-19 pandemic contributed to increased volatility in global financial markets and have affected countries, regions,
companies, industries and market sectors more dramatically than others. The COVID-19 pandemic has had, and any other outbreak of an infectious
disease or serious environmental or public health concern could have, a significant negative impact on economic and market conditions,
could exacerbate pre-existing political, social and economic risks in certain countries or regions and could trigger a prolonged period
of global economic slowdown, which may impact the Company and its underlying investments.
Following the onset
of the pandemic, certain CLOs held by the Company experienced increased defaults by underlying borrowers. Obligor defaults and rating
agency downgrades caused, and may in the future cause, payments that would have otherwise been made to the CLO equity or CLO debt securities
that the Company held to instead be diverted to buy additional loans within a given CLO or paid to senior CLO debt holders as an early
amortization payment. In addition, defaults and downgrades of underlying obligors caused, and may in the future cause, a decline in the
value of CLO securities generally. If CLO cash flows or income decrease as a result of the pandemic, the portion of the Company’s
distribution comprised of a return of capital could increase or distributions could be reduced.
Concentration Risk
The Company is classified
as “non-diversified” under the 1940 Act. As a result, the Company can invest a greater portion of its assets in obligations
of a single issuer than a “diversified” fund. The Company may therefore be more susceptible than a diversified fund to being
adversely affected by any single corporate, economic, political or regulatory occurrence.
Liquidity Risk
The securities issued
by CLOs generally offer less liquidity than below investment grade or high-yield corporate debt, and are subject to certain transfer
restrictions imposed on certain financial instruments and other eligibility requirements on prospective transferees. Other investments
the Company may purchase through privately negotiated transactions may also be illiquid or subject to legal restrictions on their transfer.
As a result of this illiquidity, the Company’s ability to sell certain investments quickly, or at all, in response to changes in
economic and other conditions and to receive a fair price when selling such investments may be limited, which could prevent the Company
from making sales to mitigate losses on such investments.
Risks of Investing
in CLOs
The Company’s
investments consist primarily of CLO securities and the Company may invest in other related structured finance securities. CLOs and structured
finance securities are generally backed by an asset or a pool of assets (typically senior secured loans and other credit-related assets
in the case of a CLO) which serve as collateral. The Company and other investors in CLOs and related structured finance securities ultimately
bear the credit risk of the underlying collateral. If there are defaults or the relevant collateral otherwise underperforms, scheduled
payments to senior tranches of such securities take precedence over those of junior tranches, and scheduled payments to junior tranches
have a priority in the right of payment to subordinated/equity tranches. Therefore, CLO and other structured finance securities may present
risks similar to those of the other types of debt obligations and, in fact, such risks may be of greater significance in the case of
CLO and other structured finance securities. In addition to the general risks associated with investing in debt securities, CLO securities
carry additional risks, including, but not limited to: (1) the possibility that distributions from collateral assets will not be
adequate to make interest or other payments; (2) the quality of the collateral may decline in value or default; (3) the fact
that investments in CLO equity and junior debt tranches will likely be subordinate in the right of payment to other senior classes of
CLO debt; and (4) the complex structure of the security may not be fully understood at the time of investment and may produce disputes
with the issuer or unexpected investment results.
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
Risks of Investing
in Loan Accumulation Facilities
The Company invests
in LAFs, which are short- to medium-term facilities often provided by a bank that will serve as placement agent or arranger in a CLO
transaction and which acquire loans on an interim basis that are expected to form part of the portfolio of a future CLO. Investments
in LAFs have risks similar to those applicable to investments in CLOs. Leverage is typically utilized in such a facility and as such
the potential risk of loss will be increased for such facilities employing leverage. In the event a planned CLO is not consummated, or
the loans are not eligible for purchase by the CLO, the Company may be responsible for either holding or disposing of the loans. This
could expose the Company primarily to credit and/or mark-to-market losses, and other risks.
Interest Rate Risk
The fair value of certain
investments held by the Company may be significantly affected by changes in interest rates. In general, rising interest rates will negatively
affect the price of a fixed rate debt instrument and falling interest rates will have a positive effect on the price of a fixed rate
instrument. Although senior secured loans are generally floating rate instruments, the Company’s investments in senior secured
loans through equity and junior debt tranches of CLOs are sensitive to interest rate levels and volatility. Although CLOs are generally
structured to mitigate the risk of interest rate mismatch, there may be some difference between the timing of interest rate resets on
the assets and liabilities of a CLO. Such a mismatch could have a negative effect on the amount of funds distributed to CLO equity investors.
In addition, in the event of a significant rising interest rate environment and/or economic downturn, loan defaults may increase and
result in credit losses which may adversely affect the Company’s cash flow, fair value of its assets and operating results. In
the event that the Company’s interest expense were to increase relative to income, or sufficient financing became unavailable,
return on investments and cash available for distribution to stockholders or to make other payments on the Company’s securities
would be reduced.
LIBOR Risk
The CLO equity and
debt securities in which the Company invests earn interest at, and CLOs in which it invests typically obtain financing at, a floating
rate based on LIBOR.
On July 27, 2017,
the Chief Executive of the Financial Conduct Authority (“FCA”), the United Kingdom's financial regulatory body and regulator
of LIBOR, announced that after 2021 it will cease its active encouragement of banks to provide the quotations needed to sustain LIBOR
due to the absence of an active market for interbank unsecured lending and other reasons. On March 5, 2021, the FCA announced that
all LIBOR settings will either cease to be provided by any administrator, or no longer be representative (i) immediately after December 31,
2021 for all GBP, EUR, CHF and JPY LIBOR settings and one-week and two-month US dollar LIBOR settings, and (ii) immediately after
June 30, 2023 for the remaining US dollar LIBOR settings, including three-month US dollar LIBOR.
Replacement rates that
have been identified include the Secured Overnight Financing Rate (SOFR, which is intended to replace U.S. dollar LIBOR and measures
the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities) and the Sterling
Overnight Index Average Rate (SONIA, which is intended to replace GBP LIBOR and measures the overnight interest rate paid by banks for
unsecured transactions in the sterling market), although other replacement rates could be adopted by market participants. On July 29,
2021, the Alternative Reference Rates Committee (“ARRC”) announced that it recommended Term SOFR, a similar forward-looking
term rate which will be based on SOFR, for business loans.
As of the date of the
financial statements, certain senior secured loans had already transitioned to utilizing SOFR based interest rates and newly issued CLO
debt securities had begun to transition to such replacement rate. Nevertheless, there can be no assurance that Term SOFR will ultimately
be broadly adopted as a replacement to LIBOR.
Loans held by CLO issuers
and other issuers in which the Company may invest may reference LIBOR, and the termination of LIBOR presents risks to such issuers and,
indirectly, the Company. As LIBOR is currently being reformed, investors should be aware that: (a) any changes to LIBOR could affect
the level of the published rate,
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
including to cause
it to be lower and/or more volatile than it would otherwise be; (b) if the applicable rate of interest on any CLO security is calculated
with reference to a tenor which is discontinued, such rate of interest will then be determined by the provisions of the affected CLO
security, which may include determination by the relevant calculation agent in its discretion; (c) the administrator of LIBOR will
not have any involvement in the CLOs or loans and may take any actions in respect of LIBOR without regard to the effect of such actions
on the CLOs or loans; and (d) any uncertainty in the value of LIBOR or, the development of a widespread market view that LIBOR has
been manipulated or any uncertainty in the prominence of LIBOR as a benchmark interest rate due to the recent regulatory reform may adversely
affect the liquidity of the securities in the secondary market and their market value. Any of the above or any other significant change
to the setting of LIBOR could have a material adverse effect on the value of, and the amount payable under, (i) any underlying assets
of a CLO which pay interest linked to a LIBOR rate and (ii) the CLO securities in which the Company invests.
If LIBOR is eliminated
as a benchmark rate, market participants (including the Company) may be subject to the risk that an acceptable transition mechanism may
not be found or may not be suitable for a particular issuer. In addition, any alternative reference rate and any pricing adjustments
required in connection with the transition from LIBOR may impose costs on issuers or may not be suitable to close out positions and enter
into replacement trades. Any such consequence could have a material adverse effect on an issuer in whose securities the Company may invest
and their ability to make distributions or service outstanding debt. If no replacement conventions develop, it is uncertain what effect
broadly divergent interest rate calculation methodologies in the markets will have on the price and liquidity of CLO securities and the
ability of the collateral manager to effectively mitigate interest rate risks. While the issuers and the trustee of a CLO may enter into
a reference rate amendment or the collateral manager may designate a designated reference rate, in each case, subject to the conditions
described in a CLO indenture, there can be no assurance that a change to any alternative benchmark rate (a) will be adopted, (b) will
effectively mitigate interest rate risks or result in an equivalent methodology for determining the interest rates on the floating rate
instrument, (c) will be adopted prior to any date on which the issuer suffers adverse consequences from the elimination or modification
or potential elimination or modification of LIBOR or (d) will not have a material adverse effect on the holders of the CLO securities.
In addition, the effect
of a phase out of LIBOR on U.S. senior secured loans, the underlying assets of CLOs, is currently unclear. To the extent that any replacement
rate utilized for senior secured loans differs from that utilized for a CLO that holds those loans, the CLO would experience an interest
rate mismatch between its assets and liabilities, which could have an adverse impact on the Company’s net investment income and
portfolio returns.
Rising Interest
Rate Environment
As of the date of the
financial statements, the U.S. Federal Reserve has increased certain interest rates as part of its efforts to combat rising inflation.
The prospect of further rate increases magnifies the risks associated with rising interest rates described under “Interest Rate
Risk,” above. The senior secured loans underlying the CLOs in which the Company invests typically have floating interest rates.
A rising interest rate environment may increase loan defaults, resulting in losses for the CLOs in which the Company invests. In addition,
increasing interest rates may lead to higher prepayment rates, as corporate borrowers look to avoid escalating interest payments or refinance
floating rate loans. Further, a general rise in interest rates will increase the financing costs of the CLOs. However, since many of
the senior secured loans within these CLOs have LIBOR floors, if LIBOR is below the applicable LIBOR floor (which can typically range
from 0.00% to 1.00% depending on the loan), there may not be corresponding increases in investment income, which could result in the
CLO not having adequate cash to make interest or other payments on the securities which the Company holds.
