UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-23384
Eagle Point Income Company Inc.
(Exact name of registrant as specified in charter)
600 Steamboat Road, Suite 202
Greenwich, CT 06830
(Address of principal executive offices) (Zip code)
Thomas P. Majewski
c/o Eagle Point Income Company Inc.
600 Steamboat Road, Suite 202
Greenwich, CT 06830
(Name and address of agent for service)
Copies to
Thomas J. Friedmann
Philip Hinkle
Dechert
LLP
One International Place, 40th Floor
100 Oliver Street
Boston, MA 02110
(617)
728-7120
Registrant’s telephone number, including area code: (203) 340-8500
Date of fiscal year end: December 31
Date of reporting period: December 31, 2022
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
EXPLANATORY NOTE
The Registrant is filing this amendment to its Form N-CSR (the “Amendment”) for the period ended December 31, 2022, originally filed with the Securities and Exchange Commission on February 22, 2023 (Accession Number 0001104659-23-024037) (the “Original Filing”). This Amendment is filed solely for the purpose of (i) including a modified Report of Independent Registered Public Accounting Firm and (ii) including a modified Consent of Independent Registered Public Accounting Firm. Except as set forth above (and the dates included on the signature page and the certifications required by Rule 30a-2(a) and Rule 30a-2(b)), the Amendment does not amend, update or change any other information or disclosures contained in the Original Filing.
| Item 1. | Report to Stockholders |
The Annual Report to stockholders of Eagle Point Income Company Inc. (the “Company”) for the year ended December 31, 2022 is filed herewith.
Eagle Point Income Company Inc.
Annual Report – December 31, 2022
Table of Contents
Past performance is not indicative of, or a guarantee of, future performance.
| 1 |
LETTER TO STOCKHOLDERS AND MANAGEMENT DISCUSSION OF COMPANY PERFORMANCE
Dear Fellow Stockholders:
We are pleased to provide you with the enclosed report of Eagle Point Income Company Inc. (“we,” “us,” “our” or the “Company”) for the fiscal year ended December 31, 2022.
The Company’s primary investment objective is to generate high current income, with a secondary objective to generate capital appreciation. We seek to achieve these objectives by investing primarily in junior debt tranches of collateralized loan obligations (“CLOs”) rated “BB” (e.g., BB+, BB or BB-, or their equivalent). In addition, the Company may invest up to 35% of its total assets (at the time of investment) in CLO equity securities and other securities and instruments that are consistent with our investment objectives.
While the CLO market continues to command attention from investors worldwide, we believe the CLO market, and CLO junior debt in particular, remains inefficient and attractive. In less efficient markets, specialization matters and the Company benefits from the investment experience of Eagle Point Income Management LLC (our “Adviser”), which applies its proprietary, private equity style investment process to this fixed income market. This process seeks to maximize returns while mitigating potential risks. We believe the scale and experience of our Adviser and its affiliates in CLO investing provides the Company with meaningful advantages.
The rapidly rising interest rate environment in 2022 was materially positive for our portfolio of CLO junior debt securities. Indeed, during the year, the interest rates on our CLO junior debt increased significantly, driving materially higher recurring cash flows and net investment income compared to 2021.
Our Adviser’s proactive management of the portfolio, coupled with the rapidly rising interest rate environment, allowed us to:
| · | Grow net investment income (“NII”) from $0.35 per weighted average common share1 in the first quarter to $0.52 in the fourth quarter, excluding non-recurring expenses. |
| · | Significantly increase recurring cash flows for the year ended December 31, 2022 to $21.0 million, or $2.97 per weighted average common share. This exceeded our total expenses and regular common distributions by $0.39 per weighted average common share. This compares to recurring cash flows of $13.4 million, or $2.16 million per weighted average common share, collected during 2021. |
Past performance is not indicative of, or a guarantee of, future performance.
Please see page 12 for endnotes.
| 2 |
| · | Strengthen our balance sheet via our “at-the-market” program by raising $14 million in new capital at a premium to NAV, and deploy the cash opportunistically into new CLO debt and equity investments. |
| · | Increase our common distribution twice during the year to $0.14 per share. In addition, the Company declared a further increase in our monthly common distributions to $0.16 per share beginning in January 2023, doubling the monthly distribution versus what was paid during the first quarter of 2021. |
While CLO junior debt remains the significant majority of the Company’s portfolio, our portfolio’s CLO equity exposure continues to help enhance the Company’s earning ability. We believe CLOs, with their strong structural protections and self-correcting mechanisms, are well positioned to weather, and capitalize upon, periods of market volatility. We believe the performance of our portfolio over the past couple of years has demonstrated the resilience of the Company’s investment strategy.
For the year ended December 31, 2022, the Company had a decrease in net assets resulting from operations of $15.9 million, or $2.26 per weighted average common share (inclusive of unrealized mark-to-market losses). This represents a GAAP ROE of -14.12% during the year.2 From December 31, 2021 through December 31, 2022, primarily due to unrealized depreciation on investments, the Company’s net asset value (“NAV”) declined from $16.76 per common share to $12.91. The change was principally driven by price changes on many of our assets which were driven by spread widening during the year and not due to impairment of any asset in our portfolio.
During the year, we paid $1.73 per share in cash distributions to our common stockholders. Our portfolio is designed to generate strong cash flow and the performance of our portfolio allowed us to pay cash distributions to shareholders during the year equal to 10.91% of our average stock price.
As of January 31, 2023, management’s unaudited estimate of the range of the Company’s NAV per common share was between $13.67 and $13.77. The midpoint of this range represents an increase of 6.3% compared to the NAV per common share as of December 31, 2022. As of February 15, 2023, we have $25.7 million in cash and available borrowing capacity on our balance sheet.
Past performance is not indicative of, or a guarantee of, future performance.
Please see page 12 for endnotes.
| 3 |
Company Overview
Common Stock
The Company’s common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “EIC.” As of December 31, 2022, the NAV per share of the Company’s common stock was $12.91. The trading price of our common stock may, and often does, differ from NAV per share. The closing price per share of our common stock was $13.87 on December 31, 2022, representing a 7.44% premium to NAV per share as of year end.3
In connection with our “at-the-market” offering program, the Company sold 1.0 million shares of common stock during the year for total net proceeds to the Company of approximately $14 million. The common stock issuance resulted in NAV accretion of $0.11 per weighted average common share.
During 2022, the Company paid to common stockholders aggregate cash distributions totaling $1.73 per common share. This was comprised of $1.53 in monthly distributions and a $0.20 per share special distribution on January 24, 2022. At year-end, an investor who purchased common stock as part of our IPO in July 2019 has received total cash distributions of $5.04 per share, over 25% of the IPO price. A portion of these distributions was comprised of a return of capital.4
For the year ended December 31, 2022, the Company recorded NII and realized capital gains of $1.65 per weighted average common share, which exceeded regular monthly common distributions paid in 2022. Excluding non-recurring expenses related to certain fees paid in relation to a committed equity financing arrangement and the Federal excise tax on our spillover income, our NII and realized capital gains was $1.76 per weighted average common share.
As of January 31, 2023, the closing price per share of common stock was $14.10, reflecting a premium of 2.77% compared to the midpoint of management’s unaudited and estimated NAV range of $13.67 to $13.77 as of January month-end.
We also highlight the Company’s dividend reinvestment plan for common stockholders. This plan allows common stockholders to have their distributions automatically reinvested into new shares of common stock. If the prevailing market price of our common stock exceeds our NAV per share, such reinvestment is at a discount (up to five percent) to the prevailing market price. If the prevailing market price of our common stock is less than our NAV per share, such reinvestment is at the prevailing market price, subject to the terms in the DRIP. We encourage all common stockholders to carefully review the terms of the plan. See “Dividend Reinvestment Plan” in the enclosed report.
Past performance is not indicative of, or a guarantee of, future performance.
Please see page 12 for endnotes.
| 4 |
Other Securities
In addition to our common stock, the Company has one other security which trades on the NYSE, summarized below:
| Security | NYSE Symbol |
Par
Amount Outstanding |
Rate | Payment Frequency |
Callable | Maturity |
| 5.00% Series A Term Preferred Stock due 2026 | EICA | $38.0 million | 5.00% | Monthly | October 2023 | October 2026 |
Leverage
As of December 31, 2022, we had $9.0 million in outstanding borrowings from the Company’s $25 million revolving credit facility. This, coupled with our Series A Term Preferred Stock, represented leverage of 32.0% of total assets.
Over the long term, management expects the Company to operate under normal market conditions generally with leverage of between 25% and 35% of total assets (less current liabilities). Based on applicable market conditions at any given time, or should significant opportunities present themselves, the Company may incur leverage in excess of this amount, subject to applicable regulatory and contractual limits.
Monthly Common Distributions
The Company declared and paid three monthly distributions of $0.12 per share of common stock from January 2022 through March 2022, six monthly distributions of $0.125 per share of common stock from April 2022 through September 2022 and three monthly distributions of $0.14 per share of common stock from October 2022 through December 2022. The Company paid a total of $1.53 per common share of monthly distributions during 2022.4 In addition, the Company also paid a special cash distribution of $0.20 per share in January 2022.
We intend to continue declaring monthly distributions on shares of our common stock, although we note that the actual frequency, components and amount of such distributions are subject to variation over time.
Past performance is not indicative of, or a guarantee of, future performance.
Please see page 12 for endnotes.
| 5 |
Portfolio Overview
2022 Portfolio Update
For the year ended December 31, 2022, the Company deployed $14.4 million in net capital into CLO debt and equity investments. The CLO debt that we purchased had a weighted average yield of 10.23% at the time of purchase. The CLO equity securities that we purchased had a weighted average effective yield (“WAEY”) of 14.58% at the time of purchase.
As of December 31, 2022, we had 62 CLO investments in our portfolio, the large majority of which are BB-rated (or the equivalent) CLO junior debt. At year-end, the WAEY on the aggregate portfolio of CLO debt and equity investments was 12.82%, based on amortized cost. This compares to 10.77% as of December 31, 2021.
During 2022, the Company collected recurring cash flows of $21.0 million, or $2.97 per weighted average common share. This exceeded total expenses and our regular common distribution by $0.39 per weighted average common share. This was a significant increase compared to our 2021 recurring cash flows, which totaled $13.4 million, or $2.16 per weighted average common share.
Our Adviser continues to evaluate attractive investment opportunities on our behalf both in the primary and secondary markets. Maintaining exposure to varied CLO vintage periods remains an important part of our investment approach.
Included within the enclosed report, you will find detailed portfolio information, including certain look-through information related to the underlying collateral characteristics of the CLO investments that we held as of December 31, 2022.
Past performance is not indicative of, or a guarantee of, future performance.
