Articles and Filings of Interest

CLO holder Eagle Point Credit Co (ECC) has released their monthly update.

In the update which can be found here the company shows a Net Asset Value (NAV) of $6.07-$6.17 per share.

Last month the company showed a NAV of $9.80 to $9.90 per share–a loss of NAV of almost 40% during March. NAV was off 50.44% YTD through 3/31/2020. Ouch. While I didn’t go back and calculate leverage ratios the company must be getting close to the 200% minimum coverage ratio.

I took the opportunity to do a quick look at Oxford Lane (OXLC)–a company very similar to ECC and I am guessing they have broken their leverage requirement–by quite a bunch.

mREIT Dynex Capital (DX) released new information yesterday that for the moment looked pretty darned good. The company sold off a commercial mortgage backed security portfolio for a gain–this was agency paper. The company’s SEC filing can be read here.

Diversified mREIT Arbor Realty Trust (ABR) released a shareholder letter on Monday that was relatively positive. ABR dabbles in many different mREIT areas, but in particular multifamily and commercial mortgage backed securities. The company’s letter to shareholders can be found here.

The above is information today–will todays stronger company’s be tomorrows weak companies? No one knows.

14 thoughts on “Articles and Filings of Interest”

  1. Don’t ECCY and ECCX have 300% coverage ratios? Isn’t it only ECCB that has a 200% coverage ratio?

    1. The first two you mention are Notes. The third, a pref with 200% coverage. See additional info on QuantumOnline, a good, easy and reliable source.

  2. Has anyone noted or been able to account for the weird reporting of AATRL price and changes at TDA and Schwab ( & elsewhere)? Fri it gained $1- now at TDA:
    Change: $ 7.3125 %: 23.82 – happens often lately.
    Schwab- since Fri’s close in the portfolio section the price went from $38 tpo $30.6875, while they show $38 in the stock quote section.

  3. The only reasonable way to play ECC/OXLC is throught the babies and the preferred. You can benefit from a higher coupon due to the riskier assets and also buying at a ridonculous discount when the underlying faces a challenge (which they do every few months), yet still get a lot of protection from Closed End Fund leverage rules. The question is whether they can get completely wiped out so fast that the preferred and Baby bonds get wiped out too before cured or redeemed. In a real free market, these funds would get slaughtered at a time like this. With the Fed buying everything in sight, now including senior loans in addition to bonds, I think they live to fight another day due to the interventions, despite their overleveraged nature. But just because the fund survives, that doesn’t mean the common does well – it could (likely will) get diluted to oblivion if the leverage tests fail, and their dividends aren’t sustainable (ECC already cut, OXLC likely to do so shortly).

  4. With regards to OXLC & ECC be aware, that it is extremely difficult to mark the lower CLO tranches. Last time I spoke to a CLO manager (little more than a week ago) very few trades had occurred in tranches below IG.
    Really havent’t looked into these BDC’s in detail, but I would guess that their marks are based on a model. It could be a risk that these marks are significantly different from where they can sell stuff if they have to bring down risk.
    Said it before; these vehicles where they buy CLO equity that is leveraged 10x already and then lever that up even more is the craziest thing I have seen in this cycle.
    Total costs for investors at BDC level is probably a little more than 10 pct. They “expect” to pay 15+ pct. in dividends. Just try an imagine how much risk you have to take on to generate a 25-30 pct. return…

  5. Nice to hear good DX news for a change. Been long for a while now, been keeping it for the dividend.

  6. Fed’s Kashkari wrote that ‘U.S. banks must discontinue dividend payments and raise capital, adding they can return the capital through buybacks and dividends if the health crisis turns out be smaller than feared’

    https://www.reuters.com/article/us-health-coronavirus-fed-kashkari/feds-kashkari-says-major-u-s-banks-should-raise-200-billion-in-capital-ft-idUSKCN21Y1AW

    I fear as an extreme case (like short selling was banned in 2007-2008) banks may look to suspend paying dividends on preferred too! Could the bank regulator order them to do so? Would this be even legal?

  7. ECC gross assets fell by 28% based on the fall in NAV. If we apply the same discount to OXLC assets, assets fall to $483 million and still covers liabilities by about 2.2x-2.3x, so they’ll be OK. OXLC had about 3x coverage going into this, so they did not overleverage as they had in prior years (2016).

    1. Larry, I appreciate you taking the time to post this comparison. Taking a look at the current yield of Eagle Point and Oxford Lane common shares, I’d have to imagine dividend cuts are in the works for both. That would be a welcome development for the preferred share holders imo.

      1. And an even more welcome development for ECC baby bonds since they sit ahead of the preferred! Happy investing all.

        1. ECC has not only reduced their dividend for the upcoming quarter, but have also engaged a broker-dealer to repurchase their exchange traded baby bonds on the open market. As per Eagle Credit’s CEO…”We believe our balance sheet is well positioned to navigate through these challenging times. As of April 14, 2020, the Company had approximately $23 million of cash on its balance sheet and we have no financing maturities prior to October 2026. Our balance sheet has enabled us to prudently deploy capital where we see compelling opportunities.”

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