Eagle Point Credit (NYSE:ECC) executives said 2025 proved challenging for CLO equity investors as spread compression in the leveraged loan market and broadly negative sentiment toward credit weighed on returns, even as defaults remained below long-term averages. On the company’s fourth-quarter call, CEO Thomas Majewski and CFO/COO Ken Onorio outlined steps taken to manage through the environment, including an active reset and refinancing program, a growing allocation to non-CLO credit investments, and several capital structure actions.
2025 performance and fourth-quarter results
Majewski said market dynamics “significantly reduced the CLO equity arbitrage” during 2025, citing strong loan demand from “captive CLO equity funds,” which he said contributed to loan spreads compressing faster than CLO liabilities tightened. Against that backdrop, the company reported a GAAP return on common equity of -14.6% for 2025, which Majewski noted was modestly better than Nomura Research’s estimate of a median -15% CLO equity return for the year.
For the fourth quarter, Onorio said the company recorded net investment income (NII) less realized losses of -$0.26 per share, made up of NII of $0.23 per share and realized losses of $0.49 per share. That compared with $0.16 per share in the third quarter.
Onorio attributed realized losses primarily to:
- $0.40 per share tied “in large part to the rotation out of underperforming collateral managers.”
- $0.09 per share from reclassifying unrealized losses to realized losses for 10 called legacy CLO equity positions.
Including unrealized marks, the company posted a GAAP net loss attributable to common stock of $110 million, or $0.84 per share in the quarter, versus GAAP net income of $0.12 per share in the prior quarter.
Cash flows, distributions, and a reset to the payout
Majewski said recurring cash flows from the portfolio increased to $80 million, or $0.61 per share, from $77 million, or $0.59 per share in the prior quarter. The company paid $1.68 per common share in total cash distributions during 2025.
Eagle Point Credit distributed $0.42 per share to common shareholders in the fourth quarter through three monthly payments of $0.14 and declared the same monthly distributions for the first quarter of 2026. However, management also announced a reduced distribution level going forward: the board declared three monthly distributions of $0.06 per share for the second quarter of 2026. Majewski said the board considered GAAP earnings, recurring cash flow, and the need to distribute substantially all taxable income, adding that the new level aligns with near-term earnings potential.
In the Q&A, Majewski said an “immediate” support for NAV stability is no longer paying out “cash well in excess of net investment income,” noting the new $0.06 monthly level provides cushion relative to recent NII. He also said the company was not expecting a special or supplemental distribution “anytime this year.”
Portfolio strategy: heavy reset activity and a larger non-CLO allocation
Majewski emphasized portfolio management actions aimed at mitigating market headwinds. In the fourth quarter alone, the company completed 10 resets and three refinancings. For the full year, it participated in 34 resets and 27 refinancings, which management said made the firm one of the more active CLO equity investors in 2025 and produced an average of 42 basis points of CLO debt cost savings across the portfolio.
The weighted average remaining reinvestment period (WARP) ended 2025 at 3.3 years, roughly flat from 3.4 years at the start of the year, which management attributed to reset activity and new investments.
During the quarter, Eagle Point Credit invested $184 million in gross capital at a 15.4% weighted average effective yield. Majewski said the company is “selectively” adding exposure beyond CLO equity, including regulatory capital relief, portfolio debt securities, and other opportunistic private credit investments. Of the fourth-quarter deployments, $147 million went into “other credit assets.” At year-end, the non-CLO portion of the portfolio was about 26% of total investments.
Majewski said the company has been making private credit investments beyond CLOs since 2022, and that of $97 million of such investments that have gone “full cycle,” the gross IRR was approximately 18%. He indicated the non-CLO allocation could increase further over time based on relative opportunity.
Capital structure actions and leverage
Management highlighted several balance sheet and financing moves. In the fourth quarter, Eagle Point Credit announced the redemption of its 8% Series F Term Preferred Stock, which Majewski called the company’s highest-cost financing. The Series F was fully redeemed on January 30. The company also repurchased $9 million of other $25 par securities in the open market at discounts to par.
On the issuance side, the firm issued approximately $29 million of its 7% Series AA and BB convertible perpetual preferred stock during the quarter, bringing total issuance of the Series AA and BB through the end of 2025 to $155 million. Majewski said the perpetual nature of the preferred stock provides flexibility, and management plans to evaluate future perpetual preferred issuance opportunities, potentially at lower costs.
Onorio said the company’s leverage ratio was 48% at quarter-end, above its target range of 27.5% to 37.5% under normal conditions. As of January 31, leverage was 46% based on the midpoint of management’s estimated January NAV range, reflecting the Series F redemption. He said the company intends to bring leverage back toward its target over time and remains in compliance with regulatory and financing covenants. Onorio added that all financing remains fixed rate, with no maturities prior to April 2028, and a significant portion of preferred stock financing is perpetual.
Management’s unaudited estimate of NAV at January month-end was $5.44 to $5.54 per share. Onorio also said the company collected $57 million in recurring cash flows through January 31 and expected additional collections during the quarter.
The board also authorized a $100 million common stock repurchase program to allow opportunistic buybacks if shares trade at a material discount to NAV. Majewski said the decision to repurchase shares versus invest capital would depend on multiple factors, including leverage and relative investment opportunities.
Market backdrop and 2026 outlook
Majewski described loan market fundamentals as “largely stable,” with positive corporate revenue and EBITDA growth for leveraged loan borrowers. The S&P UBS Leveraged Loan Index returned 1.2% in the fourth quarter and 5.9% for full-year 2025, management said.
He also cited $294 billion of total loan repayments in 2025 (about 19% of the market), a trailing 12-month prepayment rate of 21%, and gross issuance of $400 billion translating to net new issuance of $106 billion. The company said only 3.1% of loans underlying its CLO equity positions mature before 2028.
The trailing 12-month default rate fell to 1.2% at December 31 from 1.5% in September and remained below the 2.6% long-term average, according to management. Eagle Point Credit’s exposure to defaulted loans was 24 basis points at year-end.
In CLO markets, management said new issuance totaled $55 billion in the fourth quarter and $209 billion for full-year 2025, exceeding 2024’s record. Including resets and refinancings, combined full-year activity reached $546 billion, up from $511 billion in 2024.
Majewski said portfolio metrics compared favorably with the broader market at quarter-end, including 4.1% CCC exposure (vs. 4.3% market average), 3.6% of loans trading below 80 (vs. 4.4% market), and a 4.5% weighted average junior overcollateralization cushion (vs. 3.9% market).
Looking into 2026, Majewski said he expects continued loan spread compression and sees credit conditions as broadly similar to 2025, while noting the uncertainty in forecasting. He said the company sees attractive opportunities for capital deployment in both CLO equity and other credit assets, and that lowering the distribution rate is intended to retain more capital for investments with attractive risk-adjusted returns.
About Eagle Point Credit (NYSE:ECC)
Eagle Point Credit Company is a closed-end, non-diversified management investment company that seeks to generate attractive risk-adjusted returns primarily through investments in collateralized loan obligations (CLOs) and related structured credit instruments. The firm is externally managed by Eagle Point Credit Management, LLC, a specialized credit asset manager focused on the structured credit markets. Eagle Point Credit Company’s shares trade on the New York Stock Exchange under the ticker symbol ECC.
The company’s investment strategy centers on acquiring both equity and debt tranches of actively managed CLOs alongside opportunistic positions in senior secured loans, high-yield bonds and credit derivatives.