Please see page 12 for endnotes.
| 6 |
Market Overview
Loan Market
The Credit Suisse Leverage Loan Index5 (“CSLLI”) generated a total return of -1.06% in 2022. This represents only the third negative year for the CSLLI in its 31 years of existence, and notably, in only one year was the annual return materially negative (2008: -28.75%). As a testament to the robust nature of the loan asset class, there have never been two consecutive years with annual declines in the loan market.
On a relative basis, the floating-rate loan asset class has continued to exhibit greater resilience and outperformance versus many other risk assets. In a persistently volatile year, the modestly negative return for loans compares favorably against the significant losses in other risk assets; equities, high-yield and investment grade returned -18%, -11% and -16%6, respectively, during the year.
Loan price volatility was a predominant theme in 2022, fueled by increasing inflation, looming recessionary fears and Fed-driven rate hikes. The loan market experienced significant swings over the course of the year, in both directions, with daily gains and losses of over 20 basis points on nearly 50 separate trading dates. The average price of the CSLLI finished the year at 91.89, almost seven points below January’s peak, and just slightly above the low of 91.54 recorded in early July. Overall, lower-rated loans underperformed their higher quality peers, a reversal from 2021 when investors favored riskier assets in a pursuit for yield.
At year-end, approximately 20% of the loan market was priced below 90. With a significant share of high-quality issuers trading at discounted prices, CLO collateral managers were well positioned to improve underlying loan portfolios through relative value credit selection in the secondary market, as well as take advantage of a high-quality primary market, at discounted prices.
In a reversal from 2021, retail loan funds experienced regular net outflows throughout the year as mutual funds and ETF investors rotated out of risk assets, despite the strong upward movement in rates. For 2022, mutual funds and ETFs investing in U.S. leveraged loans experienced net outflows of $13 billion, compared to net inflows of $47 billion in 2021.7 The high-yield mutual fund/ETF market, by comparison, recorded $49 billion of net outflows in 2022 after recording $13 billion of net outflows in 2021.
Institutional loan issuance totaled $225 billion in 2022, compared to a record $614 billion in 2021. Total institutional loans outstanding stood at $1.41 trillion as of December 31, 2022, up slightly from $1.35 trillion at the beginning of the year. While primary issuance remained limited in the fourth quarter, loan refinancing activity meaningfully increased as U.S. corporates rushed to address upcoming maturities before year-end, including large par repayments from
Past performance is not indicative of, or a guarantee of, future performance.
Please see page 12 for endnotes.
| 7 |
high-quality issuers such as American Airlines and Axalta, each at over $1 billion. In order to extend the maturities of their loans, issuers were willing to pay higher spreads, which will ultimately benefit the Company’s CLO equity positions. Currently, the vast majority of the maturity wall is pushed out to 2025 and later. Only 5.8% of the loan portfolios underlying our CLO junior debt and equity positions mature prior to 2025.
Loan defaults were muted in the fourth quarter of 2022 as no companies defaulted. At year-end, the twelve-month trailing default rate fell to 0.72%; while above the rate of 0.29% at the beginning of the year, it was still well below the long-term default rate of 2.7%.8 While the impact of a slowing economy and potential recessionary headwinds, including rising borrowing costs on corporate borrowers, continue to be debated, we believe loan defaults will remain below historical averages over the near term.
The loan prepayment rate remained in the mid-teens through 2022, despite the ongoing volatility, and on a twelve-month trailing basis stood at 13% at the end of December. While the market tends to be most focused on loan defaults, prepayments are a critical input to the performance of a CLO. In the worst two years on record (2008-2009) for the loan market, prepayments still averaged 12%.
CLOs within their reinvestment period which are receiving meaningful par prepayments are able to reinvest those proceeds into attractive loans at higher spreads and lower prices. Par build allows CLOs to weather volatile periods, including building in additional cushion for potential future defaults. For example, 20 basis points of notional par build could offset nearly 0.50% of defaults. This ultimately creates significant value within a CLO, building more par subordination for BBs and increasing terminal value for CLO equity.
CLO Market
Despite declining loan issuance and widening CLO liabilities, the CLO market ended 2022 with its second highest annual new issuance on record, at a total volume of $129 billion. This compares to last year’s record new issuance of $187.1 billion. Primary market activity peaked in the second quarter, before issuance steadily declined quarter-over-quarter as CLO debt spreads increased and investor demand remained low into year-end.
The CLO equity arbitrage – the difference between the yield of the underlying loan portfolio and the CLO’s financing costs – remained generally unattractive during the second half of the year. During the second half, some new issue CLOs settled for shorter-dated reinvestment periods or even static structures to secure pricing. CLOs unable to achieve the standard five-year reinvestment period are much less favorable for CLO equity investors, in our opinion, given their limited reinvestment optionality and sometimes higher-than-average debt costs. Additionally, in the second half of 2022, most economically-driven equity investors focused on more desirable secondary market opportunities. Indeed, very few third party equity investors were behind new CLO formation given the lower expected IRRs at pricing. In our opinion, this highlights the
Past performance is not indicative of, or a guarantee of, future performance.
Please see page 12 for endnotes.
| 8 |
continued misalignment of captive funds that are set up to support internal CLO programs, and often at the expense of their equity investors. Investing in the secondary CLO equity market would have generated much higher returns, in our view.
With the rebound in loans during the fourth quarter, the new issue CLO market remained challenged as CLO liability spreads remained largely unchanged at calendar year wides going into year end. CLO AAA debt spreads averaged 235 basis points over SOFR in the fourth quarter, more than 100 basis points higher than levels in the fourth quarter of 2021. Liability costs were largely range-bound over the second half of the year, and collateral manager dispersion was evident, with lower-tier CLO collateral managers paying over 14 basis points more, on average, in AAA spreads versus their higher quality counterparts.
Importantly, there were very few payment disruptions to CLO equity during the year, despite the persistent volatility in loan prices. CLOs saw a slight but temporary decrease in third and fourth quarter 2022 equity distributions, attributable to the rapid increases in the benchmark interest rate and resulting in a greater than usual disparity between 1-month and 3-month LIBOR/SOFR. Many loan borrowers took advantage of a lower 1-month rate, while CLO liabilities pay at the 3-month rate, for these two payment periods. This mismatch has meaningfully compressed since year-end, and we believe equity distributions will increase for many CLOs over the coming quarters.
During the year, secondary CLO market activity reached levels of over $52 billion. Investors sought value across the CLO debt stack given their protective floating rate nature, higher yields, attractive pricing and strong liquidity versus fixed-rate corporate comparables. Within lower rated tranches, CLO BBs reached yields of over 15%, notably above high-yield bond yields and often with greater convexity profiles. Floating rate CLO debt has the added benefit of significantly lower historic credit expense and lower interest rate risk versus fixed-rate corporate bonds.
In periods of market volatility, the dispersion in CLO equity performance across CLO collateral managers often increases; 2022 was no exception. CLOs with longer remaining reinvestment periods and thicker overcollateralization cushions (and thus with greater built-in optionality) outperformed more seasoned CLOs coming up on the end of their reinvestment periods. During the year, CLOs with greater tail risk in their underlying portfolios were heavily discounted amidst the loan price volatility given their limited near-term upside.
With CLO liability spreads elevated, many CLOs had financing which is well “in the money.” As a result, reset and refinancing activity remained muted for much of the year. In total, the U.S. CLO market recorded just $25 billion in refinancing and reset activity, nearly all of which occurred prior to June 2022.
Early in 2023, CLO debt spreads have tightened, with AAA spreads averaging 210 basis points over SOFR, supporting an increase in near-term new issue activity.
Past performance is not indicative of, or a guarantee of, future performance.
Please see page 12 for endnotes.
| 9 |
Additional Information
In addition to the Company’s regulatory requirement to file certain quarterly and annual portfolio information as described further in the enclosed report, the Company makes certain unaudited portfolio information available each month on its website in addition to making certain other unaudited financial information available on its website (www.eaglepointincome.com). This information includes (1) an estimated range of the Company’s NII and realized capital gains or losses per share of common stock for each calendar quarter end, generally made available within the first fifteen days after the applicable calendar month end, (2) an estimated range of the Company’s NAV per share of common stock for the prior month end and certain additional portfolio-level information, generally made available within the first fifteen days after the applicable calendar month end, and (3) during the latter part of each month, an updated estimate of the Company’s NAV per share of common stock, if applicable, and, with respect to each calendar quarter end, an updated estimate of the Company’s NII and realized capital gains or losses per share for the applicable quarter, if available.
Subsequent Developments
Management’s unaudited estimate of the range of the Company’s NAV per share of common stock was between $13.67 and $13.77 as of January 31, 2023. The midpoint of this range represents an increase of 6.3% compared to the NAV per common share as of December 31, 2022.
On January 31, 2023, the Company paid a monthly distribution of $0.16 per common share to stockholders of record on January 11, 2023. Additionally, and as previously announced, the Company declared distributions of $0.16 per share of common stock payable on each of February 28, 2023 and March 31, 2023 to holders of record on February 8, 2023 and March 13, 2023, respectively.
On January 31, 2023, the Company paid a monthly distribution of $0.104167 per share of the Company’s Series A Term Preferred Stock to holders of record on January 11, 2023. Additionally, and as previously announced, the Company declared distributions of $0.104167 per share on Series A Term Preferred Stock, payable on each of February 28, 2023 and March 31, 2023 to holders of record on February 8, 2023 and March 13, 2023, respectively.
Pursuant to the “at-the-market” offering and the committed equity financing arrangement, in the period from January 1, 2023 through February 15, 2023, the Company issued 0.5 million shares of our common stock, for total net proceeds to the Company of approximately $6.8 million.
As of February 15, 2023, the Company had $25.7 million of cash available for investment, inclusive of undrawn amounts on our revolving credit facility.
Past performance is not indicative of, or a guarantee of, future performance.
Please see page 12 for endnotes.
| 10 |
* * * * *
Management remains keenly focused on continuing to create value for our stockholders. We appreciate the trust and confidence our fellow stockholders have placed in the Company.
Thomas Majewski
Chairman and Chief Executive Officer
This letter is intended to assist stockholders in understanding the Company’s performance during the twelve months ended December 31, 2022. The views and opinions in this letter were current as of February 15, 2023. Statements other than those of historical facts included herein may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors. The Company undertakes no duty to update any forward-looking statement made herein. Information contained on our website is not incorporated by reference into this stockholder letter and you should not consider information contained on our website to be part of this stockholder letter or any other report we file with the Securities and Exchange Commission.
Past performance is not indicative of, or a guarantee of, future performance.
