Collateralized loan owner (CLO) Eagle Point Income (EIC) has approved a buyback of common shares up to $50 million.
You may remember that just 10 days ago the company cut their distribution from 20 cents monthly to 13 cents monthly–an excellent move as the company had aggressively moved their payout higher over the last 5 years and now have been overpaying their net investment income. Contrary to most CLO owners Eagle Point Income wants to match up their distributions to their income (smart folks).
Eagle Point Income (EIC) holds mostly debt tranches of the CLO (albeit the BB tranche) so they have a slightly safer portfolio than most other CLO company’s i.e. Eagle Point Credit (ECC), Oxford Lane Capital (OXLC) etc. With the safer portfolio their income has fallen over the last year as interest rates fell earlier in the period – CLOs contain loans which are at floating rates.
At this moment shares of EIC are trading at $13.23 while the net asset value on 5/31/2025 was estimated at $14.08-$14.18–it only makes sense to start to buy shares back at a discount. Interestingly the company sold 4 million shares with their ‘at the money’ program during the quarter ending 3/31/2025.
The common share dividend cut and the opportunity for the company to buy back shares at a discount are both excellent moves and they give me even more confidence in the company than I already had.
Disclosure–I own both the 7.75% term preferred (EICB) and 8% term preferred (EICC).
It was a saving move for Eagle Point but I bet the investors will feel the haircut (33% cut in the distribution) and balk at holding shares…The majority of CEF’s are Ponzi schemes and most return capital back to you while providing a overly high dividend! There long term NAV is usually much lower then the initial sell price. I own their BB’s but stay far away from most CEF’s.
Payday–certainly the common shareholders have felt the pain–on the other hand they can fell the pain now or later. All of these CLO companies overpay their distributions and there share prices just go down and down.
ECC is clearly the best horse in the CLO glue factory. However, it is still a glue factory. The underlying loans, aka the “building blocks” of CLO seem overvalued with many yielding in the mid 7% and trading at or over par. Most of these loans are vintage post covid private credit boom and likely loosely underwritten. Not much room for error and lots of risks to NAV.
Dan–plenty of risk with any of these and I wouldn’t own common shares–but obviously I would hold the ‘senior’ securities.