Leverage Risk
The Company has incurred
leverage through the issuances of the Series B Term Preferred Stock, the Series C Term Preferred Stock, and the Series D
Preferred Stock (collectively with the Series B Term Preferred Stock and the Series C Term Preferred Stock, the “Preferred
Stock”), and the Unsecured Notes, and the Company may incur additional leverage, directly or indirectly, through one or more special
purpose vehicles, including indebtedness for borrowed money and leverage in the form of derivative transactions, repurchase agreement
transactions, short sale transactions, additional shares of preferred stock and other structures and instruments, in significant amounts
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
and on terms the Adviser
and the Board deem appropriate, subject to applicable limitations under the 1940 Act. Such leverage may be used for the acquisition and
financing of the Company’s investments, to pay fees and expenses and for other purposes. Any such leverage does not include embedded
or inherent leverage in CLO structures in which the Company invests or in derivative instruments in which the Company may invest. Accordingly,
there is effectively a layering of leverage in the Company’s overall structure. The more leverage is employed, the more likely
a substantial change will occur in the Company’s net asset value (“NAV”). For instance, any decrease in the Company’s
income would cause net income to decline more sharply than it would have had the Company not borrowed. In addition, any event adversely
affecting the value of an investment would be magnified to the extent leverage is utilized.
Highly Subordinated
and Leveraged Securities Risk
The Company’s
portfolio includes equity and junior debt investments in CLOs, which involve a number of significant risks. CLO equity and junior debt
securities are typically very highly leveraged (with CLO equity securities typically being leveraged nine to thirteen times), and therefore
the junior debt and equity tranches in which the Company invests are subject to a higher degree of risk of total loss. In particular,
investors in CLO securities indirectly bear risks of the collateral held by such CLOs. The Company generally has the right to receive
payments only from the CLOs, and generally does not have direct rights against the underlying borrowers or the entity that sponsored
the CLO.
Credit Risk
If
a CLO in which the Company invests, an underlying asset of any such CLO or any other type of credit investment in the Company’s
portfolio declines in price or fails to pay interest or principal when due because the issuer or debtor, as the case may be, experiences
a decline in its financial status either or both the Company’s income and NAV may be adversely impacted. Non-payment would result
in a reduction of the Company’s income, a reduction in the value of the applicable CLO security or other credit investment experiencing
non-payment and, potentially, a decrease in the Company’s NAV. To the extent the credit rating assigned to a security in the Company’s
portfolio is downgraded, the market price and liquidity of such security may be adversely affected. In addition, if a CLO in which the
Company invests triggers an event of default as a result of failing to make payments when due or for other reasons, the CLO would be
subject to the possibility of liquidation, which could result in full loss of value to the CLO equity and junior debt investors. CLO
equity tranches are the most likely tranche to suffer a loss of all of their value in these circumstances. Heightened inflationary
pressures could increase the risk of default by our underlying obligors.
Low Or Unrated Securities
Risks
The Company invests
primarily in securities that are rated below investment grade or, in the case of CLO equity securities, are not rated by a national securities
rating service. The primary assets underlying the CLO security investments are senior secured loans, although these transactions may
allow for limited exposure to other asset classes including unsecured loans, high-yield bonds, emerging market loans or bonds and structured
finance securities with underlying exposure to collateralized loan obligation and other collateralized debt obligation tranches, residential
mortgage backed securities, commercial mortgage backed securities, trust preferred securities and other types of securitizations. CLOs
generally invest in lower-rated debt securities that are typically rated below Baa/BBB by Moody’s, S&P or Fitch. In addition,
the Company may obtain direct exposure to such financial assets/instruments. Securities that are not rated or are rated lower than Baa
by Moody’s or lower than BBB by S&P or Fitch are sometimes referred to as “high-yield” or “junk.” High-yield
debt securities have greater credit and liquidity risk than investment grade obligations. High-yield debt securities are generally unsecured
and may be subordinated to certain other obligations of the issuer thereof. The lower rating of high-yield debt securities and below
investment grade loans reflects a greater possibility that adverse changes in the financial condition of an issuer or in general economic
conditions or both may impair the ability of the issuer thereof to make payments of principal or interest.
Risks Related to
Russia’s Invasion of Ukraine
Russia’s military
incursion into Ukraine, the response of the United States and other countries, and the potential for wider conflict, has increased volatility
and uncertainty in the financial markets and may adversely affect the
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
Company. Immediately
following Russia’s invasion, the United States and other countries imposed wide-ranging economic sanctions on Russia, individual
Russian citizens, and Russian banking entities and other businesses, including those in the energy sector. These unprecedented sanctions
have been highly disruptive to the Russian economy and, given the interconnectedness of today’s global economy, could have broad
and unforeseen macroeconomic implications. The ultimate nature, extent and duration of Russia’s military actions (including the
potential for cyberattacks and espionage), and the response of state governments and businesses, cannot be predicted at this time. However,
further escalation of the conflict could result in significant market disruptions, and negatively affect global supply chains, inflation
and global growth. These and any related events could negatively impact the performance of the Company’s underlying obligors and/or
the market value of our common shares or preferred stock.
| 4. | RELATED PARTY TRANSACTIONS |
Investment Adviser
On June 6, 2014,
the Company entered into an investment advisory agreement with the Adviser, which was amended and restated on May 16, 2017 (the
“Advisory Agreement”). Pursuant to the terms of the Advisory Agreement, the Company pays the Adviser a management fee and
an incentive fee for its services.
The management fee
is calculated and payable quarterly, in arrears, at an annual rate equal to 1.75% of the Company’s “total equity base.”
“Total equity base” means the net asset value attributable to the common stock and the paid-in, or stated, capital of the
Preferred Stock. The management fee is calculated based on the “total equity base” at the end of the most recently completed
calendar quarter end, and, with respect to any common stock or preferred stock issued or repurchased during such quarter, is adjusted
to reflect the number of days during such quarter that such common stock and/or preferred stock, if any, was outstanding. The management
fee for any partial quarter is pro-rated (based on the number of days actually elapsed at the end of such partial quarter relative to
the total number of days in such calendar quarter). The Company was charged management fees of $4.9 million for the six months ended
June 30, 2022, and has a payable balance of $2.3 million as of June 30, 2022.
The incentive fee is
calculated and payable quarterly, in arrears, based on the pre-incentive fee net investment income (the “PNII”) of the Company
for the immediately preceding calendar quarter. For this purpose, PNII means interest income, dividend income and any other income (including
any other fees, such as commitment, origination, structuring, diligence and consulting fees or other fees the Company receives from an
investment) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management
fee, expenses payable under the Administration Agreement (as defined below) and any interest expense and distributions paid on any issued
and outstanding preferred stock or debt, but excluding the incentive fee). PNII includes, in the case of investments with a deferred
interest feature (such as original issue discount, debt instruments with payment in-kind interest and zero coupon securities), accrued
income that the Company has not yet received in cash. PNII does not include any realized or unrealized capital gains or realized or unrealized
capital losses. The portion of incentive fee that is attributable to deferred interest (such as payment-in-kind interest or original
issue discount) will be paid to the Adviser, without interest, only if and to the extent the Company actually receives such deferred
interest in cash, and any accrual thereof will be reversed if and to the extent such interest is reversed in connection with any write-off
or similar treatment of the investment giving rise to any deferred interest accrual.
PNII, expressed as
a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, is compared
to a hurdle rate of 2.00% per quarter. The Company pays the Adviser an incentive fee with respect to the Company’s PNII in each
calendar quarter as follows: (1) no incentive fee in any calendar quarter in which the Company’s PNII does not exceed the
hurdle rate of 2.00%; (2) 100% of the Company’s PNII with respect to that portion of such PNII, if any, exceeding the hurdle
rate but equal to or less than 2.50% in any calendar quarter; and (3) 20% of the amount of the Company’s PNII, if any, exceeding
2.50% in any calendar quarter. The Company incurred incentive fees of $7.5 million for the six months ended June 30, 2022, and has
a payable balance of $5.1 million as of June 30, 2022. For the six months ended June 30, 2022, the Adviser has voluntarily
waived a portion of the incentive fee in the amount of $0.3 million. The waived incentive fee is not
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
subject to recoupment
by the Adviser.
Administrator
Effective June 6,
2014, the Company entered into an administration agreement (the “Administration Agreement”) with the Administrator, an affiliate
of the Adviser. Pursuant to the Administration Agreement, the Administrator performs, or arranges for the performance of, the Company’s
required administrative services, which include being responsible for the financial records which the Company is required to maintain
and preparing reports which are disseminated to the Company’s stockholders. In addition, the Administrator provides the Company
with accounting services, assists the Company in determining and publishing its net asset value, oversees the preparation and filing
of the Company’s tax returns, monitors the Company’s compliance with tax laws and regulations, and prepares and assists the
Company with any audits by an independent public accounting firm of the consolidated financial statements. The Administrator is also
responsible for printing and disseminating reports to the Company’s stockholders and maintaining the Company’s website, providing
support to investor relations, generally overseeing the payment of the Company’s expenses and the performance of administrative
and professional services rendered to the Company by others, and providing such other administrative services as the Company may from
time to time designate.
Payments under the
Administration Agreement are equal to an amount based upon the Company’s allocable portion of the Administrator’s overhead
in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance
functions and the Company’s allocable portion of the compensation of the Company’s chief compliance officer, chief financial
officer, chief operating officer and the Company’s allocable portion of the compensation of any related support staff. The
Company’s allocable portion of such compensation is based on an allocation of the time spent on the Company relative to other matters.
To the extent the Administrator outsources any of its functions, the Company pays the fees on a direct basis, without profit to the Administrator.
Certain accounting and other administrative services have been delegated by the Administrator to SS&C Technologies, Inc. (“SS&C”).
The Administration Agreement may be terminated by the Company without penalty upon not less than sixty days’ written notice to
the Administrator and by the Administrator upon not less than ninety days’ written notice to the Company. The Administration Agreement
is approved by the Board, including by a majority of the Company’s independent directors, on an annual basis.