Please see page 12 for endnotes.
| 11 |
ABOUT OUR ADVISER
Eagle Point Income Management LLC is a specialist asset manager focused exclusively on investing in CLO securities and related investments. As of December 31, 2022, our Adviser has approximately $7.5 billion of assets under management (inclusive of undrawn capital commitments).9
Notes
| 1 | “Weighted average common share” is calculated based on the average daily number of shares of common stock outstanding during the period and “per common share” refers to per share of the Company’s common stock. |
| 2 | Return on our common equity reflects the Company’s cumulative monthly performance net of applicable expenses and fees measured against beginning capital adjusted for any common equity issued during the period. |
| 3 | An investment company trades at a premium when the market price at which its shares trade is more than its net asset value per share. Alternatively, an investment company trades at a discount when the market price at which its shares trade is less than its net asset value per share. |
| 4 | To date, a portion of common stock distributions has been estimated to be a return of capital as noted under the Tax Information section on the Company’s website. The actual components of the Company's distributions for U.S. tax reporting purposes can only be finally determined as of the end of each fiscal year of the Company and are thereafter reported on Form 1099-DIV. |
| 5 | The CSLLI tracks the investable universe of the US dollar-denominated leveraged loan market. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. |
| 6 | Returns shown represent the total return for a given index for the year ended December 31, 2022. Equity return shown is represented by the S&P 500 which tracks the performance of US equity markets and is based on the market capitalization of 500 large companies having common stock listed on the NYSE or NASDAQ. High yield return shown is represented by the ICE BofA US High Yield Index which tracks the performance of high-yield securities traded in the U.S. bond market. Investment Grade return shown is represented by the Bloomberg US Corporate Total Return Value Unhedged Index which tracks the performance and analytics of U.S. denominated securities that are representative of the investment grade, fixed-rate, taxable corporate bond market. |
| 7 | JPMorgan Chase & Co. North American Credit Research – JPM High Yield and Leveraged Loan Research (cumulative 2022 reports). |
| 8 | “Par-weighted default rate” represents the rate of obligors who fail to remain current on their loans based on the par amount. |
| 9 | Calculated in the aggregate with its affiliate Eagle Point Credit Management LLC. |
Past performance is not indicative of, or a guarantee of, future performance.
Please see page 12 for endnotes.
| 12 |
Page Intentionally Left Blank
Important Information about this Report and Eagle Point Income Company Inc.
This report is transmitted to the stockholders of Eagle Point Income Company Inc. (“we”, “us”, “our” or the “Company”) and is furnished pursuant to certain regulatory requirements. This report and the information and views herein do not constitute investment advice, or a recommendation or an offer to enter into any transaction with the Company or any of its affiliates. This report is provided for informational purposes only, does not constitute an offer to sell securities of the Company and is not a prospectus. From time to time, the Company may have a registration statement relating to one or more of its securities on file with the US Securities and Exchange Commission (“SEC”). Any registration statement that has not yet been declared effective by the SEC, and any prospectus relating thereto, is not complete and may be changed. Any securities that are the subject of such a registration statement may not be sold until the registration statement filed with the SEC is effective.
The information and its contents are the property of Eagle Point Income Management LLC (the “Adviser”) and/or the Company. Any unauthorized dissemination, copying or use of this presentation is strictly prohibited and may be in violation of law. This presentation is being provided for informational purposes only.
Investors should read the Company’s prospectus and SEC filings (which are publicly available on the EDGAR Database on the SEC website at http://www.sec.gov) carefully and consider their investment goals, time horizons and risk tolerance before investing in the Company. Investors should consider the Company’s investment objectives, risks, charges and expenses carefully before investing in securities of the Company. There is no guarantee that any of the goals, targets or objectives described in this report will be achieved.
An investment in the Company is not appropriate for all investors. The investment program of the Company is speculative, entails substantial risk and includes investment techniques not employed by traditional mutual funds. An investment in the Company is not intended to be a complete investment program. Shares of closed-end investment companies, such as the Company, frequently trade at a discount from their net asset value (“NAV”), which may increase investors’ risk of loss. Past performance is not indicative of, or a guarantee of, future performance. The performance and certain other portfolio information quoted herein represents information as of December 31, 2022. Nothing herein should be relied upon as a representation as to the future performance or portfolio holdings of the Company. Investment return and principal value of an investment will fluctuate, and shares, when sold, may be worth more or less than their original cost. The Company’s performance is subject to change since the end of the period noted in this report and may be lower or higher than the performance data shown herein.
Neither the Adviser nor the Company provide legal, accounting or tax advice. Any statement regarding such matters is explanatory and may not be relied upon as definitive advice. Investors should consult with their legal, accounting and tax advisors regarding any potential investment. The information presented herein is as of the dates noted herein and is derived from financial and other information of the Company, and, in certain cases, from third party sources and reports (including reports of third party custodians, CLO managers and trustees) that have not been independently verified by the Company. As noted herein, certain of this information is estimated and unaudited, and therefore subject to change. We do not represent that such information is accurate or complete, and it should not be relied upon as such.
Eagle Point Income Company Inc.
The following information in this annual report is a summary of certain changes during the fiscal year ended December 31, 2022. This information may not reflect all of the changes that have occurred since you purchased shares of our common stock.
During the applicable period, there have been: (i) no material changes to the Company’s investment objectives and policies that have not been approved by shareholders, (ii) no material changes to the Company’s principal risks, (iii) no changes to the persons primarily responsible for day-to-day management of the Company; and (iv) no changes to the Company’s charter or bylaws that would delay or prevent a change of control of the Company.
Investment Objectives and Strategies
We are an externally managed, diversified closed-end management investment company that has registered as an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). We have elected to be treated, and intend to qualify annually, as a regulated investment company, or “RIC,” under Subchapter M of the Internal Revenue Code of 1986, as amended, or the “Code,” beginning with our tax year ended December 31, 2018. We were formed on September 28, 2018
| 14 |
as EP Income Company LLC, a Delaware limited liability company, and converted into a Delaware corporation on October 16, 2018.
Our primary investment objective is to generate high current income, with a secondary objective to generate capital appreciation. We seek to achieve our investment objectives by investing primarily in junior debt tranches of CLOs, that are collateralized by a portfolio consisting primarily of below investment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry sectors. We focus on CLO debt tranches rated “BB” (e.g., BB+, BB or BB-, or their equivalent) by Moody’s Investors Service, Inc., or “Moody’s,” Standard & Poor’s, or “S&P,” or Fitch Ratings, Inc., or “Fitch,” and/or other applicable nationally recognized statistical rating organizations. We may also invest in other junior debt tranches of CLOs, senior debt tranches of CLOs and other related securities and instruments. In addition, we may invest up to 35% of our total assets (at the time of investment) in CLO equity securities and related securities and instruments. We expect our investments in CLO equity securities to primarily reflect minority ownership positions. We may also invest in other securities and instruments that the Adviser believes are consistent with our investment objectives such as securities issued by other securitization vehicles (such as collateralized bond obligations or “CBOs”). The amount that we will invest in other securities and instruments, which may include investments in debt and other securities issued by CLOs collateralized by non-U.S. loans, and securities of other collective investment vehicles, will vary from time to time and, as such, may constitute a material part of our portfolio on any given date, all as based on the Adviser’s assessment of prevailing market conditions. The CLO securities in which we primarily seek to invest are rated below investment grade or, in the case of CLO equity securities, are unrated and are considered speculative with respect to timely payment of interest and repayment of principal. Below investment grade and unrated securities are also sometimes referred to as “junk” securities.
These investment objectives are not fundamental policies of ours and may be changed by our board of directors without prior approval of our stockholders.
Investment Restrictions
Our investment objectives and our investment policies and strategies, except for the eight investment restrictions designated as fundamental policies under this caption, are not fundamental and may be changed by the board of directors without stockholder approval.
The following eight investment restrictions are designated as fundamental policies and, as such, cannot be changed without the approval of the holders of a majority of our outstanding voting securities:
| 1. | We may not borrow money, except as permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction; |
| 2. | We may not engage in the business of underwriting securities issued by others, except to the extent that we may be deemed to be an underwriter in connection with the disposition of portfolio securities; |
| 3. | We may not purchase or sell physical commodities or contracts for the purchase or sale of physical commodities. Physical commodities do not include futures contracts with respect to securities, securities indices, currency or other financial instruments; |
| 4. | We may not purchase or sell real estate, which term does not include securities of companies which deal in real estate or mortgages or investments secured by real estate or interests therein, except that we reserve freedom of action to hold and to sell real estate acquired as a result of our ownership of securities; |
| 5. | We may not make loans, except to the extent permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction. For purposes of this investment restriction, the purchase of debt obligations (including acquisitions of loans, loan participations or other forms of debt instruments) shall not constitute loans by us; |
| 6. | We may not issue senior securities, except to the extent permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, the SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction; |
| 7. | We may not invest in any security if as a result of such investment, 25% or more of the value of our total assets, taken at market value at the time of each investment, are in the securities of issuers in any particular industry or group of |
| 15 |
| industries except (a) securities issued or guaranteed by the U.S. government and its agencies and instrumentalities or tax-exempt securities of state and municipal governments or their political subdivisions (however, not including private purpose industrial development bonds issued on behalf of non-government issuers), or (b) as otherwise provided by the 1940 Act, as amended from time to time, and as modified or supplemented from time to time by (i) the rules and regulations promulgated by the SEC under the 1940 Act, as amended from time to time, and (ii) any exemption or other relief applicable to us from the provisions of the 1940 Act, as amended from time to time. For purposes of this restriction, in the case of investments in loan participations between us and a bank or other lending institution participating out the loan, we will treat both the lending bank or other lending institution and the borrower as “issuers.” For purposes of this restriction, an investment in a CLO, collateralized bond obligation, collateralized debt obligation or a swap or other derivative will be considered to be an investment in the industry or group of industries (if any) of the underlying or reference security, instrument or asset; and |
| 8. | We may not engage in short sales, purchases on margin, or the writing of put or call options, except as permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction. |
The latter part of certain of our fundamental investment restrictions (i.e., the references to “except to the extent permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, the SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction”) provides us with flexibility to change our limitations in connection with changes in applicable law, rules, regulations or exemptive relief. The language used in these restrictions provides the necessary flexibility to allow our board of directors to respond efficiently to these kinds of developments without the delay and expense of a stockholder meeting.
Whenever an investment policy or investment restriction set forth in this report or in our prospectus states a maximum percentage of assets that may be invested in any security or other asset, or describes a policy regarding quality standards, such percentage limitation or standard shall be determined immediately after and as a result of our acquisition of such security or asset. Accordingly, any later increase or decrease resulting from a change in values, assets or other circumstances or any subsequent rating change made by a rating agency (or as determined by the Adviser if the security is not rated by a rating agency) will not compel us to dispose of such security or other asset. Notwithstanding the foregoing, we must always be in compliance with the borrowing policies set forth above.
