0001104659-23-024867.txt : 20230224 0001104659-23-024867.hdr.sgml : 20230224 20230223184629 ACCESSION NUMBER: 0001104659-23-024867 CONFORMED SUBMISSION TYPE: N-CSR/A PUBLIC DOCUMENT COUNT: 28 FILED AS OF DATE: 20230224 DATE AS OF CHANGE: 20230223 EFFECTIVENESS DATE: 20230224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Eagle Point Credit Co Inc. CENTRAL INDEX KEY: 0001604174 IRS NUMBER: 465215217 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-22974 FILM NUMBER: 23661656 BUSINESS ADDRESS: STREET 1: 600 STEAMBOAT RD, SUITE 202 CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 203.862.3150 MAIL ADDRESS: STREET 1: 600 STEAMBOAT RD, SUITE 202 CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: Eagle Point Credit Co LLC DATE OF NAME CHANGE: 20140331 N-CSR/A 1 tm237093d3_ncsra.htm N-CSR/A Eagle Point Credit Co Inc - 1604174 - 2023
N-CSR/A true 0001604174 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. 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. 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. NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period. For the fiscal year ending December 31, 2021, as reported on the Company’s 2021 Form 1099-DIV, distributions made by the Company did not comprise of a return of capital. Calculated as of the respective high or low closing sales price divided by the quarter end NAV. For the fiscal year ending December 31, 2022, as reported on the Company’s 2022 Form 1099-DIV, distributions made by the Company did not comprise of a return of capital. In the event that the Company sells its securities publicly through underwriters or agents (including each underwritten offering by selling stockholders), the related prospectus supplement will disclose the applicable sales load. In the event that the Company sells its securities publicly through underwriters or agents (including each underwritten offering by selling stockholders), the related prospectus supplement will disclose the estimated amount of total offering expenses (which may include offering expenses borne by third parties on the Company’s behalf), the offering price and the offering expenses borne by the Company as a percentage of the offering price. The expenses associated with the dividend reinvestment plan are included in “Other expenses.” If a participant elects by written notice to the plan administrator prior to termination of his or her account to have the plan administrator sell part or all of the shares held by the plan administrator in the participant’s account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $15.00 transaction fee plus a $0.07 per share brokerage commission from the proceeds. See the section “Dividend Reinvestment Plan,” below. The Company’s base management fee is calculated and payable quarterly in arrears at an annual rate equal to 1.75% of the Company’s “Total Equity Base,” or the NAV attributable to the common stock and the paid-in or stated capital of the Company’s preferred stock. See the section “The Adviser and the Administrator — Investment Advisory Agreement — Management Fee and Incentive Fee” in the Company’s prospectus for additional information regarding the calculation of the base management fee. The base management fee referenced in the table above is based on actual amounts incurred during the three months ended December 31, 2022, annualized for a full year, and reflects the pro forma effect of the issuance of 2.6 million shares of our common stock and 2,308 shares of our Series D Preferred Stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately $27.2 million, as if such shares were issued at the start of such period. In addition, such amount reflects the $81.6 million of the Company’s Preferred Stock outstanding as of December 31, 2022, the Company’s NAV for such period (as adjusted to account for the actions described above), and the $170.5 million aggregate principal amount of the Company’s Notes outstanding as of December 31, 2022 on which management fees are not payable. For purposes of this table, the SEC requires that the “Base management fee” percentage be calculated as a percentage of net assets attributable to common stockholders, rather than total assets, including assets that have been funded with borrowed monies because common stockholders bear all of this cost. If the management fee were calculated instead as a percentage of the Company’s total assets (as adjusted for the assumptions described above), the Company’s base management fee would be approximately 1.41% of total assets. The incentive fee referenced in the table is based on the Company’s pre-incentive fee net investment income for the three months ended December 31, 2022, annualized for a full year, and adjusted as described below. The incentive fee referenced in the table above assumes pro forma effect of (i) the issuance in the Company’s “at-the-market” offering of 2.6 million shares of our common stock and 2,308 shares of our Series D Preferred Stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately $27.2 million; and (ii) the $0.50 per share special distribution paid on January 24, 2023 to shareholders of record as of December 23, 2022. Such actions were assumed to have taken place at the start of such period. In addition, the incentive fee also assumes that such pro forma assets representing common stock and preferred stock earn net investment income at the same rate as that earned in respect of the Company’s total deployed assets during the three months ended December 31, 2022, annualized for a full fiscal year, and is based on the total assets assumed for such period. The Company has agreed to pay the Adviser as compensation under the Investment Advisory Agreement a quarterly incentive fee equal to 20% of the Company’s Pre-Incentive Fee Net Investment Income for the immediately preceding quarter, subject to a hurdle of 2.00% of the Company’s NAV and a catch-up feature. Pre-Incentive Fee Net Investment Income includes accrued income that the Company has not yet received in cash. However, the portion of the incentive fee that is attributable to deferred interest (such as payment-in-kind, or “PIK,” interest or original issue discount, or “OID”) will be paid to the Adviser, without interest, only if and to the extent the Company actually receives such interest in cash, and any accrual 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. No incentive fees are payable to the Adviser in respect of any capital gains. The incentive fee in each calendar quarter is paid to the Adviser as follows: · no incentive fee in any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the hurdle of 2.00% of the Company’s NAV; · 100% of the Company’s Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle but is less than 2.50% of the Company’s NAV in any calendar quarter. This portion of the Company’s Pre-Incentive Fee Net Investment Income (which exceeds the hurdle but is less than 2.50% of the Company’s NAV) is referred to as the “catch-up.” The “catch-up” is meant to provide the Adviser with 20% of the Company’s Pre-Incentive Fee Net Investment Income as if a hurdle did not apply if this net investment income meets or exceeds 2.50% of the Company’s NAV in any calendar quarter; and · 20% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.50% of the Company’s NAV in any calendar quarter is payable to the Adviser (that is, once the hurdle is reached and the catch-up is achieved, 20% of all Pre-Incentive Fee Net Investment Income thereafter is paid to the Adviser). For a more detailed discussion of the calculation of this fee, see “The Adviser and the Administrator — Investment Advisory Agreement — Management Fee and Incentive Fee” in the Company’s prospectus. “Interest payments on borrowed funds” represents the Company’s annualized interest expense and includes dividends payable on the Preferred Stock and interest payable on the Notes, each as outstanding on December 31, 2022, and includes the pro forma effect of the issuances described above, which, in the aggregate, have a weighted average interest rate of 6.18% per annum. The Company may issue additional shares of preferred stock or debt securities. In the event that the Company were to issue additional shares of preferred stock or debt securities, the Company’s borrowing costs, and correspondingly its total annual expenses, including, in the case of such preferred stock, the base management fee as a percentage of the Company’s net assets attributable to common stock, would increase. “Other expenses” includes the Company’s overhead expenses, including payments under the Administration Agreement based on the Company’s allocable portion of overhead and other expenses incurred by Eagle Point Administration LLC (“Eagle Point Administration”), the administrator to the Company and an affiliate of the Adviser, and payment of fees in connection with outsourced administrative functions, and are based on estimated amounts for the current fiscal year. See “Related Party Transactions — Administrator” in the Notes to Consolidated Financial Statements. “Other expenses” also includes the ongoing administrative expenses to the independent accountants and legal counsel of the Company, compensation of independent directors, and cost and expenses relating to rating agencies. Assumes (i) $759.9 million in pro forma total assets as of December 31, 2022; (ii) adjusted to reflect the issuance in the Company’s “at-the-market” offering of 2.6 millionshares of our common stock and 2,308 shares of our Series D Preferred Stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately $27.2 million; (iii) adjusted to reflect a $0.50 per share special distribution paid on January 24, 2023 to shareholders of record as of December 23, 2022; (v) $526.4 million in pro forma net assets as of December 31, 2022 (adjusted to reflect the issuances described above); and (vi) an annualized average interest rate on our indebtedness and preferred equity, as of December 31, 2022 (adjusted to reflect the issuances described above), of 6.18%. 0001604174 2022-01-01 2022-12-31 0001604174 2022-12-31 2022-12-31 0001604174 2023-02-15 2023-02-15 0001604174 2023-01-31 2023-01-31 0001604174 ck0001604174:SeriesCTermPreferredStockMember 2022-01-01 2022-12-31 0001604174 ck0001604174:SeriesDPreferredStockMember 2022-01-01 2022-12-31 0001604174 ck0001604174:NotesDue2028Member 2022-01-01 2022-12-31 0001604174 ck0001604174:NotesDue2031Member 2022-01-01 2022-12-31 0001604174 ck0001604174:NotesDue2029Member 2022-01-01 2022-12-31 0001604174 ck0001604174:RisksOfInvestingInClosAndOtherStructuredDebtSecuritiesMember 2022-01-01 2022-12-31 0001604174 ck0001604174:SubordinatedSecuritiesRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:HighYieldInvestmentRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:LeverageRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:CreditRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:KeyPersonnelRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:ConflictsOfInterestRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:PrepaymentRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:LiborRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:LiquidityRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:IncentiveFeeRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:FairValuationOfOurPortfolioInvestmentsMember 2022-01-01 2022-12-31 0001604174 ck0001604174:LimitedInvestmentOpportunitiesRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:NonDiversificationRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:MarketRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:LoanAccumulationFacilitiesRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:SyntheticInvestmentsRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:CurrencyRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:HedgingRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:ReinvestmentRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:InterestRateRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:RefinancingRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:TaxRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:DerivativesRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:CounterpartyRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:GlobalEconomyRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:PriceRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:RussiaRiskMember 2022-01-01 2022-12-31 0001604174 ck0001604174:PreferredStockMember 2022-01-01 2022-12-31 0001604174 ck0001604174:UnsecuredNotesMember 2022-01-01 2022-12-31 0001604174 ck0001604174:PreferredStockMember 2021-01-01 2021-12-31 0001604174 ck0001604174:UnsecuredNotesMember 2021-01-01 2021-12-31 0001604174 ck0001604174:PreferredStockMember 2020-01-01 2020-12-31 0001604174 ck0001604174:UnsecuredNotesMember 2020-01-01 2020-12-31 0001604174 ck0001604174:PreferredStockMember 2019-01-01 2019-12-31 0001604174 ck0001604174:UnsecuredNotesMember 2019-01-01 2019-12-31 0001604174 ck0001604174:PreferredStockMember 2018-01-01 2018-12-31 0001604174 ck0001604174:UnsecuredNotesMember 2018-01-01 2018-12-31 0001604174 ck0001604174:PreferredStockMember 2017-01-01 2017-12-31 0001604174 ck0001604174:UnsecuredNotesMember 2017-01-01 2017-12-31 0001604174 ck0001604174:PreferredStockMember 2016-01-01 2016-12-31 0001604174 ck0001604174:Series2020NotesMember 2016-01-01 2016-12-31 0001604174 ck0001604174:SeriesATermPreferredStockMember 2015-01-01 2015-12-31 0001604174 ck0001604174:Series2020NotesMember 2015-01-01 2015-12-31 0001604174 2021-01-01 2021-03-31 0001604174 2021-04-01 2021-06-30 0001604174 2021-07-01 2021-09-30 0001604174 2021-10-01 2021-12-31 0001604174 2022-01-01 2022-03-31 0001604174 2022-04-01 2022-06-30 0001604174 2022-07-01 2022-09-30 0001604174 2022-10-01 2022-12-31 0001604174 ck0001604174:CommonStockMember 2022-01-01 2022-12-31 xbrli:pure xbrli:shares iso4217:USD iso4217:USD xbrli:shares
 

  

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED 

MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act File Number: 811-22974

 

Eagle Point Credit Company Inc. 

(Exact name of registrant as specified in charter)

 

600 Steamboat Road, Suite 202 

Greenwich, CT 06830 

(Address of principal executive offices) (Zip code)

 

Thomas P. Majewski 

c/o Eagle Point Credit Company Inc. 

600 Steamboat Road, Suite 202 

Greenwich, CT 06830 

(Name and address of agent for service)

 

Copies to

 

Thomas J. Friedmann 

Philip Hinkle
 Dechert LLP
 One International Place, 40th Floor 

100 Oliver Street 

Boston, MA 02110
 (617) 728-7120

 

Registrant’s telephone number, including area code: (203) 340-8500

 

Date of fiscal year end: December 31

 

Date of reporting period: December 31, 2022

 

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

 

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

 

 

 

 

 

EXPLANATORY NOTE

 

The Registrant is filing this amendment to its Form N-CSR (the “Amendment”) for the period ended December 31, 2022, originally filed with the Securities and Exchange Commission on February 22, 2023 (Accession Number 0001104659-23-024029) (the “Original Filing”). This Amendment is filed solely for the purpose of (i) including a modified Report of Independent Registered Public Accounting Firm and (ii) including a Consent of Independent Registered Public Accounting Firm. Except as set forth above (and the dates included on the signature page and the certifications required by Rule 30a-2(a) and Rule 30a-2(b)), the Amendment does not amend, update or change any other information or disclosures contained in the Original Filing.

 

 

 
Item 1. Report to Stockholders

 

The Annual Report to stockholders of Eagle Point Credit Company Inc. (the “Company”) for the year ended December 31, 2022 is filed herewith.

 

 

 

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Eagle Point Credit Company Inc.

Annual Report – December 31, 2022

 

 

 

Table of Contents

 

Letter to Stockholders and Management Discussion of Company Performance   2
     
Important Information about this Report and Eagle Point Credit Company Inc.   18
     
Performance Data   24
     
Summary of Certain Unaudited Portfolio Characteristics   25
     
Fees and Expenses (Unaudited)   27
     
Consolidated Financial Statements for the Year Ended December 31, 2022 (Audited)   30
     
Price Range of Common Stock   68
     
Dividend Reinvestment Plan   69
     
Additional Information   71

 

1

 

 

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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 fiscal year ended December 31, 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”). We may also invest in other securities or instruments that are related investments or that are consistent with our investment objectives.

