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Some Earning of Interest

We have had a few earnings of interest released in the last couple days. In particular–

Eagle Point Income (EIC)–a closed end fund–CLO owner.

Eagle Point Credit Company (ECC)–a closed end fund–CLO owner.

MidCap Financial Investment (MFIC)–a business development company (BDC)

I own some term preferreds and baby bonds from these companies so I like to give a glance to check on Net Asset Values since NAV will tell one a lot.

ECC saw a drop of NAV from $9.21 down to $8.75–larger than I would like to see, but honestly for a CLO owner it is not frightening.

MidCap Financial is finally starting to perform like I had hoped they would–solidly. Their NAV held fairly flat–at $15.38 versus a previous of $15.42–very solid. The company did merge with 2 other Apollo funds so financials are not as clean as normal, but they did become a much larger BDC with assets of around $2.5 billion. The company is paying a nice 38 cent quarterly dividend and just declared a 20 cent ‘special’.

The standout performer of the 3 was Eagle Point Income (EIC) which owns primarily (66% last I calculated) of debt tranches of collateralized loan obligations (CLO). While paying a healthy dividend they were able to grow NAV from $15.12 to $15.24. For any CLO owner to grow NAV while paying a good common dividend (15%+/-) is spectacular.

I am going to ponder adding either to my current EIC 7.75% term preferred (EICB) or initiating a new position in their newer 8% issue (EICC). We’ll see if it fits my allocation plans.

6 thoughts on “Some Earning of Interest”

  1. I’m a big holder of EIC, EICC and ECCC (one of several term preferred of ECC). I have a legacy position of ECC I bought for almost free during the COVID crash, probably wouldn’t buy today and will eventually sell if it pops on interest rate cuts. The BB tranches of CLO debt that EIC holds pay considerably more than the AAA and BBB tranches but still has a tiny default rate, even with the current economic malaise and relatively high interest rates. That will only get better if the Fed eventually cuts rates. ECC is riskier, but with the leverage restrictions I’m comfortable owning ECCC. Both EICC and ECCC, despite having the highest coupons of their preferred series, tend to trade slightly under par due to small but consistent ATM offerings of those series. They barely budged during the vol explosion last week – too bad, I was hoping for a sale. Not as safe as investment grade but you do get paid enough for the little extra risk, in my opinion.

  2. Been in EICB for awhile now with an out-sized position – thanks for your assessment/reminder. So far, it’s been a SWAN investment for me.

  3. “…but honestly for a CLO owner it is not frightening”

    Whenever their NAV falls they just make a ‘offering’ at discount and all is good (asset coverage ratio of at least 300 percent for indebt- edness ($3 in total assets for every $1 of debt)

    Gotta luv the built in cushion…

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