Use of Leverage and Leverage Risks
The use of leverage, whether directly through borrowing under a revolving credit facility with BNP Paribas (the “Credit Facility”) or the issuance of the Series A Term Preferred Stock, or indirectly through investments such as CLO junior debt and equity securities that inherently involve leverage, may magnify our risk of loss. CLO junior debt and equity securities are very highly leveraged (with CLO equity securities typically being leveraged ten times), and therefore the CLO securities in which we invest are subject to a higher degree of loss since the use of leverage magnifies losses.
We have incurred leverage by issuing preferred stock and incurring indebtedness for borrowed money. We may incur additional leverage, directly or indirectly, through one or more special purpose vehicles, indebtedness for borrowed money, as well as leverage in the form of derivative transactions, additional shares of preferred stock, debt securities and other structures and instruments, in significant amounts and on terms that the Adviser and our board of directors deem appropriate, subject to applicable limitations under the 1940 Act. Such leverage may be used for the acquisition and financing of our investments, to pay fees and expenses and for other purposes. Such leverage may be secured and/or unsecured. The more leverage we employ, the more likely a substantial change will occur in our NAV. Accordingly, any event that adversely affects the value of an investment would be magnified to the extent leverage is utilized. The cumulative effect of the use of leverage with respect to any investments in a market that moves adversely to such investments could result in a substantial loss that would be greater than if our investments were not leveraged.
The following table is intended to illustrate the effect of the use of direct leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below.
| 16 |
| Assumed
Return on Our Portfolio (Net of Expenses) |
-10% | -5% | 0% | 5% | 10% |
| Corresponding return to common stockholder(1) | -19.00% | -11.12% | -3.25% | 4.63% | 12.51% |
| (1) | Assumes (i) $171.3 million in pro forma total assets as of December 31, 2022 (adjusted to reflect (i) the issuance in the Company’s “at-the-market” offering and committed equity financing of 489,198 shares of our common stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately $6.8 million; (ii) the hypothetical borrowings of the full $25,000,000 available under the BNP Credit Facility) (ii) $108.7 million in pro forma net assets as of December 31, 2022 (adjusted to reflect the issuances and borrowings described above); and (iii) an annualized average interest rate on our indebtedness and preferred equity, as of December 31, 2022, of 5.60%. |
Based on our assumed leverage described above, our investment portfolio would have been required to experience an annual return of at least 2.1% to cover annual interest payments on our outstanding indebtedness and preferred equity.
Principal Risk Factors
For a description of the principal risk factors associated with an investment in the Company, please refer to Note 3 to the Financial Statements, “Investments – Investment Risk Factors”).
Additional Information
The Company makes certain unaudited portfolio information available each month on its website in addition to making certain other unaudited financial information available on its website (www.eaglepointincome.com). This information includes (1) an estimated range of the Company’s net investment income (“NII”) and realized capital gains or losses per weighted average share of common stock for each calendar quarter end, generally made available within the first fifteen days after the applicable calendar month end, (2) an estimated range of the Company’s NAV per share of common stock for the prior month end and certain additional portfolio-level information, generally made available within the first fifteen days after the applicable calendar month end, and (3) during the latter part of each month, an updated estimate of NAV, if applicable, and, with respect to each calendar quarter end, an updated estimate of the Company’s NII and realized capital gains or losses for the applicable quarter, if available.
Information contained on our website is not incorporated by reference into this Annual Report and you should not consider information contained on our website to be part of this Annual Report or any other report we file with the SEC.
Forward-Looking Statements
This report may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts included in this report may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in the Company’s filings with the SEC. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this report.
| 17 |
Notes
| 1 | Based on the market price. Prices for October 16, 2018 (inception date) and December 31, 2018 represet the Net Asset Value (“NAV”) per share. |
| 2 | The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. The indices shown herein have not been selected to represent a benchmark for a strategy’s performance, but are instead disclosed to allow for comparison of the Company’s returns to that of known, recognized and/or similar indices. The Credit Suisse Leveraged Loan Index tracks the investable universe of the US-denominated leveraged loan market. The BofA ICE US High Yield Index tracks the performance of high-yield securities traded in the U.S. bond market. The S&P BDC Index is intended to measure the performance of all Business Development Companies (BDCs) that are listed on the NYSE or NASDAQ and satisfy market capitalization and other eligibility requirements. Although EIC is not a BDC, BDCs generally invest in high yielding credit investments, as does EIC. In addition, similar to EIC, BDCs generally elect to be classified as a regulated investment company under the U.S. Internal Revenue Code of 1986, as amended, which generally requires an investment company to distribute its taxable income to shareholders. |
| 3 | The summary of portfolio investments shown is based on the estimated fair value of the underlying positions as of December 31, 2022. Cash and borrowing capacity represents cash net of pending trade settlements and includes available capacity on the Company’s credit facility as of December 31, 2022. Borrowings under the credit facility are subject to applicable regulatory and contractual limits. |
| 4 | The information presented herein is on a look-through basis to the collateralized loan obligation, or “CLO,” and other related investments held by the Company as of December 31, 2022 (except as otherwise noted) and reflects the aggregate underlying exposure of the Company based on the portfolios of those investments. The data is estimated and unaudited and is derived from CLO trustee reports received by the Company relating to December 2022 and from custody statements and/or other information received from CLO collateral managers and other third party sources. Information relating to the market price of underlying collateral is as of month end; however, with respect to other information shown, depending on when such information was received, the data may reflect a lag in the information reported. As such, while this information was obtained from third party data sources, December 2022 trustee reports and similar reports, other than market price, it does not reflect actual underlying portfolio characteristics as of December 31, 2022 and this data may not be representative of current or future holdings. The Weighted Average Remaining Reinvestment Period information is based on the fair value of CLO equity and debt investments held by the Company at the end of the reporting period. |
| 5 | Data represents aggregate indirect exposure. We obtain exposure in underlying senior secured loans indirectly through our CLO and related investments. |
| 6 | The weighted average OC cushion senior to the security is calculated using the BBB OC cushion for all BB-rated CLO debt securities in the portfolio and the BB OC cushion for all other securities in the portfolio, in each case as held on December 31, 2022. |
| 7 | Credit ratings shown are based on those assigned by Standard & Poor’s Rating Group, or “S&P,” or, for comparison and informational purposes, if S&P does not assign a rating to a particular obligor, the weighted average rating shown reflects the S&P equivalent rating of a rating agency that rated the obligor provided that such other rating is available with respect to a CLO or related investment held by us. In the event multiple ratings are available, the lowest S&P rating, or if there is no S&P rating, the lowest equivalent rating, is used. The ratings of specific borrowings by an obligor may differ from the rating assigned to the obligor and may differ among rating agencies. For certain obligors, no rating is available in the reports received by the Company. Such obligors are not shown in the graphs and, accordingly, the sum of the percentages in the graphs may not equal 100%. Ratings below BBB- are below investment grade. Further information regarding S&P’s rating methodology and definitions may be found on its website (www.standardandpoors.com). |
| 8 | Industry categories are based on the S&P industry categorization of each obligor as reported in CLO trustee reports to the extent so reported. Certain CLO trustee reports do not report the industry category of all of the underlying obligors and where such information is not reported, it is not included in the summary look-through industry information shown. As such, the Company’s exposure to a particular industry may be higher than that shown if industry categories were available for all underlying obligors. In addition, certain underlying obligors may be re-classified from time to time based on developments in their respective businesses and/or market practices. Accordingly, certain underlying borrowers that are currently, or were previously, summarized as a single borrower in a particular industry may in current or future periods be reflected as multiple borrowers or in a different industry, as applicable. |
| 9 | Certain CLO trustee reports do not provide the industry classification for certain underlying obligors. These obligors are not summarized in the look-through industry data shown; if they were reflected, they would represent 7.6%. |
Please see footnote disclosures on page 18.
| 18 |
Performance Data1,2
The following graph shows the market price performance of a $10,000 investment in the Company’s common shares for the period from October 16, 2018 (inception) through December 31, 2022. The performance calculation assumes the purchase of Company shares at net asset value for the beginning of the period (prior to the Company’s public listing) and the sale of Company shares at the market price at the end of the period. Ending value for each year are as of December 31 of the applicable year. As the Company’s IPO occurred in July 2019, the value used for the Company’s performance as of December 31, 2018 reflects the Company’s then-current net asset value per share. For comparative purposes, the performance of a relevant third-party securities market index, the S&P BDC Index, is shown. Distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Company’s dividend reinvestment plan. The performance does not reflect brokerage commissions in connection with the purchase or sale of Company shares, which if included would lower the performance shown. Returns do not reflect the deduction of taxes that a shareholder would pay on Company distributions or the sale of Company shares.
Past performance is not indicative of, or a guarantee of, future performance. Future results may vary and may be higher or lower than the data shown.
| Value of $10,000 Invested |
| Annualized Total Return | Cumulative | ||
| 1 year | Since Inception | Since Inception | |
| EIC | -8.67% | -0.83% | 3.47% |
| S&P BDC Index | -9.39% | 6.55% | 30.61% |
Please see footnote disclosures on page 18.
| 19 |
Summary of Certain Unaudited Portfolio Characteristics
The information presented below is on a look–through basis to the collateralized loan obligation, or “CLO”, and other related investments held by the Company as of December 31, 2022 (except as otherwise noted) and reflects the aggregate underlying exposure of the Company based on the portfolios of those investments. The data is estimated and unaudited and is derived from CLO trustee reports received by the Company relating to December 2022 and from custody statements and/or other information received from CLO collateral managers, or other third party sources.
| Summary of Portfolio Investments (as of 12/31/2022)3 |
| Cash and Borrowing Capacity: $16.0 million1 |
Please see footnote disclosures on page 18.
| 20 |
| Top 10 Underlying Obligors4 |
| Obligor | % of Total |
| Cablevision | 0.9% |
| Asurion | 0.8% |
| Mcafee | 0.7% |
| Numericable | 0.6% |
| Transdigm | 0.6% |
| Medline Industries | 0.6% |
| Athenahealth | 0.5% |
| Blackstone Mortgage Trust | 0.5% |
| Howden | 0.5% |
| United Airlines | 0.4% |
| Total | 6.2% |
| Top 10 Industries of Underlying Obligors4,8,9 |
| Industry | % of Total |
| Technology | 10.4% |
| Health Care | 9.6% |
| Publishing | 6.4% |
| Financial Intermediaries | 5.8% |
| Telecommunications | 4.7% |
| Diversified/Conglomerate Service | 4.5% |
| Lodging & Casinos | 4.5% |
| Building & Development | 4.4% |
| Commercial Services & Supplies | 3.5% |
| Technology: Hardware & Equipment | 3.1% |
| Total | 57.0% |
| Rating Distribution of Underlying Obligors4,7 |
| Maturity Distribution of Underlying Obligors4 |
Please see footnote disclosures on page 18.