 

Volatility was a clear hallmark of 2022, and there were very few risk assets which generated positive returns. While our portfolio was not immune to the broader market conditions, it did what it was designed to do – generate strong and consistent cash flows in all type of market conditions. Should these choppy market conditions persist, we believe our portfolio of CLOs is well positioned to capitalize on the opportunities presented.

 

Our Adviser’s proactive approach to managing the Company has further positioned us for long-term success and shareholder value creation. Our portfolio generated strong cash flows during the year and we:

 

  § Took advantage of attractive macro conditions in the early part of 2022 and improved our cost of capital and weighted average maturity of our outstanding debt and preferred stock.

 

  § Strengthened our balance sheet throughout the year via our at-the-market program, and deployed the capital into discounted investments that we believe will generate attractive risk-adjusted returns.

 

  § Managed our CLO equity portfolio such that the weighted average remaining reinvestment period, or “WARRP,” of the Company’s CLO equity portfolio did not decline despite the passage of 12 months.

 

  § Increased our monthly common distribution by 17% to $0.14 per share in April 2022 and declared two special distributions totaling $0.75 per common share during the year.

 

Looking ahead, we believe the Company remains well-positioned to deliver strong returns.

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

2

 

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For the year ended December 31, 2022, the Company recorded a decrease in net assets resulting from operations of $104 million, or $2.31 per weighted average common share.1 This represents a GAAP ROE of -18.72% during the year.2 From December 31, 2021 through December 31, 2022, the Company’s NAV declined by 32% from $13.39 per common share to $9.07 per common share. This reflects the impact of $2.37 per share in distributions with record dates during 2022. We believe the decline in NAV was due largely to market yields for CLO equity widening and not fundamental issues with our portfolio.

 

Despite the challenging market environment during 2022, our portfolio continued to generate strong recurring cash flows throughout the year. Recurring cash flows from our investment portfolio, which excludes cash received from called CLOs, totaled $163 million, or $3.62 per weighted average common share, compared to cash flows of $160 million, or $4.67 per weighted average common share, received in 2021.

 

We believe our portfolio continues to have the potential for further meaningful upside. The weighted average expected yield of our CLO equity portfolio (excluding called CLOs), based on current market values and expected future cash flows, was 27.86% as of December 31, 2022, which we believe represents an attractive value. This compares to 18.61% as of December 31, 2021.

 

Our investment activity throughout the year was instrumental in enabling us to maintain the portfolio’s weighted average remaining reinvestment period at 3.0 years as of December 31, 2022, despite a full year of time decay. We believe our CLO portfolio’s relatively long remaining reinvestment period gives our investments greater flexibility and resilence.

 

We continue to prudently and actively manage the Company’s capital structure while raising capital to take advantage of available investment opportunities. During 2022, the Company raised $197 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 premium to NAV, with net proceeds utilized to increase our liquidity and expand our investment portfolio, actively deploying $219 million in net capital into CLO equity, CLO debt, loan accumulation facility and other investments during 2022.

 

The Company was very pleased to capitalize on attractive market conditions at the beginning of 2022 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 at the time of issuance, as well as further extend the weighted average maturity of our outstanding debt and preferred stock. The ECCV Notes represent the Company’s largest $25-denominated issuance ever and our lowest cost of financing to-date. Indeed, a 5.375% coupon is only marginally above today’s Treasury rates. We are very happy to have locked in this attractive financing before rates started moving up materially and believe this attractive financing will be a benefit to the company for many years to come. The Company used the majority of the proceeds from this offering to fully

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

3

 

 

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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”).

 

Today, 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 7.2 years3 as of December 31, 2022, compared to 7.6 years as of December 31, 2021.

 

As of January 31, 2023, management’s unaudited estimate of the range of the Company’s NAV per common share was between $9.62 and $9.72. The midpoint of this range represents an increase of 6.6% compared to the NAV per common share as of December 31, 2022. As of February 15, 2023, we have over $58.8 million in cash available for investment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

4

 

 

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Company Overview

 

Common Stock

 

The Company’s common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “ECC.” As of December 31, 2022, the NAV per share of the Company’s common stock was $9.07. 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 $10.12 on December 31, 2022, representing an 11.58% premium to NAV per share as of year end.4 For the year ended December 31, 2022, the Company’s total return to common shareholders, on a market price basis and assuming reinvestment of distributions, was approximately -11.60%.5

 

From our IPO on October 7, 2014 through December 31, 2022, our common stock has traded on average at a 10.5% premium to NAV. As of February 15, 2023, the closing price per share of common stock was $10.91, a premium of 12.82% compared to the midpoint of management’s unaudited and estimated NAV range of $9.62 to $9.72 as of January 31, 2023.

 

In connection with our at-the-market offering program, the Company sold 16.7 million shares of our common stock during the year ended December 31, 2022 for total net proceeds to the Company of approximately $197 million. The common stock issuance resulted in $0.24 per weighted average common share of NAV accretion.

 

The Company declared common distributions with a record date during 2022 totaling $2.37 per share of common stock, inclusive of a $0.50 per share special distribution paid on January 24, 2023 to stockholders of record as of December 23, 2022. An investor who purchased common stock as part of our IPO at $20.00 per share has received total cash distributions of $18.13 per share since the IPO through January 24, 2023. A certain portion of these distributions was comprised of a return of capital as reported on Form 1099-DIV.6

 

For the year ended December 31, 2022, the Company’s net investment income and net realized capital losses were, in the aggregate, $1.49 per weighted average common share (this measure excludes unrealized appreciation/depreciation). Excluding non-recurring items related to the ECCV Notes offering, the redemption of the Series B Term Preferred Stock and ECCY Notes, as well as the incurring of excise tax on our estimated spillover income, our income per weighted average common share would have been above the $1.62 per share in regular monthly common distributions paid during the year.

 

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 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

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes. 

 

5

 

 

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reinvestment is at the prevailing market price, subject to the terms in the dividend reinvestment plan. We encourage all common stockholders to carefully review the terms of the plan. See “Dividend Reinvestment Plan” in the enclosed report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

6

 

 

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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 $54.3 million 6.50% Monthly June 2024 June 2031
6.75% Series D Preferred Stock ECC PRD $27.3 million 6.75% Monthly November 2026 None
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 325,715 shares of its Series C Term Preferred Stock and 90,937 shares of its Series D Preferred Stock during the year ended December 31, 2022 for total net proceeds to the Company of approximately $10.2 million.

 

The weighted average maturity on our outstanding notes and preferred stock as of December 31, 2022 was approximately 7.2 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 December 31, 2022, we had debt and preferred securities outstanding which totaled approximately 35% of our total assets (less current liabilities). Over the long term, management 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, and paid nine monthly distributions of $0.14 per share of common stock from April 2022 through December 2022. In the aggregate, we paid cumulative monthly distributions of $1.62 per share to common stockholders in 2022. We intend to continue

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

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declaring monthly distributions on shares of our common stock (and have done so with respect to distributions declared through June 2023). 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, 2022, we estimate taxable income will exceed the aggregate amount distributed to common stockholders for the same time period. As a result, the Company declared two special distributions totaling $0.75 per share during 2022. The first distribution of $0.25 per common share was paid on October 31, 2022 to stockholders of record as of October 11, 2022. The second distribution of $0.50 per common share was paid on January 24, 2023 to stockholders of record as of December 23, 2022. The actual amount required to be distributed in respect of the tax year ended November 30, 2022 will be finally determined when the Company files its final tax returns and any such determination may result in a requirement that the Company make additional distributions if final taxable income exceeds amounts already distributed in respect of the 2022 tax year. As of the date of this report, the Company has incurred a 4% excise tax on the estimated amount of remaining undistributed taxable income, or spillover income, pertaining to the 2022 tax year. The amount of excise tax is estimated to be $0.04 per weighted average common share and is recorded as a liability in the Company’s December 31, 2022 financial results.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

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Portfolio Overview

 

2022 Portfolio Update

 

Our portfolio continued to generate consistently strong cash flows in 2022. During the year, the Company received cash distributions from our portfolio, excluding called CLOs, of $163 million, or $3.62 per weighted average common share.

 

During the year, the Company deployed $219 million in net capital into CLO equity, CLO debt, loan accumulation facility and other investments.

 

Included within this annual 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 December 31, 2022.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

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Market Overview7

 

Loan Market

 

The Credit Suisse Leverage Loan Index8 (“CSLLI”) generated a total return of -1.06% in 2022. This represents only the third negative year for the CSLLI in its 31 years of existence, and notably, in only one year was the annual return materially negative (2008: -28.75%). As a testament to the robust nature of the loan asset class, there have never been two consecutive years with annual declines in the loan market.

 

On a relative basis, the floating-rate loan asset class has continued to exhibit greater resilience and outperformance versus many other risk assets. In a persistently volatile year, the modestly negative return for loans compares favorably against the significant losses in other risk assets; equities, high-yield and investment grade returned -18%, -11% and -16%9, respectively, during the year.

 

Loan price volatility was a predominant theme in 2022, fueled by increasing inflation, looming recessionary fears and Fed-driven rate hikes. The loan market experienced significant swings over the course of the year, in both directions, with daily gains and losses of over 20 basis points on nearly 50 separate trading dates. The average price of the CSLLI finished the year at 91.89, almost seven points below January’s peak, and just slightly above the low of 91.54 recorded in early July. Overall, lower-rated loans underperformed their higher quality peers, a reversal from 2021 when investors favored riskier assets in a pursuit for yield.

 

At year-end, approximately 20% of the loan market was priced below 90. With a significant share of high-quality issuers trading at discounted prices, CLO collateral managers were well positioned to improve underlying loan portfolios through relative value credit selection in the secondary market, as well as take advantage of a high-quality primary market, at discounted prices.

 

In a reversal from 2021, retail loan funds experienced regular net outflows throughout the year as mutual funds and ETF investors rotated out of risk assets, despite the strong upward movement in rates. For 2022, mutual funds and ETFs investing in U.S. leveraged loans experienced net outflows of $13 billion, compared to net inflows of $47 billion in 2021.10 The high-yield mutual fund/ETF market, by comparison, recorded $49 billion of net outflows in 2022 after recording $13 billion of net outflows in 2021.

 

Institutional loan issuance totaled $225 billion in 2022, compared to a record $614 billion in 2021. Total institutional loans outstanding stood at $1.41 trillion as of December 31, 2022, up slightly from $1.35 trillion at the beginning of the year. While primary issuance remained limited in the fourth quarter, loan refinancing activity meaningfully increased as U.S. corporates rushed to address upcoming maturities before year-end, including large par repayments from high-

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

10

 

 

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quality issuers such as American Airlines and Axalta, each at over $1 billion. In order to extend the maturities of their loans, issuers were willing to pay higher spreads, which will ultimately benefit the Company’s CLO equity positions. Currently, the vast majority of the maturity wall is pushed out to 2025 and later. Only 5.4% of the loan portfolios underlying our CLO equity positions mature prior to 2025.

 

Loan defaults were muted in the fourth quarter of 2022, as no companies defaulted. At year-end, the twelve-month trailing default rate fell to 0.72%; while above the rate of 0.29% at the beginning of the year, it was still well below the long-term default rate of 2.7%.11 While the impact of a slowing economy and potential recessionary headwinds, including rising borrowing costs on corporate borrowers, continue to be debated, we believe loan defaults will remain below historical averages over the near term.

 

The loan prepayment rate remained in the mid-teens through 2022, despite the ongoing volatility, and on a twelve-month trailing basis stood at 13% at the end of December. While the market tends to be most focused on loan defaults, prepayments are a critical input to the performance of a CLO. In the worst two years on record (2008-2009) for the loan market, prepayments still averaged 12%.

 

CLOs within their reinvestment period which are receiving meaningful par prepayments are able to reinvest those proceeds into attractive loans at higher spreads and lower prices. Par build allows CLOs to weather volatile periods, including building in additional cushion for potential future defaults. For example, 20 basis points of notional par build could offset nearly 0.50% of defaults). This ultimately creates significant value within a CLO, building more par subordination for BBs and increasing terminal value for CLO equity.

 

CLO Market

 

Despite declining loan issuance and widening CLO liabilities, the CLO market ended 2022 with its second highest annual new issuance on record, at a total volume of $129 billion. This compares to last year’s record new issuance of $187.1 billion. Primary market activity peaked in the second quarter, before issuance steadily declined quarter-over-quarter as CLO debt spreads increased and investor demand remained low into year-end.

 

The CLO equity arbitrage – the difference between the yield of the underlying loan portfolio and the CLO’s financing costs – remained generally unattractive during the second half of the year. During the second half, some new issue CLOs settled for shorter-dated reinvestment periods or even static structures to secure pricing. CLOs unable to achieve the standard five-year reinvestment period are much less favorable for CLO equity investors, in our opinion, given their limited reinvestment optionality and sometimes higher-than-average debt costs. Additionally, in the second half of 2022, most economically-driven equity investors focused on more desirable secondary market opportunities. Indeed, very few third party equity investors were behind new

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

11

 

 

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CLO formation given the lower expected IRRs at pricing. In our opinion, this highlights the continued misalignment of captive funds that are set up to support internal CLO programs, and often at the expense of their equity investors. Investing in the secondary CLO equity market would have generated much higher returns, in our view.

