Eagle Point Credit: 15% Yield, Monthly Payer, And Alternatives

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Does your portfolio person vulnerability to CLO-related finance vehicles? CLOs, Collateralized Loan Obligations, are securitizations of a portfolio of Senior Secured Loans. Funds for illustration Eagle Point Credit Company LLC (NYSE:ECC) put successful CLOs. The CLO marketplace is nan largest root of superior for nan U.S. elder secured indebtedness market. As of 9/30/22, nan CLO marketplace had measurement of $144.7B and was connected gait to group a caller record.

ECC site

CLOs predominate nan request for Institutional Leveraged Loans, pinch a 59% share, followed distantly by banks, astatine 17%, and various types of funds, astatine 8%:

ECC site

Profile:

Eagle Point is simply a closed ended fund, a CEF, launched and managed by Eagle Point Credit Management LLC. It is focused connected CLO securities and related investments (as good arsenic different income-oriented investments), and each personnel of nan elder finance squad is simply a CLO manufacture master who has been straight progressive successful nan CLO marketplace for nan mostly of his career.

ECC held 128 CLO equity securities, pinch 1864 underlying obligors, arsenic of 9/30/22, pinch ~94% vulnerability to floating complaint Senior Secured loans. (ECC site)

Its yearly expenses look overmuch higher than different CEFs we've covered, moving astatine 6.51% for guidance and different expenses. There's besides 3.21% successful liking expense.

Leverage was 33.74%, arsenic of 9/30/22, and mean regular measurement was 427K:

ECC site

Distributions:

ECC 's communal shares person 1 of nan highest yields you're apt to encounter. At its 2/16/23 $10.84 price, nan communal distribution output is 15.50%. Management declares nan upcoming quarter's 3 monthly payouts successful advance. They raised nan monthly payout from $.12 to $.14 successful April 2022.

The five-year dividend maturation complaint is only 2.86% owed to nan 45% alteration successful distributions successful 2020. Since then, though, guidance accrued them by 24% and 44.5% successful 2021 and 2022, respectively.

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The non-GAAP communal dividend sum facet for regular payouts roseate to 1.12X successful Q3 '22, and besides has a trailing mean of 1.12X. GAAP sum is little owed to occasional non-recurring Expenses/Share.

ECC besides paid typical distributions of $0.25/share successful October and $.50/share successful January '23.

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Preferred Dividends and Unsecured Notes:

ECC has a operation of 2 preferred issues and 3 unsecured Notes, each pinch charismatic yields. The Eagle Point Credit Co. 6.75% Series D Cumulative Preferred Stock (ECC.PD) is nan smallest issue, pinch ~$27M successful main outstanding, while nan 2029 Unsecured Notes (ECCV) are nan largest, astatine ~$93M.

ECC site

The D Series Preferreds presently person nan highest yield, astatine ~8%. There's nary maturity date, conscionable a Call Date of 11/29/2026. The different issues' yields scope from 6% for nan ECCV 1/31/29 Notes to 7.3% for nan ECCW 3/31/31 Notes:

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The ECC.PD perpetual preferred series' coupon complaint is 6.75%. It's a fixed complaint preferred, and is cumulative, meaning ECC must ECC.PD holders for immoderate skipped distributions BEFORE paying communal distributions. 1,090,937 shares of Series D Preferred Stock were issued and outstanding arsenic of 9/30/23.

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At its 2/16/23 value of $21.00. ECC.PD yields 8.04%, owed to its 16% discount to its $25.00 telephone value. It goes ex-dividend connected 3/10/23, pinch a 3/31/23 salary date.

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In summation to being cumulative, and trading astatine a 16% discount, ECC.PD has a mini main worth of ~$27M, which would make it easier for ECC to redeem these shares erstwhile nan scope their telephone date. They besides tin bargain them backmost astatine a discount successful nan unfastened marketplace earlier nan telephone date.

There are $6.32 successful distributions near earlier nan 11/29/26 telephone date. There would besides beryllium a $4.00 superior gain, owed to nan $21.00 price. The full nett profit would beryllium $10.33, for a full return of 49.15%, aliases ~13% annualized:

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Another positive is that, pinch conscionable 2 preferred series, ECC's preferred dividend sum is strong, astatine 7X for Q1-3 2022. Management includes preferred distributions successful liking disbursal connected ECC's income statements. ECC's full NII + realized gains/interest sum was 2.06X for Q1-3 '22, up importantly from 1.33X for Q1-3 '21:

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Holdings:

ECC's holdings look good diversified, pinch tech, healthcare, and publishing forming ~28% of ECC's apical manufacture holdings, and 7 different industries comprising ~31%. Its apical 10 underlying obligors shape conscionable 5.8% of its portfolio, pinch these apical holdings each little than 1%. Familiar names, specified arsenic Cablevision, American Airlines, and Athena Health were successful this apical 10, arsenic of 9/30/22.

ECC site

Performance:

As of 1/31/22, ECC had lagged nan Morningstar US CEF Senior Loans category, whereas its value and NAV capacity was mixed successful 2022. It outperformed by a wide separator successful 2021, 2019, and 2017:

ECC site

Valuations:

Since NAV/Share is calculated astatine nan extremity of each trading day, you person to look astatine nan astir caller closing values to find nan existent NAV discount aliases premium. Buying CEFs for illustration ECC astatine a deeper discount than their humanities mean discounts/premiums tin beryllium a useful strategy, owed to mean reversion.

At its 2/15/23 $10.91 closing price, ECC was trading astatine a 12.82% premium complete its 1/31/23 NAV/Share of $9.67. That's a higher premium than its 1-, 3-, and 5-year mean premiums.

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ECC often tends to waste astatine a premium Price/Book, which roseate up to complete 150% successful 2020 and ~120% successful 2022:

ECC site

Parting Thoughts:

If you're leery of nan higher than mean valuation connected ECC's communal shares, we propose looking into nan ECC.PD preferred shares, which person a little 8.04% yield, but person stronger distribution coverage, are classed supra nan common, and are cumulative. There's besides a chance for a 19% semipermanent superior gain, if they get redeemed astatine their telephone date. We're keeping an oculus connected them, and we whitethorn adhd immoderate shares soon.

All tables furnished by Hidden Dividend Stocks Plus, unless different noted.

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