| 21 |
Fees and Expenses (unaudited)
The following table is intended to assist you in understanding the costs and expenses that an investor in shares of the Company’s common stock will bear directly or indirectly. The expenses shown in the table under “Annual Expenses” are estimated based on historical fees and expenses incurred by the Company, as appropriate. In addition, such amounts are based on the Company’s pro forma assets as of December 31, 2022, which have been adjusted to reflect (i) the issuance in the Company’s “at-the-market” offering and committed equity financing of 489,198 shares of our common stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately $6.8 million; (ii) the hypothetical borrowings of the full $25,000,000 available under the BNP Credit Facility, which would mean that the Company’s adjusted total assets are assumed to equal approximately $171.3 million. As of December 31, 2022, and pro forma for the issuances and assumed borrowings described above (excluding any regular monthly distributions paid after December 31, 2022), the Company’s leverage represented approximately 37.1% of the Company’s total assets (less current liabilities). Such expenses, and actual leverage incurred by the Company, may vary in the future. Whenever this report (or other Company disclosures, including the Company’s prospectus) contain a reference to fees or expenses paid by the Company, the Company’s common stockholders will indirectly bear such fees or expenses.
| Annual Expenses (as a percentage of net assets attributable to common stock): | ||
| Management fee | 1.95%(4) | |
| Interest payments on borrowed funds | 3.25%(5) | |
| Other expenses | 1.99%(6) | |
| Total annual expenses | 7.19% |
| (1) | In the event that the Company sells its securities publicly through underwriters or agents, the related prospectus supplement will disclose the applicable sales load. | |
| (2) | In the event that the Company sells its securities publicly through underwriters or agents, the related prospectus supplement will disclose the estimated amount of total offering expenses (which may include offering expenses borne by third parties on the Company’s behalf), the offering price and the offering expenses borne by the Company as a percentage of the offering price. | |
| (3) | The expenses associated with the dividend reinvestment plan are included in “Other expenses.” If a participant elects by written notice to the plan administrator prior to termination of his or her account to have the plan administrator sell part or all of the shares held by the plan administrator in the participant’s account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $15.00 transaction fee plus a $0.07 per share brokerage commission from the proceeds. See the section “Dividend Reinvestment Plan,” below. |
| (4) | The Company has agreed to pay the Adviser as compensation under the Investment Advisory Agreement a management fee at an annual rate of 1.25% which is calculated monthly based the Company’s Managed Assets at the end of each calendar month and payable quarterly in arrears. “Managed Assets” means the Company’s total assets (including assets attributable to the use of leverage) minus the sum of accrued liabilities (other than liabilities incurred for the purpose of creating leverage). Because Managed Assets include the Company’s use of leverage, they will typically be greater than the Company’s net assets. The management fee referenced in the table above is based on Managed Assets as of December 31, 2022 and assumes the pro forma effect of (i) the issuance in the Company’s “at-the-market” offering and committed equity financing of 489,198 shares of our common stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately $6.8 million; (ii) the hypothetical borrowings of the full $25,000,000 available under the BNP Credit Facility, which would mean that the Company’s adjusted total assets are assumed to equal approximately $171.3 million. These management fees are indirectly borne by holders of the Company’s common stock and are not borne by the holders of preferred stock, if any, or the holders of any other securities that the Company may issue. See “The Adviser and the Administrator — Investment Advisory Agreement — Management” in the Company’s prospectus for additional information regarding the calculation of the management fee. | |
| (5) | “Interest payments on borrowed funds” represents the Company’s annualized interest expense and includes dividends payable on the Series A Term Preferred Stock, outstanding on December 31, 2022, and includes the pro forma effect of the assumed borrowings under the BNP Credit Facility described above, which, in the aggregate, have a weighted average interest rate of 5.60% per annum. The Company may issue additional shares of preferred stock. In the event that the Company were to issue additional shares of preferred |
| 22 |
| stock, the Company’s borrowing costs, and correspondingly its total annual expenses, including, in the case of such preferred stock, the base management fee as a percentage of the Company’s managed assets attributable to common stock, would increase. | ||
| (6) | “Other expenses” includes the Company’s overhead expenses, including payments under the Administration Agreement based on the Company’s allocable portion of overhead and other expenses incurred by Eagle Point Administration LLC (“Eagle Point Administration”), the administrator to the Company and an affiliate of the Adviser, and payment of fees in connection with outsourced administrative functions, and are based on the actual amounts for the 2022 fiscal year. See “Related Party Transactions — Administrator” in the Notes to the Financial Statements. “Other expenses” also includes the ongoing administrative expenses to the independent accountants and legal counsel of the Company, compensation of independent directors, and cost and expenses relating to rating agencies. |
Example
The following example is furnished in response to the requirements of the SEC and illustrates the various costs and expenses that you would pay, directly or indirectly, on a $1,000 investment in shares of the Company’s common stock for the time periods indicated, assuming (1) total annual expenses of 7.19% of net assets attributable to the Company’s common stock and (2) a 5% annual return*:
| 1 year | 3 years | 5 years | 10 years | ||||||
| You would pay the following expenses on a $1,000 investment, assuming a 5% annual return | $ 72 | $ 211 | $ 344 | $ 652 |
* The example should not be considered a representation of future returns or expenses, and actual returns and expenses may be greater or less than those shown. The example assumes that the estimated “other expenses” set forth in the Annual Expenses table are accurate, and that all dividends and distributions are reinvested at NAV. The Company’s actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
| 23 |
Financial Statements
for the Year Ended
| 24 |
Eagle Point Income Company Inc.
Statement of Assets and Liabilities
As of December 31, 2022
(expressed in U.S. dollars)
See accompanying notes to the financial statements
| 25 |
Eagle Point Income Company Inc.
Schedule of Investments
As of December 31, 2022
(expressed in U.S. dollars)
| Issuer (1) | Investment Description (2) (3) | Acquisition Date (4) | Principal Amount | Cost | Fair Value (5) | % of Net Assets | |||||||||
| Investments, at fair value | |||||||||||||||
| CLO Debt (6) | |||||||||||||||
| United States | |||||||||||||||
| Ares XLV CLO Ltd. | Secured Note - Class E, 10.18%, (3M LIBOR + 6.10%, 10/15/2030) | 05/30/2019 | $ | 800,000 | $ | 789,475 | $ | 663,200 | 0.65% | ||||||
| Barings CLO Ltd. 2018-IV | Secured Note - Class E, 9.90%, (3M LIBOR + 5.82%, 10/15/2030) | 10/26/2018 | 840,000 | 836,088 | 712,404 | 0.70% | |||||||||
| Battalion CLO XII Ltd. | Secured Note - Class E, 10.74%, (3M LIBOR + 6.09%, 05/17/2031) | 10/04/2018 | 5,060,000 | 4,904,691 | 3,972,100 | 3.90% | |||||||||
| Battalion CLO XXI Ltd. | Secured Note - Class E, 10.54%, (3M LIBOR + 6.46%, 07/15/2034) | 06/08/2022 | 5,000,000 | 4,662,419 | 4,100,000 | 4.02% | |||||||||
| Black Diamond CLO 2016-1, Ltd. | Secured Note - Class D-R, 9.93%, (3M LIBOR + 5.60%, 04/26/2031) | 10/04/2018 | 1,050,000 | 999,198 | 808,290 | 0.79% | |||||||||
| Black Diamond CLO 2017-1, Ltd. | Secured Note - Class D, 10.92%, (3M LIBOR + 6.60%, 04/24/2029) | 10/04/2018 | 3,600,000 | 3,593,656 | 3,168,000 | 3.11% | |||||||||
| Carlyle US CLO 2017-1, Ltd. | Secured Note - Class D, 10.24%, (3M LIBOR + 6.00%, 04/20/2031) | 09/15/2020 | 2,000,000 | 1,695,852 | 1,579,600 | 1.55% | |||||||||
| Carlyle US CLO 2018-1, Ltd. | Secured Note - Class D, 9.99%, (3M LIBOR + 5.75%, 04/20/2031) | 10/04/2018 | 665,000 | 659,535 | 519,166 | 0.51% | |||||||||
| Carlyle US CLO 2018-2, Ltd. | Secured Note - Class D, 9.33%, (3M LIBOR + 5.25%, 10/15/2031) | 10/04/2018 | 5,500,000 | 5,323,135 | 4,335,100 | 4.25% | |||||||||
| Carlyle US CLO 2019-1, Ltd. | Secured Note - Class D, 10.94%, (3M LIBOR + 6.70%, 04/20/2031) | 08/19/2019 | 3,125,000 | 2,976,754 | 2,675,938 | 2.62% | |||||||||
| CIFC Funding 2015-I, Ltd. | Secured Note - Class E-RR, 10.32%, (3M LIBOR + 6.00%, 01/22/2031) | 10/04/2018 | 2,600,000 | 2,567,635 | 2,106,780 | 2.07% | |||||||||
| CIFC Funding 2018-II, Ltd. | Secured Note - Class D, 10.09%, (3M LIBOR + 5.85%, 04/20/2031) | 10/04/2018 | 1,225,000 | 1,193,529 | 1,083,635 | 1.06% | |||||||||