 

With the rebound in loans during the fourth quarter, the new issue CLO market remained challenged as CLO liability spreads remained largely unchanged at calendar year wides going into year end. CLO AAA debt spreads averaged 235 basis points over SOFR in the fourth quarter, more than 100 basis points higher than levels in the fourth quarter of 2021. Liability costs were largely range-bound over the second half of the year, and collateral manager dispersion was evident, with lower-tier CLO collateral managers paying over 14 basis points more, on average, in AAA spreads versus their higher quality counterparts.

 

Importantly, there were very few payment disruptions to CLO equity during the year, despite the persistent volatility in loan prices. CLOs saw a slight but temporary decrease in third and fourth quarter 2022 equity distributions, attributable to the rapid increases in the benchmark interest rate and resulting in a greater than usual disparity between 1-month and 3-month LIBOR/SOFR. Many loan borrowers took advantage of a lower 1-month rate, while CLO liabilities pay at the 3-month rate, for these two payment periods. This mismatch has meaningfully compressed since year-end, and we believe equity distributions will increase for many CLOs over the coming quarters.

 

In periods of market volatility, the dispersion in CLO equity performance across CLO collateral managers often increases; 2022 was no exception. CLOs with longer remaining reinvestment periods and thicker overcollateralization cushions (and thus with greater built-in optionality) outperformed more seasoned CLOs coming up on the end of their reinvestment periods. During the year, CLOs with greater tail risk in their underlying portfolios were heavily discounted amidst the loan price volatility given their limited near-term upside.

 

With CLO liability spreads elevated, many CLOs had financing which is well “in the money.” As a result, reset and refinancing activity remained muted for much of the year. In total, the U.S. CLO market recorded just $25 billion in refinancing and reset activity, nearly all of which occurred prior to June 2022.

 

Early in 2023, CLO debt spreads have tightened, with AAA spreads averaging 210 basis points over SOFR, supporting an increase in near-term new issue activity.

 

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

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

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(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 16 for endnotes.

 

13

 

 

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Subsequent Developments

 

Management’s unaudited estimate of the range of the Company’s NAV per share of common stock was between $9.62 and $9.72 as of January 31, 2023. The midpoint of this range represents an increase of 6.6% compared to the NAV per common share as of December 31, 2022.

 

As noted previously, on January 24, 2023, the Company paid a special distribution of $0.50 per common share to holders of record on December 23, 2022.

 

On January 31, 2023, the Company paid a monthly distribution of $0.14 per common share to holders of record on January 11, 2023. Additionally, and as previously announced, the Company declared distributions of $0.14 per share of common stock payable on each of February 28, 2023 and March 31, 2023 to holders of record on February 8, 2023 and March 13, 2023, respectively.

 

On January 31, 2023, 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 January 11, 2023. Additionally, and as previously announced, the Company declared distributions of $0.135417 per share on Series C Term Preferred Stock, payable on each of February 28, 2023 and March 31, 2023 to holders of record on February 8, 2023 and March 13, 2023, respectively.

 

On January 31, 2023, the Company paid a monthly distribution of $0.140625 per share of the Company’s Series D Preferred Stock to holders of record on January 11, 2023. Additionally, and as previously announced, the Company declared distributions of $0.140625 per share on Series D Preferred Stock, payable on each of February 28, 2023 and March 31, 2023 to holders of record on February 8, 2023 and March 13, 2023, respectively.

 

Pursuant to the “at-the-market” offering, in the period from January 1, 2023 through February 15, 2023, the Company issued 2.6 million shares of our common stock and 2,308 shares of our Series D Preferred Stock for total net proceeds to the Company of approximately $27.2 million.

 

In the period from January 1, 2023 through February 15, 2023, the Company received cash distributions on its investment portfolio of $40.7 million. During that same period, the Company made net new investments totaling $43.1 million. As of February 15, 2023, the Company had approximately $58.8 million of cash available for investment.

 

 

 

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

14

 

 

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* * * * *

 

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 twelve months ended December 31, 2022. The views and opinions in this letter were current as of February 15, 2023. 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 16 for endnotes.

 

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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 December 31, 2022, our Adviser had approximately $7.5 billion of assets under management (inclusive of undrawn capital commitments).12

 

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.
  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  Returns shown represent the total return for a given index for the year ended December 31, 2022. Equity return shown is represented by the S&P 500 which tracks the performance of US equity markets and is based on the market capitalization of 500 large companies having common stock listed on the NYSE or NASDAQ. High yield return shown is represented by the ICE BofA US High Yield Index which tracks the performance of high-yield securities traded in the U.S. bond market. Investment Grade return shown is represented by the Bloomberg US Corporate Total Return Value Unhedged Index which tracks the performance and analytics of U.S. denominated securities that are representative of the investment grade, fixed-rate, taxable corporate bond market.
  10  JPMorgan Chase & Co. North American Credit Research – JPM High Yield and Leveraged Loan Research (cumulative 2022 reports).
  11  “Par-weighted default rate” represents the rate of obligors who fail to remain current on their loans based on the par amount.
  12  Calculated in the aggregate with its affiliate Eagle Point Income Management LLC.

 

 

Past performance is not indicative of, or a guarantee of, future performance.

 

Please see page 16 for endnotes.

 

16

 

 

 

 

 

 

 

 

 

 

 

 

Page Intentionally Left Blank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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 December 31, 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.

 

Eagle Point Credit Company Inc.

 

The following information in this annual report is a summary of certain changes during the fiscal year ended December 31, 2022. This information may not reflect all of the changes that have occurred since you purchased shares of our common stock.

 

During the applicable period, there have been: (i) no material changes to the Company’s investment objectives and policies that have not been approved by shareholders, (ii) no material changes to the Company’s principal risks, (iii) no changes to the persons primarily responsible for day-to-day management of the Company; and (iv) no changes to the Company’s charter or bylaws that would delay or prevent a change of control of the Company.

 

Investment Objectives and Strategies

 

We are an externally managed, non-diversified closed-end management investment company that has registered as an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). We have elected to be treated,

 

 

Please see footnote disclosures on page 23.

 

18

 

 

and intend to qualify annually, as a regulated investment company, or “RIC,” under Subchapter M of the Internal Revenue Code of 1986, as amended, or the “Code,” commencing with our tax year ended November 30, 2014.

 

Our primary investment objective is to generate high current income, with a secondary objective to generate capital appreciation. We seek to achieve our investment objectives by investing primarily in equity and junior debt tranches of 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. We may also invest in other related securities and instruments or other securities and instruments that the Adviser believes are consistent with our investment objectives, including senior debt tranches of CLOs, loan accumulation facilities and securities issued by other securitization vehicles. The amount that we invest in other securities and instruments, which may include investments in debt and other securities issued by CLOs collateralized by non-U.S. loans, securities of other collective investment vehicles and corporate issuers (among other instruments), will vary from time to time and, as such, may constitute a material part of our portfolio on any given date, all as based on the Adviser’s assessment of prevailing market conditions. Loan accumulation facilities are short- to medium-term facilities often provided by the bank that will serve as the placement agent or arranger on a CLO transaction. Loan accumulation facilities typically incur leverage between four and six times prior to a CLO’s pricing.

 

The CLO securities in which we primarily seek to invest are unrated or rated below investment grade and are considered speculative with respect to timely payment of interest and repayment of principal. Unrated and below investment grade securities are also sometimes referred to as “junk” securities. In addition, the CLO equity and junior debt securities in which we invest are highly leveraged (with CLO equity securities typically being leveraged ten times), which magnifies our risk of loss on such investments.

 

These investment objectives are not fundamental policies of ours and may be changed by our board of directors without prior approval of our stockholders.

 

“Names Rule” Policy

 

In accordance with the requirements of the 1940 Act, we have adopted a policy to invest at least 80% of our assets in the particular type of investments suggested by our name. Accordingly, under normal circumstances, we invest at least 80% of the aggregate of our net assets and borrowings for investment purposes in credit and credit-related instruments. For purposes of this policy, we consider credit and credit-related instruments to include, without limitation: (i) equity and debt tranches of CLOs, loan accumulation facilities and securities issued by other securitization vehicles, such as credit-linked notes and CBOs; (ii) secured and unsecured floating rate and fixed rate loans; (iii) investments in corporate debt obligations, including bonds, notes, debentures, commercial paper and other obligations of corporations to pay interest and repay principal; (iv) debt issued by governments, their agencies, instrumentalities, and central banks; (v) commercial paper and short-term notes; (vi) preferred stock; (vii) convertible debt securities; (viii) certificates of deposit, bankers’ acceptances and time deposits; and (ix) other credit-related instruments. Our investments in derivatives, other investment companies, and other instruments designed to obtain indirect exposure to credit and credit-related instruments are counted towards our 80% investment policy to the extent such instruments have similar economic characteristics to the investments included within that policy.

 

Our 80% policy with respect to investments in credit and credit-related instruments is not fundamental and may be changed by our board of directors without stockholder approval. Stockholders will be provided with sixty (60) days’ notice in the manner prescribed by the SEC before making any change to this policy.

 

Investment Restrictions

 

Our investment objectives and our investment policies and strategies, except for the eight investment restrictions designated as fundamental policies under this caption, are not fundamental and may be changed by the board of directors without stockholder approval.

 

The following eight investment restrictions are designated as fundamental policies and, as such, cannot be changed without the approval of the holders of a majority of our outstanding voting securities:

 

 

Please see footnote disclosures on page 23.

 

19

 

 

  1. We may not borrow money, except as permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction;
  2. ​We may not engage in the business of underwriting securities issued by others, except to the extent that we may be deemed to be an underwriter in connection with the disposition of portfolio securities;
  3. ​We may not purchase or sell physical commodities or contracts for the purchase or sale of physical commodities. Physical commodities do not include futures contracts with respect to securities, securities indices, currency or other financial instruments;
  4. ​We may not purchase or sell real estate, which term does not include securities of companies which deal in real estate or mortgages or investments secured by real estate or interests therein, except that we reserve freedom of action to hold and to sell real estate acquired as a result of our ownership of securities;
  5. ​We may not make loans, except to the extent permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction. For purposes of this investment restriction, the purchase of debt obligations (including acquisitions of loans, loan participations or other forms of debt instruments) shall not constitute loans by us;
  6. ​We may not issue senior securities, except to the extent permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, the SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction;
  7. ​We may not invest in any security if as a result of such investment, 25% or more of the value of our total assets, taken at market value at the time of each investment, are in the securities of issuers in any particular industry except (a) securities issued or guaranteed by the U.S. government and its agencies and instrumentalities or tax-exempt securities of state and municipal governments or their political subdivisions (however, not including private purpose industrial development bonds issued on behalf of non-government issuers), or (b) as otherwise provided by the 1940 Act, as amended from time to time, and as modified or supplemented from time to time by (i) the rules and regulations promulgated by the SEC under the 1940 Act, as amended from time to time, and (ii) any exemption or other relief applicable to us from the provisions of the 1940 Act, as amended from time to time. For purposes of this restriction, in the case of investments in loan participations between us and a bank or other lending institution participating out the loan, we will treat both the lending bank or other lending institution and the borrower as “issuers.” For purposes of this restriction, an investment in a CLO, collateralized bond obligation, collateralized debt obligation or a swap or other derivative will be considered to be an investment in the industry (if any) of the underlying or reference security, instrument or asset; and
  8. ​We may not engage in short sales, purchases on margin, or the writing of put or call options, except as permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction.

 

​The latter part of certain of our fundamental investment restrictions (i.e., the references to “except to the extent permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, the SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction”) provides us with flexibility to change our limitations in connection with changes in applicable law, rules, regulations or exemptive relief. The language used in these restrictions provides the necessary flexibility to allow our board of directors to respond efficiently to these kinds of developments without the delay and expense of a stockholder meeting.

 

 

Whenever an investment policy or investment restriction set forth in this report or in our prospectus states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall be determined immediately after and as a result of our acquisition of such security or asset. Accordingly, any later increase or decrease resulting from a change in values, assets or other circumstances or any subsequent rating change made by a rating agency (or as determined by the Adviser if the security is not rated by a rating

 

 

Please see footnote disclosures on page 23.

 

20

 

 

 

agency) will not compel us to dispose of such security or other asset. Notwithstanding the foregoing, we must always be in compliance with the borrowing policies set forth above.

 

Use of Leverage and Leverage Risks

 

The use of leverage, whether directly or indirectly through investments such as CLO equity or junior debt securities that inherently involve leverage, may magnify our risk of loss. CLO equity or junior debt securities are very highly leveraged (with CLO equity securities typically being leveraged approximately ten times), and therefore the CLO securities in which we are currently invested and in which we intend to invest are subject to a higher degree of loss since the use of leverage magnifies losses.

 

We previously incurred leverage through the issuance of our preferred stock and our unsecured notes. We may incur additional leverage, directly or indirectly, through one or more special purpose vehicles, indebtedness for borrowed money, as well as leverage in the form of derivative transactions, additional shares of preferred stock, debt securities and other structures and instruments, in significant amounts and on terms that the Adviser and our board of directors deem appropriate, subject to applicable limitations under the 1940 Act. Such leverage may be used for the acquisition and financing of our investments, to pay fees and expenses and for other purposes. Such leverage may be secured and/or unsecured. The more leverage we employ, the more likely a substantial change will occur in our NAV. Accordingly, any event that adversely affects the value of an investment would be magnified to the extent leverage is utilized. The cumulative effect of the use of leverage with respect to any investments in a market that moves adversely to such investments could result in a substantial loss that would be greater than if our investments were not leveraged.

 

The following table is intended to illustrate the effect of the use of direct leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below.