For the six months
ended June 30, 2022, the Company was charged a total of $0.6 million in administration fees consisting of $0.4 million and $0.2
million, relating to services provided by the Administrator and SS&C, respectively, which are included in the Consolidated Statement
of Operations and, of which $0.2 million was payable as of June 30, 2022.
Affiliated Ownership
As of June 30,
2022, the Adviser and senior investment team held an aggregate of 3.6% of the Company’s common stock. This represented 3.3% of
the total outstanding voting stock of the Company as of June 30, 2022. Additionally, the senior investment team held an aggregate
of 0.4% of the Series 2028 Notes, respectively, as of June 30, 2022.
Exemptive Relief
On March 17, 2015,
the SEC issued an order granting the Company exemptive relief to co-invest in certain negotiated investments with affiliated investment
funds managed by the Adviser, subject to certain conditions.
As of December 31,
2021, there were 100,000,000 shares of common stock authorized, of which 37,526,810 shares were issued and outstanding.
Pursuant to a prospectus
supplement filed with the SEC on December 20, 2021, the Company launched an ATM offering to sell up to $125.0 million aggregate
amount of its common stock. Pursuant to a prospectus supplement
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
filed with the SEC
on June 10, 2022, the Company updated the ATM offering to allow the Company to sell up to $225.0 million aggregate amount of its
common stock (exclusive of any shares of common stock previously sold under the offering).
For the six months
ended June 30, 2022, the Company sold 5,825,761 shares of its common stock, pursuant to the ATM offerings for total net proceeds
to the Company of $77.6 million. In connection with such sales, the Company paid a total of $1.3 million in sales agent commissions.
For the six months
ended June 30, 2022, 329,566 shares of common stock were issued in connection with the DRIP for total net proceeds to the Company
of $4.2 million.
As of June 30,
2022, there were 100,000,000 shares of common stock authorized, of which 43,682,137 shares were issued and outstanding.
As of June 30,
2022, there were 20,000,000 shares of preferred stock authorized, par value $0.001 per share, of which 2,169,967 shares of Series C
Term Preferred Stock were issued and outstanding and 1,090,937 shares of Series D Preferred Stock were issued and outstanding.
Except where otherwise
stated in the 1940 Act or the Company’s certificate of incorporation, each holder of Preferred Stock will be entitled to one vote
for each share of preferred stock held on each matter submitted to a vote of the Company’s stockholders. The Company’s preferred
stockholders and common stockholders will vote together as a single class on all matters submitted to the Company’s stockholders.
Additionally, the Company’s preferred stockholders will have the right to elect two Preferred Directors at all times, while the
Company’s preferred stockholders and common stockholders, voting together as a single class, will elect the remaining members of
the Board.
Mandatorily Redeemable
Preferred Stock
The Company has accounted
for its Series B Term Preferred Stock and Series C Term Preferred Stock as Liabilities under ASC 480 due to their mandatory
redemption requirements.
On February 28,
2022, the Company redeemed the outstanding 1,078,382 shares of Series B Term Preferred Stock at a redemption price of $25 per share
plus accrued and unpaid dividends to but excluding the date of redemption. Upon the redemption of the Series B Term Preferred Stock,
the Company accelerated $0.7 million of unamortized deferred issuance costs into net realized loss on extinguishment of Preferred Stock
in the Consolidated Statement of Operations.
The Company is required
to redeem all outstanding shares of the Series C Term Preferred Stock on June 30, 2031, at a redemption price of $25 per share
(the “Series C Liquidation Preference”), plus accrued but unpaid dividends, if any. At any time on or after June 16,
2024, the Company may, at its sole option, redeem the outstanding shares of the Series C Term Preferred Stock.
The Company has elected
the FVO under ASC 825 for its Series C Term Preferred Stock. Accordingly, the Series C Term Preferred Stock is measured at
fair value.
The estimated change
in fair value of the Series C Term Preferred Stock attributable to market risk for the six months ended June 30, 2022 is $1.6
million, which is recorded as unrealized (appreciation) depreciation on liabilities at fair value under the FVO on the Consolidated Statement
of Operations.
The estimated change
in fair value of the Series C Term Preferred Stock attributable to instrument-specific credit risk for the six months ended June 30,
2022 is $2.3 million, which is recorded as unrealized (appreciation)
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
depreciation on liabilities
at fair value under the FVO on the Consolidated Statement of Comprehensive Income. The Company defines the change in fair value attributable
to instrument-specific credit risk as the excess of the total change in fair value over the change in fair value attributable to changes
in a base market rate, such as a Markit CDX North America Investment Grade Index with a similar maturity to the instrument being valued.
Preferred Stock
The Company has accounted
for its Series D Preferred Stock as temporary equity under ASC 480. Accordingly, the Series D Preferred Stock
is reflected in the Consolidated Statement of Assets and Liabilities at its $25 per share liquidation preference (the “Series D
Liquidation Preference”), net of deferred issuance costs. The deferred issuance costs will remain unamortized until it is probable
the Series D Preferred Stock will be redeemed.
At any time on or after
November 29, 2026, the Company may, at its sole option, redeem the outstanding shares of the Series D Preferred Stock at the
Series D Liquidation Preference, plus accrued but unpaid dividends.
ATM Program
Pursuant to a prospectus
supplement filed with the SEC on December 20, 2021, the Company launched an ATM offering to sell up to 1,900,000 shares of Series C
Term Preferred Stock and 2,500,000 shares of Series D Preferred Stock with an aggregate liquidation preference of $47.5 million
and $62.5 million, respectively. Pursuant to a prospectus supplement filed with the SEC on June 10, 2022, the Company updated the
ATM offering to allow the Company to sell up to 800,000 shares of Series C Term Preferred Stock and 200,000 shares of Series D
Preferred Stock with an aggregate liquidation preference of $20.0 million and $5.0 million, respectively (in each case, exclusive of
any shares of such preferred stock previously sold pursuant to the ATM offering).
For the six months
ended June 30, 2022, the Company sold 323,129 shares of its Series C Term Preferred Stock and 90,937 shares of its Series D
Preferred Stock, pursuant to the ATM offerings for total proceeds to the Company of $10.1 million. In connection with such sales, the
Company paid a total of $0.2 million in sales agent commissions.
See Note 8 “Asset
Coverage” for further discussion on the Company’s calculation of asset coverage with respect to its Preferred Stock.
As of June 30,
2022, there was $32.4 million in aggregate principal amount of Series 2028 Notes, $93.3 million in aggregate principal amount of
Series 2029 Notes, and $44.9 million in aggregate principal amount of Series 2031 Notes issued and outstanding.
The Unsecured Notes
were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.
On January 24,
2022, the Company closed an underwritten public offering of $87.0 million in aggregate principal amount of its Series 2029 Notes,
resulting in net proceeds to the Company of $84.0 million after payment of underwriting discounts and commissions of $2.7 million and
offering expenses of $0.3 million.
Subsequently, on January 28,
2022, the underwriters purchased an additional $6.3 million in aggregate principal amount of the Series 2029 Notes pursuant to the
underwriters’ overallotment option, which resulted in additional net proceeds to the Company of $6.1 million after payment of underwriting
discounts and commissions of $0.2 million.
The Series 2029
Notes will mature on January 31, 2029 and 100% of the aggregate principal amount will be paid at maturity. The Company may redeem
the Series 2029 Notes in whole or in part at any time or from time to
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
time at the Company’s
option, on or after January 31, 2025.
The Company has accounted
for its Series 2029 Notes utilizing the FVO under ASC 825. Accordingly, the Series 2029 Notes are measured at
their fair value and issuance costs in the aggregate amount of $3.2 million, which consisted of $2.9 million of underwriting commissions,
$0.3 million of professional fees and other expenses, were expensed as incurred in the six months ended June 30, 2022.
On
February 14, 2022, the Company redeemed the total aggregate principal amount of $28.9 million related to the issued and outstanding
Series 2027 Notes at a redemption price of $25 per Series 2027 Note plus accrued and unpaid interest to, but excluding the
date of redemption. Upon redemption of the Series 2027 Notes, the Company accelerated $0.8 million of unamortized deferred
issuance costs into net realized loss on extinguishment of Unsecured Notes in the Consolidated Statement of Operations.
On February 14,
2022, the Company redeemed 50% or $32.4 million of the aggregate principal amount of the issued and outstanding Series 2028 Notes
at a redemption price of $25 per Series 2028 Note plus accrued and unpaid interest to, but excluding the date of redemption.
The Series 2028
Notes will mature on April 30, 2028 and 100% of the remaining aggregate principal amount will be paid at maturity. The Company may
redeem the Series 2028 Notes in whole or in part at any time or from time to time at the Company’s option.
The Company has accounted
for its Series 2028 Notes utilizing the FVO under ASC 825. Accordingly, the Series 2028 Notes are measured at fair value under
the FVO.
The Series 2031
Notes will mature on March 31, 2031 and 100% of the aggregate principal amount will be paid at maturity. The Company may redeem
the Series 2031 Notes in whole or in part at any time or from time to time at the Company’s option, on or after March 29,
2024.
The Company has accounted
for its Series 2031 Notes utilizing the FVO under ASC 825. Accordingly, the Series 2031 Notes are measured at fair value under
the FVO.
The estimated change
in fair value of the Series 2028 Notes, Series 2029 Notes and Series 2031 Notes attributable to market risk for the six
months ended June 30, 2022 is $1.1 million, $1.9 million and $1.3 million, respectively, which is recorded as unrealized (appreciation)
depreciation on liabilities at fair value under the FVO on the Consolidated Statement of Operations.
The estimated change
in fair value of the Series 2028 Notes, Series 2029 Notes and Series 2031 Notes attributable to instrument-specific credit
risk for the six months ended June 30, 2022 is $0.6 million, $5.2 million, and $2.6 million, respectively, which is recorded as
unrealized (appreciation) depreciation on liabilities at fair value under the FVO on the Consolidated Statement of Comprehensive Income.