| CIFC Funding 2018-IV, Ltd. | Secured Note - Class E, 11.78%, (3M LIBOR + 7.70%, 10/17/2031) | 05/22/2019 | 2,000,000 | 1,875,296 | 1,570,800 | 1.54% | |||||||||
| Cook Park CLO, Ltd. | Secured Note - Class E, 9.48%, (3M LIBOR + 5.40%, 04/17/2030) | 10/04/2018 | 1,250,000 | 1,198,440 | 987,625 | 0.97% | |||||||||
| Dryden 37 Senior Loan Fund, Ltd. | Secured Note - Class E-R, 9.23%, (3M LIBOR + 5.15%, 01/15/2031) | 10/04/2018 | 500,000 | 486,387 | 382,500 | 0.38% | |||||||||
| First Eagle BSL CLO 2019-1 Ltd. | Secured Note - Class D, 11.94%, (3M LIBOR + 7.70%, 01/20/2033) | 12/17/2019 | 5,000,000 | 4,814,158 | 4,343,000 | 4.26% | |||||||||
| Generate CLO-2 Ltd. | Secured Note - Class E-R, 9.97%, (3M LIBOR + 5.65%, 01/22/2031) | 05/16/2019 | 1,605,000 | 1,533,499 | 1,383,189 | 1.36% | |||||||||
| KKR CLO 22 Ltd. | Secured Note - Class E, 10.24%, (3M LIBOR + 6.00%, 07/20/2031) | 10/27/2021 | 3,000,000 | 2,957,325 | 2,504,100 | 2.46% | |||||||||
| KKR CLO 29 Ltd. | Secured Note - Class F, NM, (3M LIBOR + 9.00%, 01/15/2032) | 12/14/2021 | 589,812 | - | - | 0.00% | |||||||||
| LCM XVIII, L.P. | Secured Note - Class E-R, 10.19%, (3M LIBOR + 5.95%, 04/20/2031) | 10/04/2018 | 600,000 | 598,672 | 451,980 | 0.44% | |||||||||
| Madison Park Funding XXVII, Ltd. | Secured Note - Class D, 9.24%, (3M LIBOR + 5.00%, 04/20/2030) | 10/04/2018 | 3,050,000 | 2,866,711 | 2,646,485 | 2.60% | |||||||||
| Madison Park Funding XLII, Ltd. | Secured Note - Class E, 10.37%, (3M LIBOR + 6.05%, 11/21/2030) | 08/15/2019 | 1,500,000 | 1,446,458 | 1,331,700 | 1.31% | |||||||||
| Madison Park Funding LI, Ltd. | Secured Note - Class E, 10.50%, (3M LIBOR + 6.27%, 07/19/2034) | 10/28/2021 | 4,000,000 | 3,994,059 | 3,541,600 | 3.47% | |||||||||
| Marathon CLO IX, Ltd. | Secured Note - Class D, 10.13%, (3M LIBOR + 6.05%, 04/15/2029) | 10/04/2018 | 4,050,000 | 4,010,801 | 2,870,640 | 2.82% | |||||||||
| Marathon CLO XIII, Ltd. | Secured Note - Class D, 11.06%, (3M LIBOR + 6.98%, 04/15/2032) | 06/04/2019 | 3,500,000 | 3,363,885 | 2,564,450 | 2.52% | |||||||||
| Octagon Investment Partners 37, Ltd. | Secured Note - Class D, 9.76%, (3M LIBOR + 5.40%, 07/25/2030) | 10/04/2018 | 2,200,000 | 2,087,834 | 1,821,160 | 1.79% | |||||||||
| Octagon Investment Partners 38, Ltd. | Secured Note - Class D, 9.94%, (3M LIBOR + 5.70%, 07/20/2030) | 10/04/2018 | 3,725,000 | 3,658,215 | 3,133,098 | 3.07% | |||||||||
| Octagon Investment Partners 39, Ltd. | Secured Note - Class E, 9.99%, (3M LIBOR + 5.75%, 10/20/2030) | 10/24/2018 | 1,550,000 | 1,500,052 | 1,317,190 | 1.29% | |||||||||
| Octagon Investment Partners 41, Ltd. | Secured Note - Class E-R, 11.21%, (3M LIBOR + 7.13%, 10/15/2033) | 09/24/2021 | 2,500,000 | 2,488,807 | 2,158,500 | 2.12% | |||||||||
| OZLM XXI, Ltd. | Secured Note - Class D, 9.78%, (3M LIBOR + 5.54%, 01/20/2031) | 10/04/2018 | 4,150,000 | 4,074,731 | 3,336,600 | 3.27% | |||||||||
| Palmer Square CLO 2018-1, Ltd. | Secured Note - Class D, 9.34%, (3M LIBOR + 5.15%, 04/18/2031) | 05/30/2019 | 1,120,000 | 1,045,530 | 976,864 | 0.96% | |||||||||
| Pikes Peak CLO 1 | Secured Note - Class E, 10.37%, (3M LIBOR + 6.05%, 07/24/2031) | 10/28/2021 | 3,000,000 | 2,943,636 | 2,417,700 | 2.37% | |||||||||
| Rockford Tower CLO 2018-1, Ltd. | Secured Note - Class E, 10.53%, (3M LIBOR + 5.85%, 05/20/2031) | 09/30/2021 | 2,250,000 | 2,191,204 | 1,676,925 | 1.64% | |||||||||
| Rockford Tower CLO 2018-2, Ltd. | Secured Note - Class E, 10.24%, (3M LIBOR + 6.00%, 10/20/2031) | 10/04/2018 | 4,275,000 | 4,190,602 | 3,219,503 | 3.16% | |||||||||
| Rockford Tower CLO 2019-2, Ltd. | Secured Note - Class E, 10.73%, (3M LIBOR + 6.05%, 08/20/2032) | 01/13/2021 | 3,000,000 | 2,963,644 | 2,518,200 | 2.47% | |||||||||
| Rockford Tower CLO 2020-1, Ltd. | Secured Note - Class E, 11.14%, (3M LIBOR + 6.90%, 01/20/2032) | 12/04/2020 | 1,600,000 | 1,573,204 | 1,432,480 | 1.41% | |||||||||
| RR 4 Ltd | Secured Note - Class D, 9.93%, (3M LIBOR + 5.85%, 04/15/2030) | 10/28/2021 | 4,000,000 | 3,956,321 | 3,396,800 | 3.33% | |||||||||
| TCI-Symphony CLO 2016-1 Ltd. | Secured Note - Class E-R2, 10.69%, (3M LIBOR + 6.75%, 10/13/2032) | 01/13/2022 | 3,000,000 | 3,000,000 | 2,547,000 | 2.50% | |||||||||
| TICP CLO IX, Ltd. | Secured Note - Class E, 9.84%, (3M LIBOR + 5.60%, 01/20/2031) | 08/22/2019 | 2,500,000 | 2,367,603 | 2,224,500 | 2.18% | |||||||||
| TICP CLO XI, Ltd. | Secured Note - Class E, 10.24%, (3M LIBOR + 6.00%, 10/20/2031) | 10/29/2021 | 5,050,000 | 5,016,610 | 4,570,250 | 4.48% | |||||||||
| Venture 36 CLO, Limited | Secured Note - Class E, 11.16%, (3M LIBOR + 6.92%, 04/20/2032) | 01/21/2021 | 4,800,000 | 4,495,160 | 3,372,000 | 3.31% | |||||||||
| Venture 43 CLO, Limited | Secured Note - Class E, 11.23%, (3M LIBOR + 7.15%, 04/15/2034) | 11/02/2021 | 2,500,000 | 2,441,050 | 2,085,000 | 2.05% | |||||||||
| Vibrant CLO VI, Ltd. | Secured Note - Class E, 10.50%, (3M LIBOR + 5.75%, 06/20/2029) | 10/04/2018 | 1,400,000 | 1,383,996 | 1,066,800 | 1.05% | |||||||||
| Vibrant CLO VIII, Ltd. | Secured Note - Class D, 9.99%, (3M LIBOR + 5.75%, 01/20/2031) | 10/04/2018 | 1,750,000 | 1,709,875 | 1,270,675 | 1.25% | |||||||||
| Wellfleet CLO 2018-1, Ltd. | Secured Note - Class E, 9.58%, (3M LIBOR + 5.50%, 07/17/2031) | 10/27/2021 | 4,025,000 | 3,875,444 | 3,020,763 | 2.96% | |||||||||
| Wind River 2014-1 CLO Ltd. | Secured Note - Class E-R, 10.49%, (3M LIBOR + 6.30%, 07/18/2031) | 08/16/2021 | 2,550,000 | 2,380,833 | 1,860,225 | 1.82% | |||||||||
| Wind River 2021-3 CLO Ltd. | Secured Note - Class E, 10.84%, (3M LIBOR + 6.60%, 07/20/2033) | 10/28/2021 | 3,000,000 | 2,974,998 | 2,542,800 | 2.49% | |||||||||
| 121,667,007 | 102,267,315 | 100.33% | |||||||||||||
| CLO Equity (7) (8) | |||||||||||||||
| United States | |||||||||||||||
| Ares XLIV CLO Ltd. | Subordinated Note, (effective yield 17.02%, 04/15/2034) | 06/08/2021 | 8,000,000 | 3,373,333 | 2,606,286 | 2.56% | |||||||||
| Ares LVIII CLO Ltd. | Subordinated Note, (effective yield 20.69%, 01/15/2035) | 06/17/2021 | 4,000,000 | 2,666,623 | 2,335,416 | 2.29% | |||||||||
| Bardin Hill CLO 2021-2 Ltd. | Subordinated Note, (effective yield 22.62%, 10/25/2034) (9) | 09/24/2021 | 4,000,000 | 2,847,445 | 2,180,042 | 2.14% | |||||||||
| Barings CLO Ltd. 2021-I | Subordinated Note, (effective yield 16.57%, 04/25/2034) | 11/03/2021 | 4,000,000 | 3,345,851 | 2,824,510 | 2.77% | |||||||||
| Barings CLO Ltd. 2021-III | Subordinated Note, (effective yield 18.66%, 01/18/2035) | 11/17/2021 | 5,000,000 | 3,974,791 | 3,215,918 | 3.15% | |||||||||
| Carlyle US CLO 2021-2, Ltd. | Subordinated Note, (effective yield 15.33%, 04/20/2034) | 10/28/2021 | 3,000,000 | 2,614,654 | 2,025,379 | 1.99% | |||||||||
| Carlyle US CLO 2021-5, Ltd. | Subordinated Note, (effective yield 15.90%, 07/20/2034) | 11/02/2021 | 5,000,000 | 4,179,218 | 3,276,571 | 3.21% | |||||||||
| CIFC Funding 2019-VI, Ltd. | Subordinated Note, (effective yield 17.54%, 01/16/2033) | 12/02/2019 | 6,000,000 | 4,428,597 | 3,283,396 | 3.22% | |||||||||
| KKR CLO 29 Ltd. | Subordinated Note, (effective yield 17.12%, 01/15/2032) | 12/14/2021 | 5,500,000 | 4,457,607 | 3,410,101 | 3.35% | |||||||||
| Madison Park Funding XXXVII, Ltd. | Subordinated Note, (effective yield 33.87%, 07/15/2049) | 03/11/2020 | 4,000,000 | 2,466,933 | 2,754,007 | 2.70% | |||||||||
| Marathon CLO XIII, Ltd. | Subordinated Note, (effective yield 18.76%, 04/15/2032) | 06/04/2019 | 5,300,000 | 3,724,444 | 2,459,404 | 2.41% | |||||||||
| Octagon Investment Partners 37, Ltd. | Subordinated Note, (effective yield 10.92%, 07/25/2030) | 01/31/2020 | 6,000,000 | 3,725,300 | 2,268,619 | 2.23% | |||||||||
| Octagon Investment Partners 43, Ltd. | Income Note, (effective yield 11.83%, 10/25/2032) | 08/02/2019 | 5,750,000 | 4,447,702 | 2,717,101 | 2.67% | |||||||||
| Point Au Roche Park CLO, Ltd. | Subordinated Note, (effective yield 16.12%, 07/20/2034) | 02/15/2022 | 5,945,000 | 4,792,598 | 3,716,152 | 3.65% | |||||||||
| Venture 37 CLO, Limited | Subordinated Note, (effective yield 12.30%, 07/15/2032) | 05/21/2019 | 5,200,000 | 3,715,235 | 2,039,989 | 2.00% | |||||||||
| 54,760,331 | 41,112,891 | 40.34% | |||||||||||||
| Total investments at fair value as of December 31, 2022 | $ | 176,427,338 | $ | 143,380,206 | 140.67% | ||||||||||
| Liabilities, at fair value (10) | |||||||||||||||
| 5.00% Series A Term Preferred Stock due 2026 | Preferred Stock | $ | (38,041,225) | $ | (38,030,935) | $ | (36,184,813) | -35.49% | |||||||
| Net assets above (below) fair value of investments and liabilities at fair value | (5,251,553) | ||||||||||||||
| Net assets as of December 31, 2022 | $ | 101,943,840 | |||||||||||||
| (1) | The Company is not affiliated with, nor does it "control" (as such term is defined in the Investment Company Act of 1940 (the "1940 Act")), any of the issuers listed. In general, under the 1940 Act, the Company would be presumed to "control" an issuer if we owned 25% or more of its voting securities. |
| (2) | All securities are exempt from registration under the securities act of 1933, are deemed to be "restricted" securities and are categorized as structured finance securities. |
| (3) | Pursuant to the terms of the credit facility agreement, a security interest in favor of the lender has been granted with respect to all investments. See Note 9 "Revolving Credit Facility" for further discussion. |