 

Assumed Return on Our Portfolio (Net of Expenses)     -10%       -5%       0%       5%       10%  
Corresponding return to common stockholder(1)     -17.40 %     -10.18 %     -2.96 %     4.26 %     11.47 %

 

 
  (1) Assumes (i) $759.9 million in pro forma total assets as of December 31, 2022; (ii) adjusted to reflect the issuance in the Company’s “at-the-market” offering of 2.6 million shares of our common stock and 2,308 shares of our Series D Preferred Stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately $27.2 million; (iii) adjusted to reflect a $0.50 per share special distribution paid on January 24, 2023 to shareholders of record as of December 23, 2022; (v) $526.4 million in pro forma net assets as of December 31, 2022 (adjusted to reflect the issuances described above); and (vi) an annualized average interest rate on our indebtedness and preferred equity, as of December 31, 2022 (adjusted to reflect the issuances described above), of 6.18%.

 

Based on our assumed leverage described above, our investment portfolio would have been required to experience an annual return of at least 2.05% to cover annual interest and dividend payments on our outstanding indebtedness and preferred equity.

 

Principal Risk Factors

 

For a description of the principal risk factors associated with an investment in the Company, please refer to Note 3 to the Consolidated Financial Statements, “Investments – Investment Risk Factors and Concentration of Investments”.

 

Additional Information

 

The Company makes certain unaudited portfolio information available each month on its website in addition to making certain other unaudited financial information available on its website (www.eaglepointcreditcompany.com). This information includes (1) an estimated range of the Company’s net investment income (“NII”) and realized capital gains or losses per weighted average 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 NII and realized capital gains or losses for the applicable quarter, if available.

 

 

Please see footnote disclosures on page 23.

 

21

 

 

Information contained on our website is not incorporated by reference into this Annual Report and you should not consider information contained on our website to be part of this Annual Report or any other report we file with the SEC.

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Please see footnote disclosures on page 23.

 

22

 

 

Notes

 

1 The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. The indices shown herein have not been selected to represent a benchmark for a strategy’s performance, but are instead disclosed to allow for comparison of the Company’s returns to that of known, recognized and/or similar indices. The S&P BDC Index is intended to measure the performance of all Business Development Companies (BDCs) that are listed on the NYSE or NASDAQ and satisfy market capitalization and other eligibility requirements. Although ECC is not a BDC, BDCs generally invest in high yielding credit investments, as does ECC. In addition, similar to ECC, BDCs generally elect to be classified as a regulated investment company under the U.S. Internal Revenue Code of 1986, as amended, which generally requires an investment company to distribute its taxable income to shareholders.
2 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 as of December 31, 2022.
3 The information presented herein is on a look-through basis to the collateralized loan obligation, or “CLO”, equity and related investments (i.e. loan accumulation facilities) held by the Company as of December 31, 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 December 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, December 2022 trustee reports and similar reports, other than market price, it does not reflect actual underlying portfolio characteristics as of December 31, 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 December 31, 2022.
4 We obtain exposure in underlying senior secured loans indirectly through CLOs and related investments.
5 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.
6 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.
7 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 4.0%.

 

23

 

 

 

Performance Data1

 

The following graph shows the market price performance of a $10,000 investment in the Company’s common shares for the period from October 7, 2014 (inception) through December 31, 2022. The performance calculation assumes the purchase of Company shares at the offering price at the beginning of the period and the sale of Company shares at the market price at the end of the period. Ending values for each year are as of December 31 of the applicable year. For comparative purposes, the performance of a relevant third-party securities market index, the S&P BDC Index, is shown. Distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Company’s dividend reinvestment plan. The performance does not reflect brokerage commissions in connection with the purchase or sale of Company shares, which if included would lower the performance shown. Returns do not reflect the deduction of taxes that a shareholder would pay on Company distributions or the sale of Company shares.

 

Past performance is not indicative of, or a guarantee of, future performance. Future results may vary and may be higher or lower than the data shown.

 

Value of $10,000 Invested

 

tm237599d1_ncsrsimg005.jpg

 

 

    Annualized Total Return     Cumulative  
    1 year     3 year     5 Year     Since
Inception
    Since
Inception
 
ECC     -11.60%       2.45%       2.29%       6.12%       63.16%  

S&P BDC Index

   

-9.39%

     

4.31%

     

6.23%

     

5.61%

     

56.81%

 

 

 

 

 

 

 

 

 

 

Please see footnote disclosures on page 23.

 

24

 

 

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 December 31, 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 December 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 12/31/2022)2

 

tm237599d1_ncsrsimg006.jpg

 

Cash: $56.8 million2
 
Summary of Underlying Portfolio Characteristics (as of 12/31/2022)3
Number of Unique Underlying Loan Obligors     1,868  
Largest Exposure to an Individual Obligor     0.93%  
Average Individual Loan Obligor Exposure     0.05%  
Top 10 Loan Obligors Exposure     6.16%  
Currency: USD Exposure     98.53%  
Aggregate Indirect Exposure to Senior Secured Loans4     96.88%  
Weighted Average Junior OC Cushion     4.12%  
Weighted Average Market Value of Loan Collateral     92.14%  
Weighted Average Stated Loan Spread     3.63%  
Weighted Average Loan Rating5     B+/B  
Weighted Average Loan Maturity     4.6 years  
Weighted Average Remaining CLO Reinvestment Period     3.0 years  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Please see footnote disclosures on page 23.

 

25

 

 

Top 10 Underlying Obligors3
     
Obligor   % of Total
Cablevision   0.9%
Mcafee   0.8%
Asurion   0.7%
Numericable   0.6%
Transdigm   0.6%
Athenahealth   0.5%
American Airlines   0.5%
Univision Communications   0.5%
Medline Industries   0.5%
Blackstone Mortgage Trust   0.5%
Total   6.2%

 

Rating Distribution of Underlying Obligors3,5

 

tm237599d1_ncsrsimg007.jpg

Top 10 Industries of Underlying Obligors3,6,7

 

Industry   % of Total
Technology   10.8%
Health Care   9.5%
Publishing   7.5%
Financial Intermediaries   5.7%
Diversified/Conglomerate Service   4.9%
Lodging & Casinos   4.6%
Telecommunications   4.4%
Commercial Services & Supplies   4.3%
Building & Development   4.2%
Technology: Hardware & Equipment   3.7%
Total   59.6%

 

Maturity Distribution of Underlying Obligors3

 

tm237599d1_ncsrsimg008.jpg

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Please see footnote disclosures on page 23.

 

26

 

 

Fees and Expenses (Unaudited)

 

The following table is intended to assist you in understanding the costs and expenses that an investor in shares of the Company’s common stock will bear directly or indirectly. The expenses shown in the table under “Annual Expenses” are estimated based on historical fees and expenses incurred by the Company, as appropriate. In addition, such amounts are based on the Company’s pro forma total assets as of December 31, 2022, which have been adjusted to reflect (i) the issuance in the Company’s “at-the-market” offering of 2.6 million shares of our common stock and 2,308 shares of our Series D Preferred Stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately $27.2 million; and (ii) a $0.50 per share special distribution paid on January 24, 2023 to shareholders of record as of December 23, 2022, which would mean that the Company’s adjusted total assets are assumed to equal approximately $759.9 million. As of December 31, 2022, and pro forma for the issuances described above (excluding any regular monthly distributions paid after December 31, 2022), the Company’s leverage, including the outstanding Notes and Preferred Stock, represented approximately 33.7% of the Company’s total assets (less current liabilities). Such expenses, and actual leverage incurred by the Company, may vary in the future. Whenever this report (or other Company disclosures, including the Company’s prospectus) contain a reference to fees or expenses paid by the Company, the Company’s common stockholders will indirectly bear such fees or expenses.

 

Stockholder Transaction Expenses (as a percentage of the offering price):
Sales load %(1)
Offering expenses borne by the Company %(2)
Dividend reinvestment plan expenses Up to $15(3)
Total stockholder transaction expenses —%
Annual Expenses (as a percentage of net assets attributable to common stock):
Base management fee 2.03%(4)
Incentive fee payable under the Investment Advisory Agreement (20%) 3.96%(5)
Interest payments on borrowed funds 2.94%(6)
Other expenses 0.80%(7)
Total annual expenses 9.73%

 

  (1) In the event that the Company sells its securities publicly through underwriters or agents (including each underwritten offering by selling stockholders), the related prospectus supplement will disclose the applicable sales load.
  (2) In the event that the Company sells its securities publicly through underwriters or agents (including each underwritten offering by selling stockholders), the related prospectus supplement will disclose the estimated amount of total offering expenses (which may include offering expenses borne by third parties on the Company’s behalf), the offering price and the offering expenses borne by the Company as a percentage of the offering price.
  (3) The expenses associated with the dividend reinvestment plan are included in “Other expenses.” If a participant elects by written notice to the plan administrator prior to termination of his or her account to have the plan administrator sell part or all of the shares held by the plan administrator in the participant’s account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $15.00 transaction fee plus a $0.07 per share brokerage commission from the proceeds. See the section “Dividend Reinvestment Plan,” below.
 

(4)

The Company’s base management fee is calculated and payable quarterly in arrears at an annual rate equal to 1.75% of the Company’s “Total Equity Base,” or the NAV attributable to the common stock and the paid-in or stated capital of the Company’s preferred stock. See the section “The Adviser and the Administrator — Investment Advisory Agreement — Management Fee and Incentive Fee” in the Company’s prospectus for additional information regarding the calculation of the base management fee. The base management fee referenced in the table above is based on actual amounts incurred during the three months ended December 31, 2022, annualized for a full year, and reflects the pro forma effect of the issuance of 2.6 million shares of our common stock and 2,308 shares of our Series D Preferred Stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately $27.2 million, as if such shares were issued at the start of such period. In addition, such amount reflects the $81.6 million of the Company’s Preferred Stock outstanding as of December 31, 2022, the Company’s NAV for such period (as adjusted to account for the actions described above), and the $170.5 million aggregate principal amount of the Company’s Notes outstanding as of December 31, 2022 on which management fees are not payable. For purposes of this table, the SEC requires that the “Base management fee” percentage be calculated as a percentage of net assets attributable to common stockholders, rather than total assets, including assets that have been funded with borrowed monies because common stockholders bear all of this cost. If the management fee were calculated instead

 

 

27

 

 

    as a percentage of the Company’s total assets (as adjusted for the assumptions described above), the Company’s base management fee would be approximately 1.41% of total assets.

 

 

  (5) The incentive fee referenced in the table is based on the Company’s pre-incentive fee net investment income for the three months ended December 31, 2022, annualized for a full year, and adjusted as described below. The incentive fee referenced in the table above assumes pro forma effect of (i) the issuance in the Company’s “at-the-market” offering of 2.6 million shares of our common stock and 2,308 shares of our Series D Preferred Stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately $27.2 million; and (ii) the $0.50 per share special distribution paid on January 24, 2023 to shareholders of record as of December 23, 2022. Such actions were assumed to have taken place at the start of such period. In addition, the incentive fee also assumes that such pro forma assets representing common stock and preferred stock earn net investment income at the same rate as that earned in respect of the Company’s total deployed assets during the three months ended December 31, 2022, annualized for a full fiscal year, and is based on the total assets assumed for such period. The Company has agreed to pay the Adviser as compensation under the Investment Advisory Agreement a quarterly incentive fee equal to 20% of the Company’s Pre-Incentive Fee Net Investment Income for the immediately preceding quarter, subject to a hurdle of 2.00% of the Company’s NAV and a catch-up feature. Pre-Incentive Fee Net Investment Income includes accrued income that the Company has not yet received in cash. However, the portion of the incentive fee that is attributable to deferred interest (such as payment-in-kind, or “PIK,” interest or original issue discount, or “OID”) will be paid to the Adviser, without interest, only if and to the extent the Company actually receives such interest in cash, and any accrual 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. No incentive fees are payable to the Adviser in respect of any capital gains.

 

The incentive fee in each calendar quarter is paid to the Adviser as follows:

 

  · no incentive fee in any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the hurdle of 2.00% of the Company’s NAV;

 

  · 100% of the Company’s Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle but is less than 2.50% of the Company’s NAV in any calendar quarter. This portion of the Company’s Pre-Incentive Fee Net Investment Income (which exceeds the hurdle but is less than 2.50% of the Company’s NAV) is referred to as the “catch-up.” The “catch-up” is meant to provide the Adviser with 20% of the Company’s Pre-Incentive Fee Net Investment Income as if a hurdle did not apply if this net investment income meets or exceeds 2.50% of the Company’s NAV in any calendar quarter; and

 

  · 20% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.50% of the Company’s NAV in any calendar quarter is payable to the Adviser (that is, once the hurdle is reached and the catch-up is achieved, 20% of all Pre-Incentive Fee Net Investment Income thereafter is paid to the Adviser). For a more detailed discussion of the calculation of this fee, see “The Adviser and the Administrator — Investment Advisory Agreement — Management Fee and Incentive Fee” in the Company’s prospectus.

 

  (6) “Interest payments on borrowed funds” represents the Company’s annualized interest expense and includes dividends payable on the Preferred Stock and interest payable on the Notes, each as outstanding on December 31, 2022, and includes the pro forma effect of the issuances described above, which, in the aggregate, have a weighted average interest rate of 6.18% per annum. The Company may issue additional shares of preferred stock or debt securities. In the event that the Company were to issue additional shares of preferred stock or debt securities, the Company’s borrowing costs, and correspondingly its total annual expenses, including, in the case of such preferred stock, the base management fee as a percentage of the Company’s net assets attributable to common stock, would increase.

 

  (7) “Other expenses” includes the Company’s overhead expenses, including payments under the Administration Agreement based on the Company’s allocable portion of overhead and other expenses incurred by Eagle Point Administration LLC (“Eagle Point Administration”), the administrator to the Company and an affiliate of the Adviser, and payment of fees in connection with outsourced administrative functions, and are based on estimated amounts for the current fiscal year. See “Related Party Transactions — Administrator” in the Notes to Consolidated Financial Statements. “Other expenses” also includes the ongoing administrative expenses to the independent accountants and legal counsel of the Company, compensation of independent directors, and cost and expenses relating to rating agencies.