The Company defines the change in fair value attributable to instrument-specific credit risk as the excess of the total change in fair
value over the change in fair value attributable to changes in a base market rate, such as a Markit CDX North America Investment Grade
Index with a similar maturity to the instrument being valued.
The Company has engaged
a broker-dealer to repurchase opportunistically, on the Company’s behalf, a portion of the Company’s Unsecured Notes through
open market transactions. The price and other terms of any such repurchases will depend on prevailing market conditions, the Company’s
liquidity and other factors. Depending on market conditions, the amount of Unsecured Note repurchases may be material and may continue
through year-end 2022; however, the Company may reduce or extend this timeframe in its discretion and without notice. Any Unsecured Note
repurchases will comply with the provisions of the 1940 Act and the Securities Exchange Act of 1934. Upon repurchase, the Company
intends to retire the Unsecured Notes reducing the Company’s outstanding leverage. The Company did not repurchase Unsecured Notes
for the six months ended June 30, 2022.
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
See Note 8 “Asset
Coverage” for further discussion on the Company’s calculation of asset coverage with respect to its Unsecured Notes.
Under the provisions
of the 1940 Act, the Company is permitted to issue senior securities, including debt securities and preferred stock, and borrow from
banks or other financial institutions, provided that the Company satisfies certain asset coverage requirements.
With respect to senior
securities that are stocks, such as the Preferred Stock, the Company is required to have asset coverage of at least 200%, as measured
at the time of issuance of any such senior securities that are stocks and calculated as the ratio of the Company’s total consolidated
assets, less all liabilities and indebtedness not represented by senior securities, over the aggregate amount of the Company’s
outstanding senior securities representing indebtedness plus the aggregate liquidation preference of any outstanding shares of senior
securities that are stocks.
With respect to senior
securities representing indebtedness, such as the Unsecured Notes or any bank borrowings (other than temporary borrowings as defined
under the 1940 Act), the Company is required to have asset coverage of at least 300%, as measured at the time of borrowing and calculated
as the ratio of the Company’s total consolidated assets, less all liabilities and indebtedness not represented by senior securities,
over the aggregate amount of the Company’s outstanding senior securities representing indebtedness.
If the Company’s
asset coverage declines below 300% (or 200%, as applicable), the Company would be prohibited under the 1940 Act from incurring additional
debt or issuing additional preferred stock and from declaring certain distributions to its stockholders. In addition, the terms of the
Preferred Stock and the Unsecured Notes require the Company to redeem shares of the Preferred Stock and/or a certain principal amount
of the Unsecured Notes, if such failure to maintain the applicable asset coverage is not cured by a certain date.
The following table
summarizes the Company’s asset coverage with respect to its Preferred Stock and Unsecured Notes, as of June 30, 2022, and
as of December 31, 2021:
| Asset Coverage of Preferred Stock and Debt Securities | |
| | |
| |
| | |
| | |
| |
| | |
As of | | |
As of | |
| | |
June 30, 2022 | | |
Decmeber 31, 2021 | |
| Total assets | |
$ | 691,651,504 | | |
$ | 768,039,682 | |
| Less liabilities and indebtedness not represented by senior securities | |
| (13,360,411 | ) | |
| (28,016,464 | ) |
| Net total assets and liabilities | |
| 678,291,093 | | |
$ | 740,023,218 | |
| | |
| | | |
| | |
| Preferred Stock | |
$ | 81,522,600 | | |
$ | 98,130,500 | |
| Unsecured Notes | |
| 170,523,800 | | |
| 138,584,775 | |
| | |
$ | 252,046,400 | | |
$ | 236,715,275 | |
| | |
| | | |
| | |
| Asset coverage of preferred stock (1) | |
| 269 | % | |
| 313 | % |
| Asset coverage of debt securities (2) | |
| 398 | % | |
| 534 | % |
(1) The asset coverage of preferred stock is calculated in accordance with section 18(h) of the 1940 Act, as generally described above.
(2) The asset coverage ratio of debt securities is calculated in accordance with section 18(h) of the 1940 Act, as generally described above.
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
| 9. | COMMITMENTS AND CONTINGENCIES |
The Company is not
currently subject to any material legal proceedings. From time to time, the Company may be a party to certain legal proceedings in the
ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts. While the
outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect these proceedings will have a material
effect upon its financial condition or results of operations.
On January 28,
2022, the Company agreed to co-invest with a third-party investment firm through Double Eagle Holdings JV LLC, an unconsolidated Delaware
limited liability company (“Double Eagle JV”). Double Eagle JV is expected to make investments in certain corporate debt
obligations and other opportunistic, credit-oriented investments consistent with the Company’s investment objectives and strategies.
Double Eagle JV may incur leverage in the future. Double Eagle JV is managed by a four-member board of managers, on which the Company
and its joint venture partner each have equal representation. Investment decisions generally must be unanimously approved by a quorum
of the board of managers. The Company has committed to fund $40 million into Double Eagle JV, representing approximately 80% economic
ownership. As of June 30, 2022, no contributions have been made to Double Eagle JV and operations have not commenced.
Under the Company’s
organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their
duties to the Company. In addition, during the normal course of business, the Company enters into contracts containing a variety of representations
which provide general indemnifications. The Company’s maximum exposure under these agreements cannot be known; however, the Company
expects any risk of loss to be remote.
On July 29, 2022,
the Company paid a monthly distribution of $0.14 per share on its common stock to holders of record as of July 11, 2022. Additionally,
on August 11, 2022, the Company declared three separate distributions of $0.14 per share on its common stock. The distributions
are payable on each of October 31, 2022, November 30, 2022 and December 30, 2022 to holders of record as of October 11,
2022, November 10, 2022 and December 12, 2022, respectively.
On August 16,
2022, the Company declared a special distribution of $0.25 per share on its common stock payable on October 31, 2022 to holders
of record as of October 11, 2022.
On July 29, 2022,
the Company paid a monthly distribution of $0.135417 per share on its Series C Term Preferred Stock to holders of record as of July 11,
2022. Additionally, on August 11, 2022, the Company declared three separate distributions of $0.135417 per share of its Series C
Term Preferred Stock. The distributions are payable on each of October 31, 2022, November 30, 2022 and December 30, 2022
to holders of record as of October 11, 2022, November 10, 2022 and December 12, 2022, respectively.
On July 29, 2022,
the Company paid a monthly distribution of $0.140625 per share on its Series D Preferred Stock to holders of record as of July 11,
2022. Additionally, on August 11, 2022, the Company declared three separate distributions of $0.140625 per share of its Series D
Preferred Stock. The distributions are payable on each of October 31, 2022, November 30, 2022 and December 30, 2022 to
holders of record as of October 11, 2022, November 10, 2022 and December 12, 2022, respectively.
For the period from
July 1, 2022 to August 12, 2022, the Company sold 2,585,017 shares of its common stock, 0 shares of its Series C Term
Preferred Stock and 0 shares of its Series D Preferred Stock, pursuant to the ATM offering, for total net proceeds to the Company
of approximately $29.4 million. In connection with such sales, the Company paid a total of 0.6 million in sales agent commissions.
Eagle Point
Credit Company Inc. & Subsidiaries
Notes
to Consolidated Financial Statements
June 30,
2022
(Unaudited)
Management’s unaudited estimate of
the range of the Company’s NAV per common share as of July 31, 2022 was $10.79 to $10.89.
Management of the Company
has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date of release of this report.
Management has determined there are no events in addition to those described above which would require adjustment to or disclosure in
the consolidated financial statements and related notes through the date of release of this report.