| (4) | Acquisition date represents the initial purchase date or the date when the investment was contributed to the Company. See Note 1 "Organization" for further discussion. |
| (5) | Fair value is determined by the Adviser in accordance with written valuation policies and procedures, subject to oversight by the Company’s Board of Directors, in accordance with Rule 2a-5 under the 1940 Act. |
| (6) | CLO debt positions reflect the coupon rates as of December 31, 2022. |
| (7) | The fair value of CLO equity investments were determined using significant, unobservable inputs. See Note 3 "Investments" for further discussion. |
| (8) | CLO income and subordinated notes are considered CLO equity positions. CLO equity positions are entitled to recurring distributions which are generally equal to the remaining cash flow of payments made by underlying assets less contractual payments to debt holders and CLO expenses. The effective yield is estimated based upon the current projection of the amount and timing of these recurring distributions in addition to the estimated amount of terminal principal payment. It is the Company's policy to update the effective yield for each CLO equity position held within the Company’s portfolio at the initiation of each investment and each subsequent quarter thereafter. The effective yield and investment cost may ultimately not be realized. As of December 31, 2022, the Company's weighted average effective yield on its aggregate CLO equity positions, based on current amortized cost, was 17.11%. |
| (9) | Fair value includes the Company's interest in fee rebates on CLO subordinated notes. |
| (10) | The Company has accounted for its 5.00% Series A Term Preferred Stock utilizing the fair value option election under ASC Topic 825. Accordingly, the Series A Term Preferred Stock is carried at its fair value. See Note 2 "Summary of Significant Accounting Policies" for further discussion. |
See accompanying notes to the financial statements
| 26 |
Eagle Point Income Company Inc.
Statement of Operations
For the year ended December 31, 2022
(expressed in U.S. dollars)
| INVESTMENT INCOME | ||||
| Interest income | $ | 18,946,505 | ||
| Other income | 53,469 | |||
| Total Investment Income | 18,999,974 | |||
| EXPENSES | ||||
| Interest expense | 2,526,752 | |||
| Management fees | 1,965,881 | |||
| Professional fees | 621,289 | |||
| Administration fees | 550,842 | |||
| Commitment fees | 500,000 | |||
| Tax expense | 337,472 | |||
| Directors' fees | 255,000 | |||
| Amortization of deferred financing costs | 87,905 | |||
| Commission expense | 61,255 | |||
| Other expenses | 503,432 | |||
| Total Expenses | 7,409,828 | |||
| NET INVESTMENT INCOME | 11,590,146 | |||
| REALIZED AND UNREALIZED GAIN (LOSS) | ||||
| Net realized gain (loss) on investments | 38,548 | |||
| Net change in unrealized appreciation (depreciation) on investments | (31,296,039) | |||
| Net change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option | 3,721,302 | |||
| NET REALIZED AND UNREALIZED GAIN (LOSS) | (27,536,189) | |||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | (15,946,043) |
See accompanying notes to the financial statements
| 27 |
Eagle Point Income Company Inc.
Statement of Comprehensive Income
For the year ended December 31, 2022
(expressed in U.S. dollars)
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | (15,946,043) | |
| OTHER COMPREHENSIVE INCOME (LOSS) (1) | |||
| Change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option | (1,038,890) | ||
| Total Other Comprehensive Income (Loss) | (1,038,890) | ||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM COMPREHENSIVE INCOME | $ | (16,984,933) |
| (1) | See Note 2 "Summary of Significant Accounting Policies- Other Financial Assets and Financial Liabilities at Fair Value" for further discussion relating to other comprehensive income. |
See accompanying notes to the financial statements
| 28 |
Eagle Point Income Company Inc.
Statements of Changes in Net Assets
(expressed in U.S. dollars, except share amounts)
| For the | For the | |||||||
| year ended | year ended | |||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Net increase (decrease) in net assets resulting from operations: | ||||||||
| Net investment income | $ | 11,590,146 | $ | 6,100,347 | ||||
| Net realized gain (loss) on investments | 38,548 | 423,464 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | (31,296,039) | 1,523,590 | ||||||
| Net change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option | 3,721,302 | (39,626) | ||||||
| Total net increase (decrease) in net assets resulting from operations | (15,946,043) | 8,007,775 | ||||||
| Other comprehensive income (loss): | ||||||||
| Net change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option | (1,038,890) | (786,374) | ||||||
| Total other comprehensive income (loss) | (1,038,890) | (786,374) | ||||||
| Common stock distributions: | ||||||||
| Common stock distributions from net investment income | (10,788,143) | (8,414,218) | ||||||
| Common stock distributions from tax return of capital | - | - | ||||||
| Total common stock distributions | (10,788,143) | (8,414,218) | ||||||
| Capital share transactions: | ||||||||
| Issuance of shares of common stock upon the Company's follow-on offering, net of underwriting discounts, commissions and offering expenses | - | 11,247,376 | ||||||
| Issuance of shares of common stock pursuant to the Company's "at the market" program, net of commissions and offering expenses | 14,243,028 | 2,115,159 | ||||||
| Issuance of shares of common stock pursuant to the Company's dividend reinvestment plan | 124,721 | 59,313 | ||||||
| Total capital share transactions | 14,367,749 | 13,421,848 | ||||||
| Total increase (decrease) in net assets | (13,405,327) | 12,229,031 | ||||||
| Net assets at beginning of period | 115,349,167 | 103,120,136 | ||||||
| Net assets at end of period | $ | 101,943,840 | $ | 115,349,167 | ||||
| Capital share activity: | ||||||||
| Shares of common stock issued pursuant to overnight offering | - | 648,000 | ||||||
| Shares of common stock issued pursuant to the Company's "at the market" program | 1,006,487 | 124,007 | ||||||
| Shares of common stock issued pursuant to the Company's dividend reinvestment plan | 8,306 | 3,499 | ||||||
| Total increase (decrease) in capital share activity | 1,014,793 | 775,506 | ||||||
See accompanying notes to the financial statements
| 29 |
Eagle Point Income Company Inc.
Statement of Cash Flows
For the year ended December 31, 2022
(expressed in U.S. dollars)
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||
| Net increase (decrease) in net assets resulting from operations | $ | (15,946,043 | ) | |
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: | ||||
| Purchases of investments | (14,409,899 | ) | ||
| Proceeds from sales of investments and repayments of principal (1) | 9,880,792 | |||
| Net realized (gain) loss on investments | (38,548 | ) | ||
| Net change in unrealized (appreciation) depreciation on investments | 31,296,039 | |||
| Net change in unrealized appreciation (depreciation) on liabilities at fair value under the fair value option | (3,721,302 | ) | ||
| Amortization (accretion) of premium or discount on 5.00% Series A Term Preferred stock due 2026 | (11,211 | ) | ||
| Net amortization (accretion) of premiums or discounts on CLO debt securities | (334,409 | ) | ||
| Amortization of deferred financing costs | 87,905 | |||
| Changes in assets and liabilities: | ||||
| Interest receivable | (1,634,504 | ) | ||
| Prepaid expenses | (324,047 | ) | ||
| Management fees payable | (47,259 | ) | ||
| Professional fees payable | 82,396 | |||
| Administration fees payable | 42,026 | |||
| Interest expense payable | 89,429 | |||
| Tax expense payable | 168,262 | |||
| Other expenses payable | (98,334 | ) | ||
| Net cash provided by (used in) operating activities | 5,081,293 | |||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||
| Borrowings under credit facility | 16,745,000 | |||
| Repayments under credit facility | (27,265,000 | ) | ||
| Common stock distributions paid to stockholders, net of change in common stock distribution payable | (12,157,088 | ) | ||
| Issuance of shares of common stock pursuant to the Company's "at the market" program, net of commissions and offering expenses | 14,235,130 | |||
| Issuance of shares of common stock pursuant to the Company's dividend reinvestment plan | 122,935 | |||
| Issuance of shares of 5.00% Series A Term Preferred Stock due 2026 pursuant to the Company's "at the market" program | 3,041,225 | |||
| Share issuance premium associated with 5.00% Series A Term Preferred Stock due 2026 | 21,804 | |||
| Net cash provided by (used in) financing activities | (5,255,994 | ) | ||
| NET INCREASE (DECREASE) IN CASH | (174,701 | ) | ||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 211,759 | |||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 37,059 | ||
| Supplemental disclosures: | ||||
| Cash paid for franchise taxes | $ | 64,210 | ||
| Cash paid for excise taxes | $ | 105,000 | ||
| Cash paid for interest expense on 5.00% Series A Term Preferred Stock Due 2026 | $ | 1,889,396 | ||
| Cash paid for interest expense on credit facility | $ | 559,138 |
(1) Proceeds from sales or maturity of investments includes $3,883,229 of return of capital on portfolio investments from recurring cash flows.