 

28

 

 

Example

 

The following example is furnished in response to the requirements of the SEC and illustrates the various costs and expenses that you would pay, directly or indirectly, on a $1,000 investment in shares of the Company’s common stock for the time periods indicated, assuming (1) total annual expenses of 5.77% of net assets attributable to the Company’s common stock and (2) a 5% annual return*:

 

    1
year
    3 years     5 years     10 years
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return   $58     $ 172     $ 284     $ 557

 

* The example should not be considered a representation of future returns or expenses, and actual returns and expenses may be greater or less than those shown. The example assumes that the estimated “other expenses” set forth in the Annual Expenses table are accurate, and that all dividends and distributions are reinvested at NAV. In addition, because the example assumes a 5% annual return, the example does not reflect the payment of the incentive fee. The Company’s actual rate of return may be greater or less than the hypothetical 5% return shown in the example.

 

 

29

 

 

 

Consolidated Financial Statements for the Year Ended
December 31, 2022 (Audited)

 

 

 

Consolidated Statement of Assets and Liabilities 31
   
Consolidated Schedule of Investments 32
   
Consolidated Statement of Operations 36
   
Consolidated Statement of Comprehensive Income 37
   
Consolidated Statements of Changes in Net Assets 38
   
Consolidated Statement of Cash Flows 39
   
Notes to Consolidated Financial Statements 40
   
Consolidated Financial Highlights 63
   
Supplemental Information 65
   
Report of Independent Registered Public Accounting Firm 66
 

 

30

 

 

Eagle Point Credit Company Inc. & Subsidiaries

Consolidated Statement of Assets and Liabilities

As of December 31, 2022

(expressed in U.S. dollars)

 

ASSETS      
Investments, at fair value (cost $861,144,822)   $ 667,161,148  
Cash and cash equivalents     56,833,244  
Interest receivable     35,195,767  
Receivable for shares of common stock issued pursuant to the Company's dividend reinvestment plan     725,485  
Prepaid expenses     237,264  
Total Assets     760,152,908  
         
         
LIABILITIES        
6.6875% Unsecured Notes due 2028, at fair value under the fair value option (aggregate principal amount of $32,423,800) (Note 7)     31,237,089  
         
5.375% Unsecured Notes due 2029, at fair value under the fair value option (aggregate principal amount of $93,250,000) (Note 7)     79,598,200  
         
6.75% Unsecured Notes due 2031, at fair value under the fair value option (aggregate principal amount of $44,850,000) (Note 7)     39,934,440  
         
6.50% Series C Term Preferred Stock due 2031 (Note 6):        
6.50% Series C Term Preferred Stock due 2031, at fair value under the fair value option (2,172,553 shares outstanding)     44,417,846  
Unamortized share issuance premium associated with 6.50% Series C Term Preferred Stock due 2031     159,658  
6.50% Series C Term Preferred Stock due 2031, at fair value, plus associated unamortized share issuance premium     44,577,504  
         
Common stock distribution payable     27,425,858  
Incentive fee payable     6,327,726  
Management fee payable     2,368,671  
Tax expense payable     2,106,630  
Professional fees payable     675,000  
Directors' fees payable     198,750  
Administration fees payable     174,262  
Due to affiliates     85,209  
Other expenses payable     37,920  
Total Liabilities     234,747,259  
         
TEMPORARY EQUITY        
6.75% Series D Preferred Stock (1,090,937 shares outstanding) (Note 6)     26,139,885  
         
COMMITMENTS AND CONTINGENCIES (Note 9)        
         
NET ASSETS applicable to common stock, $0.001 par value, 100,000,000 shares authorized, 55,045,981 shares issued and outstanding   $ 499,265,764  
         
NET ASSETS consist of:        
Paid-in capital (Note 5)   $ 719,702,243  
Aggregate distributable earnings (losses)     (224,948,094 )
Accumulated other comprehensive income (loss)     4,511,615  
Total Net Assets   $ 499,265,764  
Net asset value per share of common stock   $ 9.07  

 

See accompanying notes to the consolidated financial statements

 

31

 

 

Eagle Point Credit Company Inc. & Subsidiaries

Consolidated Schedule of Investments

As of December 31, 2022

(expressed in U.S. dollars)

 

Issuer (1)   Investment Description   Acquisition
Date 
(2)
  Principal
Amount
    Cost     Fair Value (3)     % of Net
Assets
Investments at fair value                                        
CLO Debt (4) (5)                                        
Structured Finance                                        
1988 CLO 1 Ltd.   Secured Note - Class E, 12.32% (3M SOFR + 8.05%, 10/15/2037)   09/23/22   $ 2,286,000     $ 2,058,124     $ 2,084,375       0.42 %
Ares XLI CLO Ltd.   Secured Note - Class E-R, 10.83% (3M LIBOR + 6.75%, 04/15/2034)   08/30/22     950,000       845,552       820,990       0.16 %
Barings CLO Ltd. 2019-III   Secured Note - Class E-R, 10.94% (3M SOFR + 6.70%, 04/20/2031)   08/29/22     525,000       480,521       469,928       0.09 %
Barings CLO Ltd. 2022-I   Secured Note - Class E, 10.96% (3M SOFR + 7.00%, 04/15/2035)   03/18/22     4,450,000       4,095,762       3,931,130       0.79 %
Barings CLO Ltd. 2022-II   Secured Note - Class E, 10.32% (3M SOFR + 7.84%, 07/15/2035)   06/21/22     1,080,000       1,069,454       990,144       0.20 %
Benefit Street Partners CLO XVII, Ltd.   Secured Note - Class E-R, 10.43% (3M LIBOR + 6.35%, 07/15/2032)   09/08/22     1,025,000       921,120       915,530       0.18 %
Carlyle US CLO 2021-1, Ltd.   Secured Note - Class D, 10.08% (3M LIBOR + 6.00%, 04/15/2034)   02/02/21     1,250,000       1,239,189       1,086,750       0.22 %
Carlyle US CLO 2022-1, Ltd.   Secured Note - Class D, 7.26% (3M SOFR + 3.40%, 04/15/2035)   03/15/22     850,000       848,725       768,570       0.15 %
CIFC Funding 2015-III, Ltd.   Secured Note - Class F-R, 11.03% (3M LIBOR + 6.80%, 04/19/2029)   02/23/18     2,450,000       2,397,786       1,832,845       0.37 %
CIFC Funding 2019-I, Ltd.   Secured Note - Class E, 11.07% (3M LIBOR + 6.83%, 04/20/2032)   08/29/22     1,025,000       951,827       937,773       0.19 %
CIFC Funding 2022-I, Ltd.   Secured Note - Class E, 10.26% (3M SOFR + 6.40%, 04/17/2035)   01/27/22     1,700,000       1,700,000       1,511,300       0.30 %
Dryden 53 CLO, Ltd.   Secured Note - Class E, 9.38% (3M LIBOR + 5.30%, 01/15/2031)   09/15/22     1,700,000       1,427,039       1,392,300       0.28 %
Dryden 53 CLO, Ltd.   Secured Note - Class F, 11.58% (3M LIBOR + 7.50%, 01/15/2031)   11/28/17     1,095,000       1,059,036       838,551       0.17 %
Flagship CLO VIII, Ltd.   Secured Note - Class F-R, 9.92% (3M LIBOR + 5.84%, 01/16/2026)   01/18/18     2,874,722             287       0.00 %
Gilbert Park CLO, Ltd.   Secured Note - Class E, 10.48% (3M LIBOR + 6.40%, 10/15/2030)   09/27/22     525,000       440,397       440,108       0.09 %
Great Lakes CLO 2014-1, Ltd.   Secured Note - Class C-R, 6.78% (3M LIBOR + 2.70%, 10/15/2029)   01/31/22     5,000,000       4,994,665       4,802,500       0.96 %
Halcyon Loan Advisors Funding 2018-1 Ltd.   Secured Note - Class A-2, 6.04% (3M LIBOR + 1.80%, 07/21/2031)   10/21/21     10,310,000       10,304,739       9,773,880       1.96 %
HarbourView CLO VII-R, Ltd.   Secured Note - Class F, 12.46% (3M LIBOR + 8.27%, 07/18/2031) (6)   05/17/18     843,288       843,239       250,035       0.05 %
KKR CLO 22 Ltd.   Secured Note - Class E, 10.24% (3M LIBOR + 6.00%, 07/20/2031)   09/13/22     650,000       572,830       542,555       0.11 %
Madison Park Funding XIV, Ltd.   Secured Note - Class E-R, 10.12% (3M LIBOR + 5.80%, 10/22/2030)   09/07/22     1,725,000       1,495,655       1,469,355       0.29 %
Marathon CLO VII Ltd.   Secured Note - Class D, 9.77% (3M LIBOR + 5.40%, 10/28/2025) (6)   02/08/18     3,129,642       1,286,955       2,173,536       0.44 %
Marathon CLO VIII Ltd.   Secured Note - Class D-R, 10.63% (3M LIBOR + 6.44%, 10/18/2031)   08/14/18     4,150,000       4,089,246       2,839,430       0.57 %
Marathon CLO XI Ltd.   Secured Note - Class D, 9.74% (3M LIBOR + 5.50%, 04/20/2031)   02/06/18     1,650,000       1,650,000       1,118,700       0.22 %
Neuberger Berman Loan Advisers CLO 40, Ltd.   Secured Note - Class E, 9.93% (3M LIBOR + 5.85%, 04/16/2033)   09/30/22     1,625,000       1,354,802       1,465,750       0.29 %
Octagon Investment Partners 27, Ltd.   Secured Note - Class F-R, 11.93% (3M LIBOR + 7.85%, 07/15/2030)   07/05/18     900,000       853,447       665,730       0.13 %
Octagon Investment Partners 44, Ltd.   Secured Note - Class E-R, 10.83% (3M LIBOR + 6.75%, 10/15/2034)   08/27/21     1,537,500       1,387,324       1,302,878       0.26 %
OZLM XXII, Ltd.   Secured Note - Class D, 9.38% (3M LIBOR + 5.30%, 01/17/2031)   02/05/18     900,000       897,702       681,030       0.14 %
Regatta X Funding Ltd.   Secured Note - Class D, 6.83% (3M LIBOR + 2.75%, 01/17/2031)   06/02/22     1,850,000       1,773,734       1,723,460       0.35 %
RR 3 Ltd.   Secured Note - Class C-R2, 6.58% (3M LIBOR + 2.50%, 01/15/2030)   10/27/21     875,000       866,398       756,263       0.15 %
Signal Peak CLO 5, Ltd.   Secured Note - Class D, 7.01% (3M LIBOR + 2.65%, 04/25/2031)   10/28/21     2,300,000       2,280,092       2,060,570       0.41 %
Steele Creek CLO 2019-1, Ltd.   Secured Note - Class E, 11.09% (3M LIBOR + 7.01%, 04/15/2032)   03/22/19     3,091,000       2,971,035       2,562,439       0.51 %
TICP CLO V 2016-1, Ltd.   Secured Note - Class E-R, 9.83% (3M LIBOR + 5.75%, 07/17/2031)   09/14/22     675,000       590,345       584,145       0.12 %
TICP CLO XI, Ltd.   Secured Note - Class E, 10.24% (3M LIBOR + 6.00%, 10/20/2031)   09/20/22     1,660,000       1,470,297       1,502,300       0.30 %
Wind River 2019-2 CLO Ltd.   Secured Note - Class E-R, 10.86% (3M SOFR + 7.00%, 01/15/2035)   02/04/22     1,175,000       1,173,531       1,052,683       0.21 %
                      60,390,568       55,347,820       11.08 %
CLO Equity (4) (7) (8)                                        
Structured Finance                                        
1988 CLO 1 Ltd.   Income Note (effective yield 6.99%, 10/15/2037) (10)   09/23/22     7,876,000       6,136,192       6,131,795       1.23 %
ALM VIII, Ltd.   Preferred Share (effective yield 0.00%, 10/20/2028) (9)   06/02/16     8,725,000             87,250       0.02 %
Anchorage Credit Funding 12, Ltd.   Income Note (effective yield 15.77%, 10/25/2038)   09/04/20     9,250,000       6,854,009       4,419,271       0.89 %
Anchorage Credit Funding 13, Ltd.   Subordinated Note (effective yield 13.57%, 07/27/2039)   05/25/21     1,200,000       1,161,657       761,157       0.15 %
Ares XXXIV CLO Ltd.   Subordinated Note (effective yield 21.45%, 04/17/2033)   09/16/20     18,075,000       7,648,674       5,958,663       1.19 %
Ares XLI CLO Ltd.   Income Note (effective yield 18.22%, 04/15/2034) (10)   11/29/16     29,388,000       15,258,823       12,277,558       2.46 %
Ares XLIII CLO Ltd.   Income Note (effective yield 16.12%, 10/15/2029) (10)   04/04/17     30,850,000       16,270,584       12,044,486       2.41 %
Ares XLIII CLO Ltd.   Subordinated Note (effective yield 16.12%, 10/15/2029)   11/10/21     1,505,000       728,978       517,502       0.10 %
Ares XLIV CLO Ltd.   Subordinated Note (effective yield 16.93%, 04/15/2034)   10/06/21     10,000,000       4,227,622       3,258,171       0.65 %
Ares XLVII CLO Ltd.   Subordinated Note (effective yield 20.04%, 04/15/2030)   10/22/20     8,500,000       4,445,428       3,140,397       0.63 %
Ares LVIII CLO Ltd.   Subordinated Note (effective yield 18.67%, 01/15/2035)   08/17/21     6,175,000       4,395,893       3,629,856       0.73 %
Ares LI CLO Ltd.   Income Note (effective yield 20.15%, 07/15/2034) (10)   01/25/19     13,353,849       8,848,897       7,347,561       1.47 %
Bain Capital Credit CLO 2016-2, Limited   Income Note (effective yield 0.00%, 01/15/2029) (9) (10)   11/30/16     16,700,000       1,368,846       250,581       0.05 %
Bain Capital Credit CLO 2021-1, Limited   Subordinated Note (effective yield 17.35%, 04/18/2034)   04/29/21     9,100,000       7,083,621       5,530,192       1.11 %
Bardin Hill CLO 2021-2 Ltd.   Subordinated Note (effective yield 22.62%, 10/25/2034) (10)   09/24/21     1,500,000       1,067,792       817,516       0.16 %
Barings CLO Ltd. 2018-I   Income Note (effective yield 11.97%, 04/15/2031) (10)   02/23/18     20,808,000       12,053,945       7,308,550       1.46 %
Barings CLO Ltd. 2019-I   Income Note (effective yield 19.87%, 04/15/2035) (10)   02/12/19     13,085,000       9,333,645       8,032,631       1.61 %
Barings CLO Ltd. 2019-II   Income Note (effective yield 20.97%, 04/15/2036) (10)   03/15/19     16,150,000       10,372,225       9,119,892       1.83 %
Barings CLO Ltd. 2020-I   Income Note (effective yield 35.07%, 10/15/2036) (10)   09/04/20     5,550,000       2,817,258       3,777,900       0.76 %
Barings CLO Ltd. 2021-II   Subordinated Note (effective yield 21.78%, 07/15/2034)   09/07/22     9,250,000       7,210,647       7,001,399       1.40 %
Barings CLO Ltd. 2021-III   Subordinated Note (effective yield 18.66%, 01/18/2035)   11/17/21     2,000,000       1,589,916       1,286,367       0.26 %
Barings CLO Ltd. 2022-I   Income Note (effective yield 25.11%, 04/15/2035) (10)   03/18/22     7,500,000       5,952,971       5,931,460       1.19 %
Barings CLO Ltd. 2022-II   Income Note (effective yield 33.74%, 07/15/2072) (10)   06/21/22     10,800,000       4,116,593       5,203,310       1.04 %
Basswood Park CLO, Ltd.   Subordinated Note (effective yield 13.86%, 04/20/2034)   08/17/21     4,750,000       4,061,547       3,059,623       0.61 %
Battalion CLO IX Ltd.   Income Note (effective yield 9.39%, 07/15/2031) (10)   07/09/15     18,734,935       11,012,487       6,073,554       1.22 %
Battalion CLO 18 Ltd.   Income Note (effective yield 36.56%, 10/15/2036) (10)   08/25/20     8,400,000       4,531,231       5,450,328       1.09 %
Battalion CLO XIX Ltd.   Income Note (effective yield 26.71%, 04/15/2034) (10)   03/11/21     8,600,000       4,914,218       4,838,597       0.97 %
Battalion CLO XXIII Ltd.   Income Note (effective yield 25.32%, 07/15/2036) (10)   05/19/22     8,800,000       7,026,386       6,059,409       1.21 %
BBAM European CLO II DAC   Subordinated Note (effective yield 12.92%, 10/15/2034) (10) (12)   11/05/21     11,460,000       11,672,823       7,117,218       1.43 %
Bear Mountain Park CLO, Ltd.   Income Note (effective yield 15.25%, 07/15/2035) (10)   07/13/22     12,875,000       12,031,044       10,033,587       2.01 %
Bethpage Park CLO, Ltd.   Income Note (effective yield 18.07%, 10/15/2036) (10)   09/24/21     14,750,000       9,330,805       7,802,014       1.56 %
BlueMountain CLO 2013-2 Ltd.   Subordinated Note (effective yield 0.00%, 10/22/2030) (11)   10/21/14     23,000,000       6,393,759       1,610,000       0.32 %
BlueMountain CLO 2018-1 Ltd.   Subordinated Note (effective yield 31.25%, 07/30/2030)   03/26/20     5,550,000       1,290,375       884,963       0.18 %
BlueMountain CLO XXIII Ltd.   Subordinated Note (effective yield 14.34%, 10/20/2031)   02/24/21     6,340,000       4,314,871       2,547,231       0.51 %
BlueMountain CLO XXIV Ltd.   Subordinated Note (effective yield 29.52%, 04/20/2034)   06/16/20     7,375,000       3,954,741       4,009,932       0.80 %
BlueMountain CLO XXV Ltd.   Subordinated Note (effective yield 26.16%, 07/15/2036)   06/23/20     6,525,000       3,898,315       3,554,790       0.71 %
Bristol Park CLO, Ltd.   Income Note (effective yield 0.00%, 04/15/2029) (10) (11)   11/01/16     34,250,000       17,380,915       7,606,126       1.52 %
Carlyle Global Market Strategies CLO 2014-5, Ltd.   Subordinated Note (effective yield 9.62%, 07/15/2031)   06/02/16     10,800,000       3,365,864       1,849,391       0.37 %