Eagle Point Credit Company Inc. &
Subsidiaries
Consolidated Financial
Highlights
(Unaudited)
| | |
For
the | | |
For
the | | |
For
the | | |
For
the | | |
For
the | |
| | |
six
months ended | | |
year
ended | | |
year
ended | | |
year
ended | | |
year
ended | |
| Per
Share Data | |
June 30,
2022 | | |
December 31,
2021 | | |
December 31,
2020 | | |
December 31,
2019 | | |
December 31,
2018 | |
| Net
asset value at beginning of period | |
$ | 13.39 | | |
$ | 11.18 | | |
$ | 10.59 | | |
$ | 12.40 | | |
$ | 16.77 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
investment income (1) (2) | |
| 0.75 | | |
| 1.31 | | |
| 1.15 | | |
| 1.34 | | |
| 1.59 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| 6.75%
Series D Preferred Stock distributions (2) | |
| (0.02 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
realized gain (loss) and change in unrealized appreciation (depreciation) on investments, foreign currency and cash equivalents (2) (3) | |
| (3.83 | ) | |
| 2.65 | | |
| 0.49 | | |
| (1.29 | ) | |
| (3.92 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option (2) | |
| 0.25 | | |
| (0.02 | ) | |
| 0.01 | | |
| (0.08 | ) | |
| 0.06 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
income (loss) and net increase (decrease) in net assets resulting from operations
(2) | |
| (2.85 | ) | |
| 3.94 | | |
| 1.65 | | |
| (0.03 | ) | |
| (2.27 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common
stock distributions from net investment income (4) | |
| (0.78 | ) | |
| (1.64 | ) | |
| (0.26 | ) | |
| (1.40 | ) | |
| (1.51 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common
stock distributions from net realized gains on investments (4) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common
stock distributions from tax return of capital (4) | |
| - | | |
| - | | |
| (1.06 | ) | |
| (1.00 | ) | |
| (0.89 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total
common stock distributions declared to stockholders (4) | |
| (0.78 | ) | |
| (1.64 | ) | |
| (1.32 | ) | |
| (2.40 | ) | |
| (2.40 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common
stock distributions based on weighted average shares impact (5) | |
| - | | |
| (0.04 | ) | |
| 0.02 | | |
| - | | |
| 0.01 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total
common stock distributions | |
| (0.78 | ) | |
| (1.68 | ) | |
| (1.30 | ) | |
| (2.40 | ) | |
| (2.39 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Effect
of other comprehensive income (2) (6) | |
| 0.25 | | |
| (0.08 | ) | |
| 0.05 | | |
| (0.10 | ) | |
| 0.06 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Effect
of paid-in capital contribution (2) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 0.06 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Effect
of shares issued (7) | |
| 0.10 | | |
| 0.06 | | |
| 0.20 | | |
| 0.77 | | |
| 0.29 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Effect
of underwriting discounts, commissions and offering expenses associated with shares issued (7) | |
| (0.03 | ) | |
| (0.03 | ) | |
| (0.02 | ) | |
| (0.07 | ) | |
| (0.12 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Effect
of shares issued in accordance with the Company's dividend reinvestment plan | |
| - | | |
| - | | |
| 0.01 | | |
| 0.02 | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
effect of shares issued | |
| 0.07 | | |
| 0.03 | | |
| 0.19 | | |
| 0.72 | | |
| 0.17 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
asset value at end of period | |
$ | 10.08 | | |
$ | 13.39 | | |
$ | 11.18 | | |
$ | 10.59 | | |
$ | 12.40 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Per
share market value at beginning of period | |
$ | 14.00 | | |
$ | 10.09 | | |
$ | 14.61 | | |
$ | 14.21 | | |
$ | 18.81 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Per
share market value at end of period | |
$ | 11.78 | | |
$ | 14.00 | | |
$ | 10.09 | | |
$ | 14.61 | | |
$ | 14.21 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total
return (8) | |
| -7.14 | % | |
| 51.60 | % | |
| -19.76 | % | |
| 20.15 | % | |
| -13.33 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Shares
of common stock outstanding at end of period | |
| 43,682,137 | | |
| 37,526,810 | | |
| 32,354,890 | | |
| 28,632,119 | | |
| 23,153,319 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Ratios
and Supplemental Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
asset value at end of period | |
$ | 440,202,757 | | |
$ | 502,304,335 | | |
$ | 361,660,688 | | |
$ | 303,272,860 | | |
$ | 287,127,842 | |
| Ratio
of expenses to average net assets (9) (10) | |
| 9.22 | % | |
| 9.71 | % | |
| 10.56 | % | |
| 10.00 | % | |
| 9.85 | % |
| Ratio
of net investment income to average net assets (9) (10) | |
| 13.06 | % | |
| 9.90 | % | |
| 13.44 | % | |
| 10.64 | % | |
| 9.76 | % |
| Portfolio
turnover rate (11) | |
| 20.70 | % | |
| 51.56 | % | |
| 52.80 | % | |
| 34.83 | % | |
| 40.91 | % |
| Asset
coverage of preferred stock | |
| 269 | % | |
| 313 | % | |
| 354 | % | |
| 279 | % | |
| 246 | % |
| Asset
coverage of debt securities | |
| 398 | % | |
| 534 | % | |
| 534 | % | |
| 476 | % | |
| 477 | % |
See
accompanying footnotes to the financial highlights on the following page.
Eagle
Point Credit Company Inc. & Subsidiaries
Consolidated
Financial Highlights
(Unaudited)
Footnotes
to the Financial Highlights:
| (1) | Per
share distributions paid to Series B Term Preferred Stock and Series C Term Preferred
Stock stockholders, and the aggregate amount of amortized deferred issuance costs and share
issuance premiums associated with the Series B Term Preferred Stock and Series C
Term Preferred Stock are reflected in net investment income, and totaled ($0.05) and ($0.00)
per share of common stock, respectively, for the six months ended June 30, 2022,
($0.16) and ($0.01) per share of common stock, respectively, for the year ended December 31,
2021, ($0.12) and ($0.01) per share of common stock, respectively, for the year ended December 31,
2020, ($0.25) and ($0.02) per share of common stock, respectively, for the year ended December 31,
2019, and ($0.33) and ($0.02) per share of common stock, respectively, for the year ended
December 31, 2018. |
| (2) | Per share amounts
are based on weighted average of shares of common stock outstanding for the period. |
| (3) | Net realized gain
(loss) and change in unrealized appreciation (depreciation) on investments, foreign currency
and cash equivalents includes a balancing figure to reconcile to the change in net asset
value (“NAV”) per share at the end of each period. The amount per share
may not agree with the change in the aggregate net realized gain (loss) and change in unrealized
appreciation (depreciation) on investments, foreign currency and cash equivalents for the
period because of the timing of issuance of the Company’s common stock in relation
to fluctuating market values for the portfolio. |
| (4) | The information
provided is based on estimates available at each respective period. The Company’s final
taxable income and the actual amount required to be distributed will be finally determined
when the Company files its final tax returns and may vary from these estimates. The year
ended December 31, 2021 includes a special distribution of $0.50 per share of common
stock paid on January 24, 2022 to stockholders of record on December 23, 2021. |
| (5) | Represents the
difference between the per share amount distributed to common stockholders of record and
the per share amount distributed based on the weighted average of shares of common stock
outstanding for the period. |
| (6) | Effect
of other comprehensive income is related to income/(loss) deemed attributable to instrument
specific credit risk derived from changes in fair value associated with liabilities valued
under the fair value option (ASC 825.) |
| (7) | Represents the
effect per share of the Company’s ATM offerings as well as the Company’s follow-on
offerings. Effect of shares issued reflect the excess of offering price over management’s
estimated NAV per share at the time of each respective offering. |
| (8) | Total return based
on market value is calculated assuming shares of the Company’s common stock were purchased
at the market price as of the beginning of the period, and distributions paid to common stockholders
during the period were reinvested at prices obtained by the Company’s dividend reinvestment
plan, and the total number of shares were sold at the closing market price per share on the
last day of the period. Total return does not reflect any sales load. Total return for the
six months ended June 30, 2022 is not annualized. |
| (9) | Ratios
for the six months ended June 30, 2022 are annualized. Ratios include distributions
paid to the Series B Term Preferred and the Series C Term Preferred Stock stockholders.
Ratios for the six months ended June 30, 2022 and for the years ended December 31,
2021, December 31, 2020, December 31, 2019 and December 31, 2018 reflect the
portion of incentive fee voluntarily waived by the Adviser of 0.06%, 0.03%, 0.06%, 0.03%
and 0.09% of average net assets, respectively. Ratios for the year ended December 31,
2021 include excise tax of 0.49% of average net assets. |
| (10) | Ratios
for the six months ended June 30, 2022 and for years ended December 31, 2021, December 31,
2020, December 31, 2019, December 31 2018, include interest expense on the Series B
Term Preferred Stock, Series C Term Preferred Stock, and the Unsecured Notes of 2.92%,
3.24%, 3.97%, 4.18%, and 4.16% of average net assets, respectively. Ratios
do not include distributions to the Series D Preferred Stock stockholders for the six
months ended June 30, 2022 and for the year ended December 31, 2021 of 0.36% and
0.03%, respectively, of average net assets. |
| (11) | The
portfolio turnover rate is calculated as the lesser of total investment purchases executed
during the period or the total investment sales executed during the period and repayments
of principal, divided by the average fair value of investments for the same period. The portfolio
turnover rate for the six months ended June 30, 2022 is not annualized. |
Eagle
Point Credit Company Inc. & Subsidiaries
Supplemental
Information
(Unaudited)
Senior Securities Table
Information about the Company’s
senior securities shown in the following table has been derived from the Company’s consolidated financial statements as of and
for the dates noted.
| Class | |
Total
Amount
Outstanding Exclusive
of Treasury Securities | | |
Asset
Coverage
Per Unit (1) | | |
Involuntary
Liquidating
Preference Per Unit (2) | | |
Average
Market
Value Per Unit (3) | |
| For the six months ended June 30, 2022 |
|
| |
| | |
| | |
| |
| Preferred
Stock | |
$ | 81,522,600 | | |
$ | 67.28 | | |
$ | 25 | | |
$ | 24.47 | |
| Unsecured Notes | |
$ | 170,523,800 | | |
$ | 3,977.69 | | |
| N/A
| | |
$ | 24.54 | |
| | |
| | | |
| | | |
| | | |
| | |
| For the year
ended December 31, 2021 | |
| | | |
| | | |
| | | |
| | |
| Preferred Stock | |
$ | 98,130,500 | | |
$ | 78.16 | | |
$ | 25 | | |
$ | 25.48 | |
| Unsecured Notes | |
$ | 138,584,775 | | |
$ | 5,339.86 | | |
| N/A
| | |
$ | 25.58 | |
| | |
| | | |
| | | |
| | | |
| | |
| For the year
ended December 31, 2020 | |
| | | |
| | | |
| | | |
| | |
| Preferred Stock | |
$ | 47,862,425 | | |
$ | 88.39 | | |
$ | 25 | | |
$ | 24.25 | |
| Unsecured Notes | |
$ | 93,734,775 | | |
$ | 5,340.98 | | |
| N/A
| | |
$ | 23.93 | |
| | |
| | | |
| | | |
| | | |
| | |
| For the year
ended December 31, 2019 | |
| | | |
| | | |
| | | |
| | |
| Preferred Stock | |
$ | 69,843,150 | | |
$ | 69.71 | | |
$ | 25 | | |
$ | 26.04 | |
| Unsecured Notes | |
$ | 98,902,675 | | |
$ | 4,757.42 | | |
| N/A
| | |
$ | 25.47 | |
| | |
| | | |
| | | |
| | | |
| | |
| For the year
ended December 31, 2018 | |
| | | |
| | | |
| | | |
| | |
| Preferred Stock | |
$ | 92,568,150 | | |
$ | 61.55 | | |
$ | 25 | | |
$ | 25.78 | |
| Unsecured Notes | |
$ | 98,902,675 | | |
$ | 4,766.23 | | |
| N/A
| | |
$ | 25.08 | |
| | |
| | | |
| | | |
| | | |
| | |
| For the year
ended December 31, 2017 | |
| | | |
| | | |
| | | |
| | |
| Preferred Stock | |
$ | 92,139,600 | | |
$ | 66.97 | | |
$ | 25 | | |
$ | 25.75 | |
| Unsecured Notes | |
$ | 91,623,750 | | |
$ | 5,372.28 | | |
| N/A
| | |
$ | 25.96 | |
| | |
| | | |
| | | |
| | | |
| | |
| For the year
ended December 31, 2016 | |
| | | |
| | | |
| | | |
| | |
| Preferred Stock | |
$ | 91,450,000 | | |
$ | 71.53 | | |
$ | 25 | | |
$ | 25.41 | |
| Series 2020
Notes | |
$ | 59,998,750 | | |
$ | 7,221.89 | | |
| N/A
| | |
$ | 25.29 | |
| | |
| | | |
| | | |
| | | |
| | |
| For the year
ended December 31, 2015 | |
| | | |
| | | |
| | | |
| | |
| Series A Term
Preferred Stock | |
$ | 45,450,000 | | |
$ | 91.16 | | |
$ | 25 | | |
$ | 25.43 | |
| Series 2020
Notes | |
$ | 25,000,000 | | |
$ | 10,275.46 | | |
| N/A
| | |
$ | 24.52 | |
| |
(1) |
The asset coverage per unit figure is the ratio
of the Company's total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate
dollar amount of outstanding applicable senior securities, as calculated separately for each of the Preferred Stock and the Unsecured
Notes in accordance with section 18(h) of the 1940 Act. With respect to the Preferred Stock, the asset coverage per unit figure
is expressed in terms of dollar amounts per share of outstanding preferred stock (based on a per share liquidation preference of $25.)