 

See accompanying notes to the consolidated financial statements

 

32

 

 

Eagle Point Credit Company Inc. & Subsidiaries

Consolidated Schedule of Investments

As of December 31, 2022

(expressed in U.S. dollars)

 

Issuer (1)   Investment Description   Acquisition
Date
(2)
  Principal
Amount
    Cost     Fair Value (3)     % of Net
Assets
CLO Equity (4) (7) (8) (continued)                                        
Structured Finance (continued)                                        
Carlyle US CLO 2017-4, Ltd.   Income Note (effective yield 2.30%, 01/15/2030)   10/13/17   $ 9,000,000     $ 4,774,310     $ 2,407,357       0.48 %
Carlyle US CLO 2018-1, Ltd.   Subordinated Note (effective yield 12.27%, 04/20/2031)   03/23/21     4,730,000       2,460,683       1,362,196       0.27 %
Carlyle US CLO 2018-4, Ltd.   Subordinated Note (effective yield 13.40%, 01/20/2031)   02/18/21     6,625,000       4,453,803       2,736,863       0.55 %
Carlyle US CLO 2019-4, Ltd.   Subordinated Note (effective yield 23.11%, 04/15/2035) (10)   04/13/21     7,005,000       5,276,165       4,906,992       0.98 %
Carlyle US CLO 2021-1, Ltd.   Income Note (effective yield 24.42%, 04/15/2034) (10)   02/02/21     13,425,000       7,414,813       7,064,323       1.41 %
Carlyle US CLO 2021-4, Ltd.   Subordinated Note (effective yield 16.54%, 04/20/2034)   11/17/21     11,475,000       10,209,753       8,293,327       1.66 %
Carlyle US CLO 2021-7, Ltd.   Income Note (effective yield 21.14%, 10/15/2035) (10)   08/11/21     10,400,000       7,524,067       6,732,728       1.35 %
Carlyle US CLO 2022-1, Ltd.   Income Note (effective yield 22.00%, 04/15/2035) (10)   03/15/22     8,150,000       6,204,375       5,871,668       1.18 %
CIFC Funding 2013-II, Ltd.   Income Note (effective yield 0.00%, 10/18/2030) (10) (11)   06/06/14     17,265,625       5,266,484       2,298,949       0.46 %
CIFC Funding 2014, Ltd.   Income Note (effective yield 0.00%, 01/18/2031) (10) (11)   06/06/14     16,033,750       5,655,689       2,292,728       0.46 %
CIFC Funding 2014-III, Ltd.   Income Note (effective yield 1.93%, 10/22/2031)   02/17/15     19,725,000       6,958,124       3,123,765       0.63 %
CIFC Funding 2014-IV-R, Ltd.   Income Note (effective yield 14.28%, 01/17/2035)   08/05/14     8,457,500       3,297,523       1,867,664       0.37 %
CIFC Funding 2015-III, Ltd.   Income Note (effective yield 0.00%, 04/19/2029) (10) (11)   06/23/15     9,724,324       2,852,732       1,102,536       0.22 %
CIFC Funding 2019-III, Ltd.   Subordinated Note (effective yield 19.57%, 10/16/2034)   04/18/19     2,875,000       2,126,270       1,889,458       0.38 %
CIFC Funding 2019-IV, Ltd.   Income Note (effective yield 18.21%, 10/15/2036) (10)   06/07/19     14,000,000       10,196,573       8,630,405       1.73 %
CIFC Funding 2020-I, Ltd.   Income Note (effective yield 33.17%, 07/15/2032) (10)   06/12/20     9,400,000       5,042,291       6,430,865       1.29 %
CIFC Funding 2020-IV, Ltd.   Income Note (effective yield 21.41%, 01/15/2034) (10)   12/11/20     7,900,000       5,666,886       5,337,209       1.07 %
CIFC Funding 2021-III, Ltd.   Income Note (effective yield 20.43%, 07/15/2036) (10)   04/23/21     17,275,000       10,397,031       9,368,752       1.88 %
CIFC Funding 2021-VI, Ltd.   Income Note (effective yield 20.94%, 10/15/2034) (10)   09/22/21     12,200,000       9,247,659       8,586,054       1.72 %
CIFC Funding 2022-I, Ltd.   Income Note (effective yield 20.44%, 04/17/2037) (10)   01/27/22     12,950,000       10,394,150       9,768,254       1.96 %
CIFC Funding 2022-VI, Ltd.   Income Note (effective yield 19.02%, 07/16/2035) (10)   08/01/22     10,700,000       8,611,435       6,750,657       1.35 %
Cutwater 2015-I, Ltd.   Income Note (effective yield 0.00%, 01/15/2029) (10) (11)   05/01/15     31,100,000       9,331,302       2,576,521       0.52 %
Dewolf Park CLO, Ltd.   Income Note (effective yield 0.00%, 10/15/2030) (10) (11)   08/10/17     7,700,000       4,768,917       2,240,973       0.45 %
Dryden 53 CLO, Ltd.   Income Note (effective yield 6.13%, 01/15/2031)   11/28/17     7,684,999       3,901,029       2,102,531       0.42 %
Dryden 64 CLO, Ltd.   Subordinated Note (effective yield 28.04%, 04/18/2031)   05/11/20     9,600,000       3,891,114       2,859,594       0.57 %
Dryden 66 Euro CLO 2018 B.V.   Subordinated Note (effective yield 0.00%, 01/18/2032) (11) (12)   11/08/18     1,025,000       767,502       340,167       0.07 %
Dryden 68 CLO, Ltd.   Income Note (effective yield 17.62%, 07/15/2049) (10)   05/30/19     14,080,000       9,463,554       7,333,933       1.47 %
Dryden 78 CLO, Ltd.   Subordinated Note (effective yield 16.94%, 04/17/2033)   02/04/21     1,000,000       789,224       602,850       0.12 %
Dryden 85 CLO, Ltd.   Income Note (effective yield 26.13%, 10/15/2049) (10)   09/17/20     8,610,000       6,218,269       6,368,217       1.28 %
Dryden 88 Euro CLO 2020 DAC   Subordinated Note (effective yield 11.04%, 07/20/2034) (12)   04/23/21     600,000       594,986       329,445       0.07 %
Dryden 94 CLO, Ltd.   Income Note (effective yield 21.28%, 07/15/2037) (10)   04/28/22     12,200,000       9,964,704       10,442,550       2.09 %
Eaton Vance CLO 2015-1, Ltd.   Subordinated Note (effective yield 8.37%, 01/20/2030)   06/05/20     6,372,500       2,367,587       1,364,491       0.27 %
Eaton Vance CLO 2020-2, Ltd.   Subordinated Note (effective yield 20.74%, 01/15/2035)   09/16/22     11,175,000       8,185,805       7,937,459       1.59 %
Generate CLO 9 Ltd.   Subordinated Note (effective yield 20.61%, 10/20/2034)   04/27/22     5,000,000       4,076,476       3,746,497       0.75 %
Greywolf CLO IV, Ltd.   Subordinated Note (effective yield 20.30%, 04/17/2030)   03/26/21     7,520,000       4,179,313       3,052,121       0.61 %
HarbourView CLO VII-R, Ltd.   Subordinated Note (effective yield 0.00%, 07/18/2031) (11)   09/29/17     1,100,000       399,175       110       0.00 %
Lake Shore MM CLO I Ltd.   Income Note (effective yield 28.45%, 04/15/2033) (10)   03/08/19     14,550,000       9,442,472       8,933,495       1.79 %
KKR CLO 36 Ltd.   Subordinated Note (effective yield 21.08%, 10/15/2034)   05/03/22     6,000,000       4,733,730       4,185,108       0.84 %
Madison Park Funding XXI, Ltd.   Subordinated Note (effective yield 24.84%, 10/15/2049)   08/22/16     6,462,500       3,749,888       3,341,448       0.67 %
Madison Park Funding XXII, Ltd.   Subordinated Note (effective yield 18.69%, 01/15/2033)   10/30/18     6,327,082       3,917,411       3,075,848       0.62 %
Madison Park Funding XXXIV, Ltd.   Subordinated Note (effective yield 24.68%, 04/25/2032)   09/27/22     8,300,000       5,205,981       5,096,856       1.02 %
Madison Park Funding XL, Ltd.   Subordinated Note (effective yield 12.29%, 02/28/2047)   06/02/16     16,550,000       6,282,597       3,906,087       0.78 %
Madison Park Funding XLIV, Ltd.   Subordinated Note (effective yield 19.69%, 01/23/2048)   11/16/18     8,744,821       5,126,974       4,457,575       0.89 %
Madison Park Funding XLVII, Ltd.   Subordinated Note (effective yield 19.15%, 01/19/2034)   04/29/21     2,000,000       1,628,460       1,610,225       0.32 %
Marathon CLO VI Ltd.   Subordinated Note (effective yield 0.00%, 05/13/2028) (11)   06/06/14     6,375,000       191,250       191,250       0.04 %
Marathon CLO VII Ltd.   Subordinated Note (effective yield 0.00%, 10/28/2025) (11)   10/30/14     10,526,000       52,630       1,053       0.00 %
Marathon CLO VIII Ltd.   Income Note (effective yield 0.00%, 10/18/2031) (11)   06/16/15     16,333,000       7,980,531       2,613,280       0.52 %
Marathon CLO X Ltd.   Subordinated Note (effective yield 0.00%, 11/15/2029) (11)   08/09/17     2,550,000       229,500       229,500       0.05 %
Marathon CLO XI Ltd.   Subordinated Note (effective yield 0.00%, 04/20/2031) (11)   02/06/18     2,075,000       1,307,053       518,750       0.10 %
Marathon CLO XII Ltd.   Subordinated Note (effective yield 0.00%, 04/18/2031) (11)   09/06/18     4,500,000       2,608,075       1,035,000       0.21 %
OCP Euro CLO 2019-3 DAC   Subordinated Note (effective yield 15.71%, 04/20/2033) (12)   05/26/21     1,500,000       1,347,407       832,607       0.17 %
Octagon Investment Partners XIV, Ltd.   Income Note (effective yield 0.00%, 07/15/2029) (10) (11)   06/06/14     20,572,125       6,294,011       1,895,377       0.38 %
Octagon Investment Partners 26, Ltd.   Income Note (effective yield 17.50%, 07/15/2030) (10)   03/23/16     13,750,000       5,015,923       3,348,871       0.67 %
Octagon Investment Partners 27, Ltd.   Income Note (effective yield 17.65%, 07/15/2030) (10)   05/25/16     11,804,048       4,710,257       3,011,050       0.60 %
Octagon Investment Partners 29, Ltd.   Subordinated Note (effective yield 12.29%, 01/24/2033)   05/05/21     9,875,000       6,662,694       4,298,272       0.86 %
Octagon Investment Partners 37, Ltd.   Subordinated Note (effective yield 9.59%, 07/25/2030)   05/25/21     1,550,000       991,701       587,681       0.12 %
Octagon Investment Partners 44, Ltd.   Income Note (effective yield 19.11%, 07/20/2034) (10)   06/19/19     13,500,000       9,252,780       7,595,608       1.52 %
Octagon Investment Partners 46, Ltd.   Income Note (effective yield 36.76%, 07/15/2036) (10)   06/26/20     10,650,000       4,752,689       6,038,375       1.21 %
Octagon Investment Partners 48, Ltd.   Subordinated Note (effective yield 18.06%, 10/20/2034)   03/25/22     10,000,000       8,189,085       7,127,308       1.43 %
Octagon Investment Partners 50, Ltd.   Income Note (effective yield 26.83%, 01/16/2035) (10)   10/06/20     9,250,000       5,276,755       5,700,189       1.14 %
Octagon 51, Ltd.   Income B Note (effective yield 17.26%, 07/20/2034)   04/16/21     10,350,000       8,266,158       6,981,225       1.40 %
Octagon 55, Ltd.   Subordinated Note (effective yield 16.08%, 07/20/2034)   02/11/22     8,700,000       6,867,974       5,619,469       1.13 %
Octagon 58, Ltd.   Income Note (effective yield 22.61%, 07/15/2037) (10)   04/21/22     14,900,000       11,987,586       13,110,975       2.63 %
OFSI BSL VIII, Ltd.   Income Note (effective yield 0.00%, 08/16/2037) (10) (11)   07/18/17     7,719,320       3,815,109       868,060       0.17 %
Regatta VII Funding Ltd.   Subordinated Note (effective yield 11.81%, 12/20/2028)   10/01/21     6,450,000       2,792,690       1,593,386       0.32 %
Regatta VII Funding Ltd.   Class R1A Note (effective yield 54.09%, 06/20/2034)   10/01/21     10,126,500       20,209       27,872       0.01 %
Regatta VII Funding Ltd.   Class R2 Note (effective yield 102.56%, 06/20/2034)   10/01/21     10,126,500       116,639       250,721       0.05 %
Regatta XX Funding Ltd.   Income Note (effective yield 19.51%, 10/15/2034) (10)   08/04/21     11,000,000       7,321,299       6,499,009       1.30 %
Regatta XXI Funding Ltd.   Subordinated Note (effective yield 18.46%, 10/20/2034)   06/10/22     9,000,000       6,535,732       5,667,619       1.14 %
Rockford Tower CLO 2019-1, Ltd.   Subordinated Note (effective yield 19.70%, 04/20/2034)   06/14/21     10,300,000       7,434,308       5,571,801       1.12 %
Rockford Tower CLO 2021-3, Ltd.   Subordinated Note (effective yield 17.13%, 10/20/2034)   04/22/22     26,264,625       20,707,779       14,170,137       2.84 %
Steele Creek CLO 2015-1, Ltd.   Subordinated Note (effective yield 0.00%, 05/21/2029) (9)   07/26/17     8,100,000       651,863       32,400       0.01 %
Steele Creek CLO 2018-1, Ltd.   Income Note (effective yield 8.62%, 04/15/2048) (10)   03/28/18     11,370,000       6,378,842       3,083,354       0.62 %
Steele Creek CLO 2019-1, Ltd.   Income Note (effective yield 13.98%, 04/15/2049) (10)   03/22/19     8,500,000       5,828,451       3,049,608       0.61 %
Taconic Park CLO Ltd.   Subordinated Note (effective yield 0.00%, 01/20/2029) (9)   01/14/22     10,700,000       436,709       428,000       0.09 %