With respect to the Unsecured Notes, the asset coverage per unit figure is expressed in terms of dollar amounts per $1,000 principal
amount of such notes. |
| |
(2) |
The involuntary liquidating preference per unit
is the amount to which a share of Preferred Stock would be entitled in preference to any security junior to it upon our involuntary liquidation. |
| |
(3) |
The average market value per unit is calculated
by taking the average of the closing price of each of (a) a share of the Preferred Stock (NYSE: ECCA, ECCB, ECCC, ECC
PRD) and(b) $25 principal amount of the Unsecured Notes (NYSE: ECCV, ECCW, ECCX, ECCY, ECCZ) for each day during the years for which
each applicable security was listed on the NYSE. |
Dividend Reinvestment
Plan
The
Company has adopted a dividend reinvestment plan (“DRIP”). Under the DRIP, each registered holder of at least one full share
of our common stock will be automatically enrolled in the DRIP and distributions on shares of the Company’s common stock are automatically
reinvested in additional shares of the Company’s common stock by American Stock Transfer & Trust Company, LLC (the “DRIP
Agent”) unless a stockholder “opts-out” of the DRIP. Holders of the Company’s common stock who receive distributions
in the form of additional shares of the Company’s common stock are nonetheless required to pay applicable federal, state or local
taxes on the reinvested distribution but will not receive a corresponding cash distribution with which to pay any applicable tax. Distributions
that are reinvested through the issuance of new shares increase the Company’s stockholders’ equity on which a management
fee is payable to the Adviser. If we declare a distribution payable in cash, holders of shares of the Company’s common stock who
opt-out of participation in the DRIP (including those holders whose shares are held through a broker or other nominee who has opted out
of participation in the DRIP) generally will receive such distributions in cash.
The
DRIP Agent, on the Company’s behalf, will primarily use newly-issued, authorized shares of common stock to implement reinvestment
of distributions under the DRIP (regardless of whether the outstanding shares are trading at a premium or at a discount to the Company’s
NAV). However, the Company reserves the right to instruct the DRIP Agent to purchase shares of the Company’s common stock on the
open market (on the New York Stock Exchange or elsewhere) in connection with the reinvestment of distributions under the DRIP to the
extent that the Company’s shares of common stock are trading at a discount to NAV per share.
The
number of shares of common stock to be credited to each participant’s account will be determined by dividing the aggregate dollar
amount of the distribution by 95% of the closing market price per share of common stock on the payment date, provided that if 95% of
the closing market price per share of common stock on the payment date is below the Company’s last determined NAV per share, then
the number of shares to be credited to each participant’s account pursuant to the DRIP will be determined by dividing the aggregate
dollar amount of the distribution by the lesser of (i) the last determined NAV per share and (ii) the closing market price
per share.
In the
event that the DRIP Agent is instructed to buy shares of our common stock on the open market, any shares so purchased will be allocated
to each participant based upon the average purchase price (excluding any brokerage charges or other fees) of all shares purchased with
respect to the distribution. In any case, the DRIP Agent (or the DRIP Agent’s broker) will have until the last business day before
the next date on which the shares trade on an “ex-dividend” basis or 30 days after the payment date for the applicable distribution,
whichever is sooner, to invest the distribution amount in shares acquired on the open market. To the extent that the DRIP Agent is unable
to reinvest the full amount of the distribution through open market purchases, the balance shall be credited to participants’ accounts
in the form of newly-issued shares of common stock, in accordance with the procedures described above. Open market purchases may be made
on any securities exchange where shares of our common stock are traded, in the over-the-counter market or in negotiated transactions,
and may be on such terms as to price, delivery and otherwise as the DRIP Agent shall determine.
There
are no brokerage charges with respect to shares of common stock issued directly by the Company. However, whenever shares are purchased
or sold on the NYSE or otherwise on the open market, each participant will pay a pro rata portion of brokerage trading fees, currently
$0.07 per share purchased or sold. Brokerage trading fees will be deducted from amounts to be invested.
Holders
of the Company’s common stock can also sell shares held in the DRIP account at any time by contacting the DRIP Agent in writing
at American Stock Transfer & Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, NY 10269-0560. The DRIP Agent
will mail a check to such holder (less applicable brokerage trading fees) on the settlement date, which is three business days after
the shares have been sold. If a stockholder chooses to sell its shares through a broker, the
holder
will need to request that the DRIP Agent electronically transfer their shares to the broker through the Direct Registration System.
Stockholders
participating in the DRIP may withdraw from the DRIP at any time by contacting the DRIP Agent in writing at American Stock Transfer &
Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, NY 10269-0560. Such termination will be effective immediately if
the notice is received by the DRIP Agent prior to any dividend or distribution record date; otherwise, such termination will be effective
on the first trading day after the payment date for such dividend or distribution and thus apply to any subsequent dividend or distribution.
If a holder of the Company’s common stock withdraws, full shares will be credited to their account, and the stockholder will be
sent a check for the cash adjustment of any fractional share at the market value per share of the Company’s common stock as of
the close of business on the day the termination is effective, less any applicable fees. Alternatively, if the stockholder wishes, the
DRIP Agent will sell their full and fractional shares and send them the proceeds, less a transaction fee of $15.00 and less brokerage
trading fees of $0.07 per share. If a stockholder does not maintain at least one whole share of common stock in the DRIP account, the
DRIP Agent may terminate such stockholder’s participation in the DRIP after written notice. Upon termination, stockholders will
be sent a check for the cash value of any fractional share in the DRIP account, less any applicable broker commissions and taxes.
Stockholders
who are not participants in the DRIP, but hold at least one full share of our common stock, may join the DRIP by notifying the DRIP Agent
in writing at American Stock Transfer & Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, NY 10269-0560.
If received in proper form by the DRIP Agent before the record date of a dividend, the election will be effective with respect to all
dividends paid after such record date. If a stockholders wishes to participate in the DRIP and their shares are held in the name of a
brokerage firm, bank or other nominee, the stockholder should contact their nominee to see if it will participate in the DRIP. If a stockholder
wishes to participate in the DRIP, but the brokerage firm, bank or other nominee is unable to participate on their behalf, the stockholder
will need to request that their shares be re-registered in their own name, or the stockholder will not be able to participate. The DRIP
Agent will administer the DRIP on the basis of the number of shares certified from time to time by the stockholder as representing the
total amount registered in their name and held for their account by their nominee.
Experience
under the DRIP may indicate that changes are desirable. Accordingly, the Company and the DRIP Agent reserve the right to amend or terminate
the DRIP upon written notice to each participant at least 30 days before the record date for the payment of any dividend or distribution
by the Company.
All
correspondence or additional information about the DRIP should be directed to American Stock Transfer & Trust Company, LLC,
6201 15th Avenue, Brooklyn, NY 11219.
Additional
Information
Management
Our
Board of Directors (the “Board”) is responsible for managing the Company’s affairs, including the appointment of advisers
and sub-advisers. The Board has appointed officers who assist in managing the Company’s day-to-day affairs.
The
Board
The
Board currently consists of six members, four of whom are not “interested persons” (as defined in the 1940 Act) of the Company.
The Company refers to these directors as the Company’s “independent directors.”
Under
our certificate of incorporation and bylaws, our board of directors is divided into three classes with staggered terms, with the term
of only one of the three classes expiring at each annual meeting of our stockholders. The classification of the board across staggered
terms may prevent replacement of a majority of the directors for up to a two-year period.
The
directors and officers of the Company are listed below. Except as indicated, each individual has held the office shown or other offices
with the same company for the last five years. Certain of the Company’s officers and directors also are officers or managers of
our Adviser and its affiliates. Each of our directors also serves as a director of Eagle Point Income Company Inc., a registered investment
company for which an affiliate of our Adviser serves as investment adviser.