 

See accompanying notes to the consolidated financial statements

 

33

 

 

Eagle Point Credit Company Inc. & Subsidiaries

Consolidated Schedule of Investments

As of December 31, 2022

(expressed in U.S. dollars)

 

Issuer (1)   Investment Description   Acquisition
Date
(2)
  Principal
Amount
    Cost     Fair Value (3)     % of Net
Assets
CLO Equity (4) (7) (8) (continued)                                        
Structured Finance (continued)                                        
Venture 41 CLO, Limited   Subordinated Note (effective yield 23.75%, 01/20/2034)   11/30/21   $ 3,325,000     $ 2,523,996     $ 2,031,857       0.41 %
Whetstone Park CLO, Ltd.   Subordinated Note (effective yield 18.08%, 01/20/2035)   05/03/22     10,560,000       8,529,148       7,325,938       1.47 %
Wind River 2013-2 CLO Ltd.   Income Note (effective yield 0.00%, 10/18/2030) (10) (11)   06/06/14     11,597,500       5,193,057       1,792,053       0.36 %
Wind River 2014-1 CLO Ltd.   Subordinated Note (effective yield 0.00%, 07/18/2031) (11)   05/05/16     9,681,764       3,216,011       1,258,629       0.25 %
Wind River 2014-3 CLO Ltd.   Subordinated Note (effective yield 2.17%, 10/22/2031)   12/17/14     11,000,000       5,109,166       2,068,882       0.41 %
Wind River 2016-1 CLO Ltd.   Income Note (effective yield 0.00%, 07/15/2028) (9) (10)   05/18/16     13,050,000       400,705       162,173       0.03 %
Wind River 2016-1 CLO Ltd.   Subordinated Note (effective yield 0.00%, 07/15/2028) (9)   05/18/16     900,000             10,800       0.00 %
Wind River 2017-1 CLO Ltd.   Income Note (effective yield 18.98%, 04/18/2036) (10)   02/02/17     17,700,000       10,217,974       7,109,252       1.42 %
Wind River 2017-3 CLO Ltd.   Income Note (effective yield 16.88%, 04/15/2035) (10)   08/09/17     23,940,000       14,982,553       10,946,358       2.19 %
Wind River 2018-1 CLO Ltd.   Income Note (effective yield 14.92%, 07/15/2030) (10)   06/22/18     15,750,000       10,200,415       5,782,687       1.16 %
Wind River 2019-2 CLO Ltd.   Income Note (effective yield 25.57%, 01/15/2035) (10)   09/20/19     13,470,000       8,380,344       7,653,043       1.53 %
Wind River 2022-2 CLO Ltd.   Income Note (effective yield 27.00%, 07/20/2035) (10)   06/03/22     8,950,000       6,983,050       7,811,793       1.56 %
Zais CLO 3, Limited   Income Note (effective yield 14.01%, 07/15/2031) (10)   04/08/15     16,871,644       7,387,484       2,915,029       0.58 %
Zais CLO 5, Limited   Subordinated Note (effective yield 0.00%, 10/15/2028) (11)   09/23/16     5,950,000       2,946,646       178,500       0.04 %
Zais CLO 6, Limited   Subordinated Note (effective yield 0.00%, 07/15/2029) (10) (11)   05/03/17     11,600,000       4,757,391       977,508       0.20 %
Zais CLO 7, Limited   Income Note (effective yield 0.00%, 04/15/2030) (11)   09/11/17     12,777,500       5,889,285       1,277,750       0.26 %
Zais CLO 8, Limited   Subordinated Note (effective yield 0.00%, 04/15/2029) (11)   10/11/18     750,000       363,649       97,500       0.02 %
Zais CLO 9, Limited   Subordinated Note (effective yield 12.02%, 07/20/2031)   10/29/18     3,015,000       1,695,298       683,671       0.14 %
                      739,940,744       551,118,309       110.41 %
Loan Accumulation Facilities (4) (7) (13)                                         
Structured Finance                                        
Steamboat XXXII Ltd.   Loan Accumulation Facility   11/22/21     5,829,000       5,829,000       5,818,141       1.17 %
Steamboat XXXVI Ltd.   Loan Accumulation Facility   10/11/22     950,000       950,000       950,000       0.19 %
Steamboat XXXVII Ltd.   Loan Accumulation Facility   01/20/22     10,422,500       10,422,500       10,444,864       2.09 %
Steamboat XXXIX Ltd.   Loan Accumulation Facility   04/13/22     4,817,500       4,817,500       4,824,379       0.97 %
Steamboat XLI Ltd.   Loan Accumulation Facility   10/11/22     2,411,250       2,411,250       2,411,250       0.48 %
Steamboat XLII Ltd.   Loan Accumulation Facility   09/06/22     1,372,500       1,372,500       1,376,991       0.28 %
                      25,802,750       25,825,625       5.18 %
Asset Backed Securities (4) (5) (7)                                        
Structured Finance                                        
Autonoria Spain 2022 FT   Note - Class G, 13.89% (1M EURIBOR + 12.00%, 01/31/2040) (12)   09/14/22     2,700,000       2,694,195       2,890,485       0.58 %
AASFL 2022-1   Credit Linked Note - Class B, 14.05% (1M EURIBOR + 12.50%, 12/27/2030) (12)   11/22/22     3,100,000       3,192,845       3,318,705       0.66 %
CRAFT 2022-1A   Credit Linked Note, 14.57% (SOFR + 12.00%, 04/21/2032)   10/26/22     4,300,000       4,300,000       4,321,500       0.87 %
LOFT 2022-1A   Note - Class C, 21.97% (SOFR + 19.00%, 02/28/2032)   08/22/22     1,700,000       1,700,000       1,670,250       0.33 %
PXL 2022-1   Junior Credit Linked Note, 15.00% (3M EURIBOR + 12.875%, 12/29/2029) (12)   12/16/22     3,800,000       4,025,340       4,068,090       0.81 %
Boreal Series 2022-2   Guarantee Linked Note - Class F, 17.75% (3M CDOR + 13.00%, 02/20/2028) (14)   11/30/22     4,550,000       3,382,020       3,360,501       0.67 %
Muskoka Series 2022-1   Guarantee Linked Note - Class F, 12.67% (SOFR + 10.25%, 11/10/2027)   10/12/22     3,800,000       3,800,000       3,801,140       0.76 %
Standard Chartered 7   Note - Class B, 13.48% (SOFR + 11.00%, 04/25/2031)   10/07/22     6,100,000       6,100,000       6,100,000       1.22 %
                      29,194,400       29,530,671       5.90 %
Bank Debt Term Loan (4) (5)                                        
Consumer Products                                        
JP Intermediate B LLC   Term B 1L Senior Secured Loan, 9.91% (3M LIBOR + 5.50%, 11/20/2025)   03/02/21     574,220       553,834       419,181       0.08 %
                                         
Common Stock (4)                                        
Oil & Gas                                        
McDermott International Ltd   Common Stock   12/31/20     243,875       126,820       97,550       0.02 %
                                         
Leisure                                        
All Day Holdings LLC   Common Stock   08/19/22     560             8       0.00 %
                                         
Financial Services                                        
Lender MCS Holdings, Inc.   Common Stock   08/12/22     589             19,437       0.00 %
                      126,820       116,995       0.02 %
                                         
Corporate Bonds (5)                                        
Chemicals                                        
Unifrax Escrow Issuer Corp   Secured, 5.25% (09/30/2028) (4)   09/15/21     512,000       521,696       414,080       0.08 %
Unifrax Escrow Issuer Corp   Senior Unsecured, 7.50% (09/30/2029) (4)   09/16/21     171,000       175,849       112,433       0.02 %
                                         
Financial Services                                        
Owl Rock Core Income Corp   Senior Unsecured, 7.75% (09/16/2027) (4)   09/09/22     1,625,000       1,620,609       1,619,564       0.32 %
                                         
Oil & Gas                                        
Energy Ventures Gom LLC / EnVen Finance Corp   Second Lien, 11.75% (04/15/2026) (4)   06/15/21     566,000       584,607       585,810       0.12 %
GAC Holdco Inc   Secured, 12.00% (08/15/2025) (4)   10/18/21     350,000       363,956       374,500       0.08 %
                                         
Pipelines                                        
NGL Energy Partners LP / NGL Energy Finance Corp   Senior Unsecured, 6.13% (03/01/2025)   06/24/21     1,010,000       953,275       823,150       0.16 %
                                         
Transportation                                        
Seaspan Corp   Senior Unsecured, 5.50% (08/01/2029) (4)   07/09/21     901,000       889,359       684,760       0.14 %
                      5,109,351       4,614,297       0.92 %

 

See accompanying notes to the consolidated financial statements

 

34

 

 

Eagle Point Credit Company Inc. & Subsidiaries

Consolidated Schedule of Investments

As of December 31, 2022

(expressed in U.S. dollars)

 

Issuer (1)   Investment Description   Acquisition
Date
(2)
  Principal
Amount
    Cost     Fair Value (3)     % of Net
Assets
Warrants (4)                                
Oil & Gas                                        
GAC Holdco Inc   Warrant   10/18/21   $ 502     $ 26,355     $ 188,250       0.04 %
                                         
Total investments at fair value as of December 31, 2022                   $ 861,144,822     $ 667,161,148       133.63 %
                                         
Liabilities at fair value (15)                                        
6.6875% Unsecured Notes due 2028   Unsecured Note       $ (32,423,800 )   $ (32,423,800 )   $ (31,237,089 )     -6.26 %
5.375% Unsecured Notes due 2029   Unsecured Note         (93,250,000 )     (93,250,000 )     (79,598,200 )     -15.94 %
6.75% Unsecured Notes due 2031   Unsecured Note         (44,850,000 )     (44,850,000 )     (39,934,440 )     -8.00 %
6.50% Series C Term Preferred Stock due 2031   Preferred Stock         (54,313,825 )     (54,473,483 )     (44,417,846 )     -8.90 %
Total liabilities at fair value as of December 31, 2022                   $ (224,997,283 )   $ (195,187,575 )     -39.10 %
                                         
Net assets above (below) fair value of investments and liabilities at fair value                         27,292,191          
                                         
Net assets as of December 31, 2022                           $ 499,265,764          

 

(1) The Company is not affiliated with, nor does it "control" (as such term is defined in the Investment Company Act of 1940 (the "1940 Act")), any of the issuers listed. In general, under the 1940 Act, the Company would be presumed to "control" an issuer if it owned 25% or more of its voting securities.
(2) Acquisition date represents the initial date of purchase or the date the investment was contributed to the Company at the time of the Company's formation.
(3) Fair value is determined by the Adviser in accordance with written valuation policies and procedures, subject to oversight by the Company’s Board of Directors, in accordance with Rule 2a-5 under the 1940 Act.
(4) Securities exempt from registration under the Securities Act of 1933, and are deemed to be “restricted securities”. As of December 31, 2022, the aggregate fair value of these securities is $666.3 million, or 133.47% of the Company’s net assets.
(5) CLO debt, asset backed security, bank debt term loan and corporate bond investments reflect interest rates as of the reporting date.
(6) As of December 31, 2022, the investment includes interest income capitalized as additional investment principal ("PIK" Interest). The PIK interest rate for CLO debt positions represents the interest rate at payment date when PIK interest is received. See Note 2 "Summary of Significant Accounting Policies" for further discussion.
(7) The fair value of CLO equity, loan accumulation facility and asset backed security investments are classified as Level III investments. See Note 3 "Investments" for further discussion.
(8) CLO subordinated notes and income notes are considered CLO equity positions. CLO equity positions are entitled to recurring distributions which are generally equal to the remaining cash flow of payments made by underlying assets less contractual payments to debt holders and fund expenses. The effective yield is estimated based upon the current projection of the amount and timing of these recurring distributions in addition to the estimated amount of terminal principal payment. 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. The effective yield and investment cost may ultimately not be realized. As of December 31, 2022, the Company's weighted average effective yield on its aggregate CLO equity positions, based on current amortized cost, was 16.17%. When excluding called CLOs, the Company's weighted average effective yield on its CLO equity positions was 16.23%.
(9) As of December 31, 2022 the investment has been called. Expected value of residual distributions, once received, is anticipated to be recognized as return of capital, pending any remaining amortized cost, and/or realized gain for any amounts received in excess of such amortized cost.
(10) Fair value includes the Company's interest in fee rebates on CLO subordinated and income notes.
(11) As of December 31, 2022, the effective yield has been estimated to be 0%. The aggregate projected amount of future recurring distributions and terminal principal payment is less than the amortized investment cost. Future recurring distributions, once received, will be recognized solely as return of capital until the aggregate projected amount of future recurring distributions and terminal principal payment exceeds the amortized investment cost.
(12) Investment principal amount is denominated in EUR.
(13) Loan accumulation facilities are financing structures intended to aggregate loans that may be used to form the basis of a CLO vehicle.
(14) Investment principal amount is denominated in CAD.
(15) The Company has accounted for its 6.6875% Notes due 2028, 5.375% Notes due 2029, 6.75% Notes due 2031 and 6.50% Series C Term Preferred Stock utilizing the fair value option election under ASC Topic 825. Accordingly, the aforementioned notes and preferred stock are carried at their fair value. See Note 2 "Summary of Significant Accounting Policies" for further discussion.

 

Reference Key:

EUR Euro
EURIBOR Euro London Interbank Offered Rate
SOFR Secured Overnight Financing Rate
LIBOR London Interbank Offered Rate
CAD Canadian Dollar
CDOR Canadian Dollar Offered Rate

 

See accompanying notes to the consolidated financial statements

 

35

 

 

Eagle Point Credit Company Inc. & Subsidiaries

Consolidated Statement of Operations

For the year ended December 31, 2022

(expressed in U.S. dollars)

 

INVESTMENT INCOME      
Interest income   $ 111,036,325  
Other income     7,398,081  
Total Investment Income     118,434,406  
         
EXPENSES        
Incentive fee     16,684,419  
Interest expense     14,129,470  
Management fee     9,675,011  
Commission expense     3,078,132  
Tax expense (1)     2,150,193  
Professional fees     1,522,766  
Administration fees     1,084,071  
Directors' fees     397,500  
Other expenses     1,151,603  
Total Expenses     49,873,165  
         
Incentive fee voluntarily waived by the Adviser (Note 4)     (302,087 )
         
Net Expenses     49,571,078  
         
NET INVESTMENT INCOME     68,863,328  
         
6.75% Series D Preferred Stock distributions (Note 2)     (1,823,567 )
         
REALIZED AND UNREALIZED GAIN (LOSS)        
Net realized gain (loss) on investments, foreign currency and cash equivalents     1,418,270  
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     (196,938,804 )
Net change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option    

26,355,476

 

NET REALIZED AND UNREALIZED GAIN (LOSS)     (170,675,494 )
         
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS   $ (103,635,733 )

 

(1) Tax expense includes $2,049,516 of estimated excise tax and $100,050 of Delaware franchise tax.

 

See accompanying notes to the consolidated financial statements

 

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Eagle Point Credit Company Inc. & Subsidiaries

Consolidated Statement of Comprehensive Income

For the year ended December 31, 2022

(expressed in U.S. dollars)

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS   $ (103,635,733 )
         
OTHER COMPREHENSIVE INCOME (LOSS) (1)        
Change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option     6,738,292  
Total Other Comprehensive Income (Loss)     6,738,292  
         
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM COMPREHENSIVE INCOME   $ (96,897,441 )

 

  (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

 

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Eagle Point Credit Company Inc. & Subsidiaries

Consolidated Statements of Changes in Net Assets

(expressed in U.S. dollars, except share amounts)

 

    For the       For the  
    year ended       year ended  
    December 31, 2022       December 31, 2021  
Net increase (decrease) in net assets resulting from operations:                  
Net investment income   $ 68,863,328       $ 44,678,902  
6.75% Series D Preferred Stock distributions (Note 2)     (1,823,567 )       (150,000 )
Net realized gain (loss) on investments, foreign currency and cash equivalents     1,418,270         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     (196,938,804 )       85,334,382  
Net change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option    

26,355,476

        (756,021 )
Total net increase (decrease) in net assets resulting from operations     (103,635,733 )       131,706,262  
                   
Other comprehensive income (loss):                  
Net change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option    

6,738,292

        (2,739,575 )
Total other comprehensive income (loss)    

6,738,292

        (2,739,575 )
                   
Common stock distributions:                  
Total earnings distributed (1)     (112,391,358 )       (57,679,486 )
Common stock distributions from tax return of capital              
Total common stock distributions     (112,391,358 )       (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     196,920,153         67,073,258  
Issuance of shares of common stock pursuant to the Company's dividend reinvestment plan     9,330,075         2,283,188  
Total capital share transactions     206,250,228         69,356,446  
                   
Total increase (decrease) in net assets     (3,038,571 )       140,643,647  
Net assets at beginning of period     502,304,335         361,660,688  
Net assets at end of period   $ 499,265,764       $ 502,304,335  
                   
Capital share activity:                  
Shares of common stock sold pursuant to the Company's "at the market" program     16,701,146         5,001,120  
Shares of common stock issued pursuant to the Company's dividend reinvestment plan     818,025         170,800  
Total increase (decrease) in capital share activity     17,519,171         5,171,920  

 

  (1)  Total earnings distributed includes a $27,425,858 special common stock distribution, payable on January 24, 2023 to holders of record as of December 23, 2022.

 

See accompanying notes to the consolidated financial statements

 

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Eagle Point Credit Company Inc. & Subsidiaries

Consolidated Statement of Cash Flows

For the year ended December 31, 2022

(expressed in U.S. dollars)

 

CASH FLOWS FROM OPERATING ACTIVITIES      
Net increase (decrease) in net assets resulting from operations   $ (103,635,733 )
         
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:        
Purchases of investments     (342,495,599 )
Proceeds from sales of investments and repayments of principal (1)     210,487,892  
Payment-in-kind interest     12,495  
Net realized (gain) loss on investments, foreign currency and cash equivalents     (1,418,270 )
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     196,938,804  
Net change in unrealized appreciation (depreciation) on liabilities at fair value under the fair value option    

(26,355,476

)
Amortization (accretion) included in interest expense     (64,709 )
Amortization (accretion) of premiums or discounts on debt securities     (122,062 )
Changes in assets and liabilities:        
Interest receivable     (12,501,396 )
Prepaid expenses     101,101  
Incentive fee payable     2,822,746  
Management fee payable     (238,023 )
Professional fees payable     16,019  
Administration fees payable     28,387  
Due to affiliates     85,209  
Tax expense payable     (120,484 )
Other expenses payable     (26,142 )
Net cash provided by (used in) operating activities     (74,974,805 )
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Common stock distributions, net of change in common stock distribution payable     (103,430,382 )
Issuance of shares of common stock pursuant to the Company's "at the market" program, net of commissions and offering expenses     196,920,153  
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     8,968,603  
Issuance of 6.50% Series C Term Preferred Stock due 2031 pursuant to the Company's "at the market" program     8,142,875  
Share issuance premium associated with 6.50% Series C Term Preferred Stock due 2031     42,790  
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     117,874,649  
         
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     42,899,844  
         
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS     16,799  
         
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     13,916,601  
         
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 56,833,244  
         
Supplemental disclosures:        
Cash paid for interest expense   $ 14,194,179  
Cash paid for excise tax   $ 2,170,000  
Cash paid for 6.75% Series D Preferred Stock distributions   $ 1,823,567  
Cash paid for franchise taxes   $ 100,050  

 

  (1)  Proceeds from sales or maturity of investments includes $80,090,568 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

 

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Eagle Point Credit Company Inc. & Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022

 

 

 

  1. ORGANIZATION

 

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 December 31, 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 December 31, 2022, Sub I and Sub II represent 39.7% and 4.6% 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.

 

Wells Fargo Bank, National Association 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”).

 

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Eagle Point Credit Company Inc. & Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022

 

 

 

  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 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. Pursuant to Rule 2a-5 under the 1940 Act, the Board has elected to designate the Adviser as “valuation designee” to perform fair value determinations in respect of the Company’s portfolio investments that do not have readily available market quotations. In the absence of readily available market quotations, as defined by Rule 2a-5 under the 1940 Act, the Adviser determines the fair value of the Company’s investments in accordance with its written valuation policy, subject to Board oversight. 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). In accordance with Rule 2a-5 under the 1940 Act adopted by the SEC in December 2020, the Board has designated the Adviser to perform the determination of fair value of the Company’s investment portfolio, subject to Board oversight and certain other conditions.

 

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.

 

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Eagle Point Credit Company Inc. & Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022

 

 

 

  · 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.

 

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 Adviser’s valuation policy.

 

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 Adviser 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, LAFs and Asset Backed Securities (“ABS”), the Adviser considers a variety of relevant factors, including, as applicable, price indications from a third-party pricing service, non-binding price indications from brokers, 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.

  

A third-party independent valuation firm is used as an input by the Adviser to determine the fair value of the Company’s investments in CLO equity. The valuation firm’s advice is only one factor considered in the valuation of such investments, and the Adviser 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 December 31, 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 December 31, 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  

 

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Eagle Point Credit Company Inc. & Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022

 

 

 

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.

 

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, ABS, bank debt term loans and corporate bonds 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, ABS, bank debt term loans and corporate bonds is generally expected to be received in cash. 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, ABS, bank debt term loans and corporate bonds. Amortization of premium or accretion of discount is recognized using the effective interest method.

 

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 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 investment. To the extent the Company does not believe it will be able to collect PIK interest, the investment 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 Adviser’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

 

43