Name, Address1
and
Age |
|
Position(s) held
with
the Company |
|
Term
of Office and
Length of Time Served |
|
Principal
Occupation(s)
During
the Past 5 Years |
|
Other
Directorships3 |
|
Interested
Directors2 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
Thomas
P. Majewski
Age: 47 |
|
Class III
Director and Chief Executive Officer |
|
Since inception;
Term expires 2023 |
|
Managing
Partner of Eagle Point Income Management LLC since September 2018; Managing Partner of Eagle Point Credit Management LLC since
September 2012. Chief Executive Officer of Eagle Point Income Company Inc. since October 2018; Chief Executive
Officer of Eagle Point Institutional Income Fund since January 2022. |
|
Eagle
Point Income Company Inc. and Eagle Point Institutional Income Fund |
| |
|
|
|
|
|
|
|
|
James
R. Matthews
Age: 55 |
|
Class II
Director and Chairperson of the Board |
|
Since inception;
Term expires 2025 |
|
Managing
Director of Stone Point Capital LLC. |
|
Eagle
Point Income Company Inc. and Eagle Point Institutional Income Fund |
| |
|
|
|
|
|
|
|
|
| Independent
Directors |
|
|
|
|
|
|
| |
|
|
|
|
|
|
Scott W. Appleby
Age: 57 |
|
Class I
Director |
|
Since inception;
Term expires 2024 |
|
President
of Appleby Capital, Inc., a financial advisory firm, since April 2009. |
|
Eagle
Point Income Company Inc. and Eagle Point Institutional Income Fund |
Name, Address1
and
Age |
|
Position(s) held
with
the Company |
|
Term
of Office and
Length of Time Served |
|
Principal
Occupation(s)
During
the Past 5 Years |
|
Other
Directorships3 |
Kevin
F. McDonald
Age: 56 |
|
Class III
Director |
|
Since
inception;
Term expires 2023 |
|
Chief
Operating Officer of AltaRock Partners, an asset management firm, since January 2019;
Director of Business Development and Investor Relations of Folger Hill Asset Management,
LP from December 2014 to July 2018; Principal of Taylor Investment Advisors, LP
from March 2002 to March 2017. |
|
Eagle
Point Income Company Inc. and Eagle Point Institutional Income Fund |
| |
|
|
|
|
|
|
|
|
Paul
E. Tramontano
Age: 60 |
|
Class II
Director |
|
Since
inception;
Term expires 2025 |
|
Senior
Managing Director and Portfolio Manager at First Republic Investment Management since October 2015. |
|
Eagle
Point Income Company Inc. and Eagle Point Institutional Income Fund |
| |
|
|
|
|
|
|
|
|
Jeffrey
L. Weiss
Age: 61 |
|
Class I
Director |
|
Since
inception;
Term expires 2024 |
|
Private
Investor since June 2012; Managing Partner of Colter Lewis Investment Partners since January 2018. |
|
Eagle
Point Income Company Inc. and Eagle Point Institutional Income Fund |
| 1 | The
business address of each of our directors is c/o Eagle Point Credit Company Inc., 600 Steamboat
Road, Suite 202, Greenwich, Connecticut 06830. |
| 2 | Mr. Majewski
is an interested director due to his position with the Adviser. Mr. Matthews is an interested
director due to his position with Stone Point Capital LLC, which is an affiliate of the Adviser. |
| 3 | Eagle
Point Income Company Inc. and Eagle Point Institutional Income Fund are each considered to
be in the same fund complex as us and, as a result, each director serves as a director/trustee
of three investment companies in the same complex. Each director was elected as trustee of
Eagle Point Institutional Income Fund in January 2022. |
The
Company’s registration statement, prospectus and proxy statement for the annual stockholders’ meeting include additional
information about our directors. A copy of the prospectus and proxy statement is available free of charge at www.eaglepointcreditcompany.com
or upon request by calling (844) 810-6501.
Officers
Information
regarding our officers who are not directors is as follows:
|
Name,
Address1
and Age |
|
Positions Held with the
Company |
|
Term of Office and
Length of Time
Served2 |
|
Principal Occupation(s)
During the Last Five Years |
|
Kenneth P. Onorio
Age: 54 |
|
Chief Financial Officer
and Chief Operating Officer |
|
Since July 2014 |
|
Chief
Financial Officer and Chief Operating Officer of Eagle Point Income Company Inc. since October 2018 and Eagle Point Institutional
Income Fund since January 2022; Chief Financial Officer of Eagle Point Credit Management LLC since July 2014 and Eagle
Point Income Management LLC since October 2018; Chief Operating Officer of Eagle Point Credit Management LLC since August 2014
and Eagle Point Income Management since October 2018. |
| |
|
|
|
|
|
|
Nauman S. Malik
Age: 42 |
|
Chief
Compliance Officer |
|
Since
September 2015 |
|
Chief
Compliance Officer of Eagle Point Income Company Inc. since October 2018 and Eagle Point Institutional Income Fund since January 2022;
General Counsel of Eagle Point Credit Management LLC since June 2015 and Eagle Point Income Management LLC since October 2018;
Chief Compliance Officer of Eagle Point Credit Management LLC from September 2015 to March 2020 and Eagle Point Income
Management LLC from October 2018 to March 2020. |
| |
|
|
|
|
|
|
Courtney B. Fandrick
Age: 40 |
|
Secretary |
|
Since
August 2015 |
|
Chief
Compliance Officer of Eagle Point Credit Management LLC and Eagle Point Income Management LLC since April 2020; Deputy Chief
Compliance Officer of Eagle Point Credit Management LLC from December 2014 to March 2020 and Eagle Point Income Management
LLC from October 2018 to March 2020; Secretary of Eagle Point Income Company Inc. since October 2018 and Eagle Point
Institutional Income Fund since January 2022. |
| 1 | The
business address of each of our officers is c/o Eagle Point Credit Company Inc., 600 Steamboat
Road, Suite 202, Greenwich, Connecticut 06830. All of our officers are officers or employees
of the Adviser or affiliated companies. |
| 2 | Each
officer holds office until his or her successor is chosen and qualifies, or until his or
her earlier resignation or removal. |
Director and Officer Compensation
Our
independent directors received compensation from the Company in the amounts set forth in the following table during the six months ended
June 30, 2022.
| Name | |
Aggregate Compensation
from the Company1, 2 | |
| Scott
W. Appleby | |
$ | 50,000 | |
| Kevin F. McDonald | |
$ | 47,500 | |
| Paul E. Tramontano | |
$ | 47,500 | |
| Jeffrey
L. Weiss | |
$ | 53,750 | |
| TOTAL | |
$ | 198,750 | * |
*
Includes amounts that were payable to directors as of June 30, 2022 in respect of the six-month
period ended June 30, 2022. Such amounts were paid in the immediately following fiscal period.
| 1 | For a discussion of the independent directors’ compensation, see below. |
| 2 | The Company does not maintain a pension plan or retirement plan for any of our directors. |
As
compensation for serving on the Board, each independent director receives an annual fee of $95,000, as well as reasonable out-of-pocket
expenses incurred in attending Board and committee meetings. The chairman of the audit committee receives an additional annual fee of
$12,500 and the chairman of the nominating committee receives an additional annual fee of $5,000 for their additional services in these
capacities.
No
compensation is, or is expected to be, paid by us to our directors who are “interested persons” of us, as such term is defined
in the 1940 Act, or to our officers. Our officers are compensated by the Adviser or one of its affiliates, as applicable.
We
have entered into an Administration Agreement pursuant to which Eagle Point Administration LLC, our administrator (“Eagle Point
Administration”), performs, or arranges for the performance of, our required administrative services, among other things. Payments
under the Administration Agreement are equal to an amount based upon our allocable portion of Eagle Point Administration’s overhead
in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance
functions and our allocable portion of the compensation of our chief financial officer and chief compliance officer and our allocable
portion of the compensation of any administrative support staff. Our allocable portion of such total compensation is based on an allocation
of the time spent on us relative to other matters. The Administration Agreement will remain in effect if approved by the Board, including
by a majority of our independent directors, on an annual basis. The Administration Agreement was most recently reapproved by the Board
in May 2022.
Stockholder Meeting Information
At
the annual meeting of stockholders of the Company held on May 18, 2022, the stockholders of the Company voted to re-elect two Class II
directors to serve until the Company’s 2025 annual meeting or until his successor is duly elected and qualified. The voting results
were as follows:
| Nominee | |
Shares Voted “For” | | |
Shares “Withheld” | | |
Broker Non-Votes | |
| James
R. Matthews1 | |
| 30,163,104 | | |
| 1,328,507 | | |
0 | |
| Paul
E. Tramontano2 | |
| 2,058,085 | | |
| 308,862 | | |
0 | |
| 1 | Mr. Matthews was elected by holders of the outstanding shares of Common Stock and Preferred Stock, voting together as a single class. |
| | 2 | Mr. Tramontano was elected by holders of the outstanding shares of Preferred Stock, voting separately as a single class. |
The
following individuals’ terms of office as directors also continued after the annual meeting given that each person is either a
Class I or Class III director and was not up for re-election at the Annual Meeting: Scott W. Appleby, Jeffrey L. Weiss, Thomas
P. Majewski and Kevin F. McDonald.
Investment Advisory Agreement
At
a meeting held on May 18, 2022, the Board, including all of the directors that are not interested persons of the Company (voting
separately), unanimously voted to approve the continuation and renewal of the existing investment advisory agreement (the “Investment
Advisory Agreement”) by and between the Company and the Adviser for an additional one-year period.
In
reaching a decision to approve the continuation and renewal of the Investment Advisory Agreement, the Board, assisted by the advice of
fund counsel, requested and received a significant amount of information and considered all the factors the Board believed relevant,
including, among other things, the following: (1) the nature, extent and quality of services performed by the Adviser, including
the investment performance of the Company, other comparable registered investment companies and business development companies, and certain
other accounts advised by the Adviser; (2) information regarding the fees and other expenses paid by the Company, including the
cost of services provided by the Adviser and its affiliate; (3) the profitability to the Adviser of its relationship with the Company,
including certain ancillary and other benefits received by the Adviser; (4) comparative information on fees and expenses borne by
other comparable registered investment companies and business development companies, and certain other accounts advised by the Adviser;
(5) the extent to which economies of scale would be realized as the Company grows and whether fee levels reflect these economies
of scale for the benefit of the Company’s investors; and (6) various other factors.
The
Board’s decision to renew the Investment Advisory Agreement was not based on any single factor, but rather was based on a comprehensive
consideration of the information provided to the Board at its meetings throughout the year. The Board did not assign relative weights
to the factors considered by it as the Board conducted an overall analysis of these factors. Individual members of the Board may have
given different weights to different factors.
The
Board requested, considered and evaluated information regarding the following factors, among others:
Nature, Extent and Quality
of Services and Performance
The
Board reviewed and considered the nature, extent and quality of the services provided by the Adviser under the Investment Advisory Agreement
and by its affiliate under a separate administration agreement and the services provided to the Company by third-party service providers.
Among other things, the Board reviewed the most recent Form ADV for the Adviser and information about the background and experience
of the staff and personnel of the Adviser primarily responsible for the day-to-day portfolio management of the Company, including their
experience in managing portfolios of CLO securities and the CLO industry knowledge of the Adviser’s senior investment team.
The
Board also evaluated the ability of the Adviser to attract and retain high-caliber professional personnel. In this regard, the Board
considered information regarding the Adviser’s compensation program, which is designed to align personnel interests with the long-term
success of the Adviser’s clients, including the Company.
In
addition, the Board reviewed information about the Adviser’s investment process, financial stability and investment and risk management
programs and legal and compliance programs of the Adviser, and the Company’s use of leverage, the different forms of leverage used
by the Company, the effect of such leverage on the Company’s portfolio, profitability and performance, and the forms and levels
of leverage used by two publicly listed registered investment companies that have an investment strategy that is directly comparable
to the Company (“Peer Funds”) and other registered investment companies and business development companies that either invest
a portion of their assets in CLO equity or junior debt securities or have similar underlying assets to the underlying assets of the CLO
securities held by the Company (“Other Peer Companies”).
The
Board then reviewed and considered the Company’s performance results in terms of both (1) total return on a net asset value
basis (i.e., book basis) and (2) total return to common stockholders (assuming reinvestment of dividends), each during (a) the
2019 calendar year, (b) the 2020 calendar year, (c) the 2021 calendar year, (d) the first quarter of 2022, and (e) the
period from the Company’s initial public offering through a recent date, and considered such performance in light of the Company’s
investment objective, strategies and risks.
The
Board also considered and discussed at length these results in comparison to the performance results for various relevant periods of
(1) an account managed by the Adviser that is comparable to the Company in investment strategy and policy (“Comparable Account”),
(2) the Peer Funds, (3) the Other Peer Companies, (4) a composite of estimates of CLO equity performance published by
several Wall Street research firms and (5) an index that is intended to measure the performance of leading business development
companies listed on the New York Stock Exchange or NASDAQ and satisfy specified market capitalization and other requirements. The Board
considered the Adviser’s representation that there were material differences between the strategies and portfolios of the Other
Peer Companies and those of the Company and thus the Other Peer Companies provided an imperfect basis for comparison. The Board also
discussed and considered the Company’s recent performance in light of recent and current market conditions.
In
addition, the Board considered information on the steps that the Adviser and its affiliates had taken to address market disruptions caused
by the ongoing COVID-19 pandemic and other significant macroeconomic events and discussed the potential impact of those steps and subsequent
market developments on the Company’s and the Adviser’s ongoing operations.
Based
on the above factors, together with those referenced below, the Board concluded that it was generally satisfied with, and that the Company
should continue to benefit from, the nature, extent and quality of services provided to the Company by the Adviser.
Investment Advisory Fee Rates
and Total Expense Ratio
The
Board then reviewed and considered the advisory fee rates, including the base management fee and incentive fee, payable by the Company
to the Adviser under the Investment Advisory Agreement and the total expense ratio of the Company and certain voluntary fee waivers by
the Adviser during the 2021 calendar year. Additionally, the Board received and considered information comparing the advisory fee rates
and total expense ratio of the Company with those of the Peer Funds and the Other Peer Companies and the advisory fee rate of the Comparable
Account.
The
Board noted that the Company’s base management fee rate was lower than or the same as, the Company’s incentive fee rate was
the same as, and the Company’s incentive fee hurdle was higher than or the same as, those of the Peer Funds, and that the Company’s
total expense ratio was lower than that of each of the Peer Funds.
The
Board also noted that, while there were certain differences among the fee structures of the Company and each of the Other Peer Companies,
the Company’s advisory fee rates generally were comparable to and within the range of those paid by each of the Other Peer Companies
with (1) both management and incentive fee components to their investment adviser’s compensation and (2) a portion of
their assets invested in CLO equity or junior debt securities. The Board also noted that the Company’s total expense ratio (as
a percentage of its total investments) was higher than those of all of the Other Peer Companies. The Board further took into consideration
the fact that the Other Peer Companies with the lowest total expense ratios did not pay incentive compensation under their investment
advisory agreements. The Board additionally considered that the comparisons of the advisory fee rates and total expense ratios to the
Other Peer Companies were not particularly meaningful, as the investment strategies and portfolios of the Other Peer Companies are materially
different than those of the Company.
The
Board also compared the advisory fee rates paid by each of the Company and the Comparable Account to the Adviser. The Board noted the
differences in the fee structures and that such differences could cause the Company to pay a higher or lower effective advisory fee rate
than the Comparable Account in certain circumstances. The Board considered that the different rate structures are driven by investor
expectations for the different fund structures, the additional complexity of the Adviser’s investment strategy in the regulatory
and tax environment applicable to the Company’s portfolio and the costs associated with operating as an investment adviser for
a publicly-traded registered investment company.
In
considering the advisory fee rates, the Board also discussed the Company’s use of leverage, including the Company’s previous
issuance of preferred stock and debt securities. The Board noted that while the Adviser believes that the prudent use of leverage is
in the best interests of the Company and its stockholders, the use of leverage has the potential to increase the Adviser’s incentive
fee and, with respect to preferred stock, the Adviser’s base management fee, and therefore may create a conflict of interest.
Based
on its review, the Board concluded that each of the Company’s advisory fee rates and total expense ratio is fair and reasonable
in light of the services provided to the Company and other factors considered.
Profitability
The
Board also considered a profitability analysis of the Adviser and its affiliates with respect to the Company and the changes in such
profitability over time. The Board concluded that, in light of the profitability information presented and other factors considered,
the Adviser’s profitability was not excessive.
Economies of Scale
The
Board considered information regarding whether the Investment Advisory Agreement adequately addresses economies of scale with respect
to providing advisory services to the Company. The Board considered that, given (1) the complexity and time required to manage and
monitor the types of CLO securities in which the Company invests, (2) the resource-intensive nature of acquiring and disposing of
certain of the Company’s investments in the primary markets (particularly with respect to CLO equity investments), and (3) the
limited size of individual CLO transactions, growth in the Company’s assets would be expected to require and had required additional
investment resources, including personnel, and therefore generally would not meaningfully reduce the per unit cost of managing the portfolio.
Based on the foregoing, the Board concluded that the opportunity of the Company to realize significant economies of scale is limited
and that the lack of breakpoints in the fee structure was appropriate given the Company’s investment objectives and strategies.
Other Benefits
The
Board considered other benefits to the Adviser and its affiliates derived from their relationship with the Company. The Board considered
the Adviser’s representation that these ancillary benefits could not be appropriately valued.
Based
on the information reviewed and the discussions detailed above, the Board reached a determination, through the exercise of its business
judgment, that the compensation payable to the Adviser pursuant to the Investment Advisory Agreement was fair and reasonable in light
of the services provided to the Company by the Adviser and other factors considered.
Portfolio Information
The
Company files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit
to its reports on Form N-PORT. The Company’s Form N-PORT is available without charge, upon request by calling (844) 810-6501,
or from the EDGAR Database on the SEC’s website (www.sec.gov).
Proxy Information
The
Company has delegated its proxy voting responsibility to the Adviser. A description of these policies and procedures is available (1) without
charge, upon request, by calling toll free (844) 810-6501; and (2) in the Company’s pre-effective amendment to its registration
statement on Form N-2 filed on May 29, 2020 with the SEC, which can be found on the SEC’s website (www.sec.gov).
Information
regarding how the Company voted proxies relating to portfolio securities for the 12-month period ending June 30, 2022 is available:
(1) without charge, upon request, by calling toll free (844) 810-6501; and (2) in the Company’s Form N-PX filing,
which can be found on the SEC’s website (www.sec.gov). The Company also makes this information
available on its website at www.eaglepointcreditcompany.com.
Tax Information
For
the six months ended May 31, 2022, the Company recorded distributions on our common stock equal to $1.26 per share or $49.1 million.
Privacy Notice
The
Company is committed to protecting your privacy. This privacy notice explains the privacy policies of Eagle Point Credit Company Inc.
and its affiliated companies. The terms of this notice apply to both current and former stockholders. The Company will safeguard, according
to strict standards of security and confidentiality, all information it receives about you. With regard to this information, the Company
maintains procedural safeguards that are reasonably designed to comply with federal standards. We have implemented procedures that
are designed to restrict access to your personal information to authorized employees of the Company’s investment adviser, Eagle
Point Credit Management LLC and its affiliates who need to know your personal information to perform their jobs, and in connection with
servicing your account. The Company’s goal is to limit the collection and use of information about you. While we may share your
personal information with our affiliates in connection with servicing your account, our affiliates are not permitted to share your information
with non-affiliated entities, except as permitted or required by law.
When
you purchase shares of the Company’s common stock and in the course of providing you with products and services, we and certain
of our service providers, such as a transfer agent, may collect personal information about you, such as your name, address, social security
number or tax identification number. This information may come from sources such as account applications and other forms, from other
written, electronic or verbal correspondence, from your transactions, from your brokerage or financial advisory firm, financial adviser
or consultant, and/or information captured on applicable websites.
We
do not disclose any personal information provided by you or gathered by us to non-affiliated third parties, except as permitted or required
by law or for our everyday business purposes, such as to process transactions or service your account.
For
example, we may share your personal information in order to send you annual and semiannual reports, proxy statements and other information
required by law, and to send you information the Company believes may be of interest to you. We may disclose your personal information
to unaffiliated third party financial service providers (which may include a custodian, transfer agent, accountant or financial printer)
who need to know that information in order to provide services to you or to the Company. These companies are required to protect your
information and use it solely for the purpose for which they received it or as otherwise permitted by law. We may also provide your personal
information to your brokerage or financial advisory firm and/or to your financial adviser or consultant, as well as to professional advisors,
such as accountants, lawyers and consultants.
We
reserve the right to disclose or report personal or account information to non-affiliated third parties in limited circumstances where
we believe in good faith that disclosure is required by law, such as in accordance with a court order or at the request of government
regulators or law enforcement authorities or to protect our rights or property. We may also disclose your personal information to a non-affiliated
third party at your request or if you consent in writing to the disclosure.
If
you have any queries or concerns about the privacy of your personal information, please contact our investor relations team at (203)
340-8510 or (844) 810-6501.
We
will review this policy from time to time and may update it at our discretion.
* * *
End
of Semiannual Report. Back Cover Follows.