See accompanying notes to the financial statements
30
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
| 1. | ORGANIZATION |
Eagle Point Income Company Inc. (the “Company”) is an externally managed, diversified closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’s primary investment objective is to generate high current income, with a secondary objective to generate capital appreciation. The Company seeks to achieve its investment objectives by investing primarily in junior debt tranches of collateralized loan obligations, or “CLOs,” that are collateralized by a portfolio consisting primarily of below investment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry sectors. The Company focuses on CLO debt tranches rated “BB” (e.g., BB+, BB or BB-, or their equivalent) by Moody’s Investors Service, Inc., or “Moody’s,” Standard & Poor’s, or “S&P,” or Fitch Ratings, Inc., or “Fitch,” and/or other applicable nationally recognized statistical rating organizations. The Company may invest up to 35% of its total assets (at the time of investment) in unrated CLO equity securities and related securities and instruments. The Company may also invest in other junior debt tranches of CLOs, senior debt tranches of CLOs, loan accumulation facilities (“LAF”) and other related securities and instruments. The Company’s common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “EIC”.
As of December 31, 2022, the Company had one wholly-owned subsidiary: Eagle Point Income Company Sub II (Cayman) Ltd. (the “Subsidiary”), a Cayman Islands exempted company. As of December 31, 2022, the Subsidiary does not represent any portion of the Company’s net assets.
The Company was initially formed on September 28, 2018 as EP Income Company LLC, a Delaware limited liability company. The Company commenced operations on October 4, 2018, the date Eagle Point Income Management LLC (the “Adviser”) contributed $100,000 in exchange for 100 units of the Company and Cavello Bay Reinsurance Limited (“Cavello Bay” and collectively with the Adviser, the “Members”) contributed to the Company, at fair value, the entire portfolio of BB-rated CLO debt it held in a separately managed account managed by an affiliate of the Adviser, totaling $75,051,650, inclusive of accrued interest of $1,371,697, in exchange for 75,051.65 units of the Company. Cavello Bay is a subsidiary of Enstar Group Limited, or “Enstar.”
On October 16, 2018, the Company converted from a Delaware limited liability company into a Delaware corporation (the “Conversion”). At the time of the Conversion, the Members became stockholders of Eagle Point Income Company Inc. In connection with the Conversion, the Members converted 75,151.65 units of the Delaware limited liability company into shares of common stock in the Delaware corporation at $20 per share, resulting in 3,769,596 shares and an effective conversion rate of approximately 50.15985069 per unit.
On July 23, 2019, the Company priced its initial public offering (the “IPO”) and sold an additional 1,200,000 shares of its common stock at a public offering price of $19.89 per share. On July 24, 2019, the Company’s shares began trading on the NYSE. On August 2, 2019, the Company sold an additional 162,114 shares pursuant to the exercise by the underwriters of the over-allotment option granted to them in connection with the IPO at a public offering price of $19.89 per share.
Wells Fargo Bank, N.A. serves as the Company’s custodian.
The Company intends to operate so as to qualify to be taxed as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), for federal income tax purposes.
The Adviser is the investment adviser of the Company and manages the investments of the Company subject to the supervision of the Company’s Board of Directors (the “Board”). The Adviser is registered as an investment adviser with the U.S. Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended. Eagle Point Administration LLC, an affiliate of the Adviser, is the administrator of the Company (the “Administrator”).
31
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Accounting
The Company is considered an investment company under accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company follows the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 Financial Services – Investment Companies. Items included in the financial statements are measured and presented in United States dollars.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions which affect the reported amounts included in the financial statements and accompanying notes as of the reporting date. Actual results may differ from those estimates.
Valuation of Investments
The most significant estimate inherent in the preparation of the financial statements is the valuation of investments. Pursuant to Rule 2a-5 under the 1940 Act, the Board has elected to designate the Adviser as "valuation designee" to perform fair value determinations in respect of the Company's portfolio investments that do not have readily available market quotations. In the absence of readily available market quotations, as defined by Rule 2a-5 under the 1940 Act, the Adviser determines the fair value of the Company’s investments in accordance with its valuation policy, subject to Board oversight. Due to the uncertainty of valuation, this estimate may differ significantly from the value that would have been used had a ready market for the investments existed, and the differences could be material.
There is no single method for determining fair value in good faith. As a result, determining fair value requires judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments held by the Company.
The Company accounts for its investments in accordance with U.S. GAAP, and fair values its investment portfolio in accordance with the provisions of the FASB ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. Investments are reflected in the financial statements at fair value. Fair value is the estimated amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., the exit price). In accordance with Rule 2a-5 under the 1940 Act adopted by the SEC in December 2020, the Board has designated the Adviser to perform the determination of fair value of the Company’s investment portfolio, subject to Board oversight and certain other conditions.
The fair value hierarchy prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available actively quoted prices, or for which fair value can be measured from actively quoted prices in an orderly market, will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following categories based on inputs:
| · | Level I – Observable, quoted prices for identical investments in active markets as of the reporting date. |
| · | Level II – Quoted prices for similar investments in active markets or quoted prices for identical investments in markets that are not active as of the reporting date. |
| · | Level III – Pricing inputs are unobservable for the investment and little, if any, active market exists as of the reporting date. Fair value inputs require significant judgment or estimation from the Adviser. |
In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such
32
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input significant to that fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the investment.
Investments for which observable, quoted prices in active markets do not exist are reported at fair value based on Level III inputs. The amount determined to be fair value may incorporate the Adviser’s own assumptions (including assumptions the Adviser believes market participants would use in valuing investments and assumptions relating to appropriate risk adjustments for nonperformance and lack of marketability), as provided for in the Adviser’s valuation policy.
An estimate of fair value is made for each investment at least monthly taking into account information available as of the reporting date. For financial reporting purposes, valuations are determined by the Adviser on a quarterly basis.
See Note 3 “Investments” for further discussion relating to the Company’s investments.
In valuing the Company’s investments in CLO debt and CLO equity, the Adviser considers a variety of relevant factors, including, as applicable, price indications from a third-party pricing service, recent trading prices for specific investments, recent purchases and sales known to the Adviser in similar securities and output from a third-party financial model. The third-party financial model contains detailed information on the characteristics of CLOs, including recent information about assets and liabilities, and is used to project future cash flows. Key inputs to the model, including but not limited to assumptions for future loan default rates, recovery rates, prepayment rates, reinvestment rates and discount rates are determined by considering both observable and third-party market data and prevailing general market assumptions and conventions as well as those of the Adviser.
A third-party independent valuation firm is used as an input by the Adviser to determine the fair value of the Company’s investments in CLO equity. The valuation firm’s advice is only one factor considered in the valuation of such investments, and the Adviser does not solely rely on such advice in determining the fair value of the Company’s investments in accordance with the 1940 Act.
Other Financial Assets and Financial Liabilities at Fair Value
The Fair Value Option (“FVO”) under FASB ASC Subtopic 825-10, Fair Value Option (“ASC 825”), allows companies an irrevocable election to use fair value as the initial and subsequent accounting measurement for certain financial assets and liabilities. The decision to elect the FVO is determined on an instrument-by-instrument basis and must be applied to an entire instrument. Assets and liabilities measured at fair value are required to be reported separately from those instruments measured using another accounting method and changes in fair value attributable to instrument-specific credit risk on financial liabilities for which the FVO is elected are required to be presented separately in other comprehensive income. Additionally, upfront offering costs related to such instruments are recognized in earnings as incurred and are not deferred.
The Company elected to account for its 5.00% Series A Term Preferred Stock due 2026 (the “Series A Term Preferred Stock”) utilizing the FVO under ASC 825. The primary reason for electing the FVO is to reflect economic events in the same period in which they are incurred and address simplification of reporting and presentation.
Investment Income Recognition
Interest income from investments in CLO debt is recorded using the accrual basis of accounting to the extent such amounts are expected to be collected. Interest income on investments in CLO debt is generally expected to be received in cash. Amortization of premium or accretion of discount is recognized using the effective interest method. The Company applies the provisions of Accounting Standards Update No. 2017-08 Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”) in calculating amortization of premium for purchased CLO debt securities.
In certain circumstances interest income may be paid in the form of additional investment principal, often referred to as payment-in-kind (“PIK”) interest. PIK interest is included in interest income and interest receivable through the payment date. The PIK interest rate for CLO debt securities represents the coupon rate at payment date when PIK
33
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
interest is received. On the payment date, interest receivable is capitalized as additional investment principal in the CLO debt security. To the extent the Company does not believe it will be able to collect PIK interest, the CLO debt security will be placed on non-accrual status, and previously recorded PIK interest income will be reversed.
CLO equity investments and fee rebates recognize investment income for U.S. GAAP purposes on the accrual basis utilizing an effective interest methodology based upon an effective yield to maturity utilizing projected cash flows. ASC Topic 325-40, Beneficial Interests in Securitized Financial Assets, requires investment income from CLO equity investments and fee rebates to be recognized under the effective interest method, with any difference between cash distributed and the amount calculated pursuant to the effective interest method being recorded as an adjustment to the cost basis of the investment. It is the Adviser’s policy to update the effective yield for each CLO equity position held within the Company’s portfolio at the initiation of each investment and each subsequent quarter thereafter.
Other Income
Other income includes the Company’s share of income under the terms of fee rebate agreements.
Interest Expense
Interest expense includes the Company’s distributions associated with its Series A Term Preferred Stock and amounts due under the credit facility agreements in relation to the outstanding borrowings and unused commitment fees. Interest expense is recorded as an expense on the Statement of Operations. The Company’s Series A Preferred Stock had no interest payable as of December 31, 2022. Please refer to Note 6 “Mandatory Redeemable Preferred Stock” for further discussion relating to the Series A Term Preferred Stock issuances. Please refer to Note 9 “Revolving Credit Facility” for further discussion on the interest expense due under the credit facility agreements.
Interest expense also includes the Company’s amortization of original issue premiums associated with its Series A Term Preferred Stock.
The following table summarizes the components of interest expense for the year ended December 31, 2022:
| Series
A Term Preferred Stock |
Credit Facility | Total | |||||||||||
| Distributions declared and paid | $ | 1,889,396 | $ | $ | 1,889,396 | ||||||||
| Interest expense on credit facility | 648,567 | 648,567 | |||||||||||
| Amortization of issuance premium | (11,211 | ) | (11,211 | ) | |||||||||
| $ | 1,878,185 | $ | 648,567 | $ | 2,526,752 | ||||||||
Original Issue Premiums
Consistent with FASB ASC Topic 835-30-35-2, original issue premiums on liabilities consist of premiums received in connection with the issuance of the Series A Term Preferred Stock as part of the Company’s at-the-market (“ATM”) program. The original issue premiums are capitalized at the time of issuance and amortized using the effective interest method over the respective terms of the Series A Term Preferred Stock. Amortization of original issue premium is reflected as a contra expense under interest expense in the Statement of Operations.
Securities Transactions
The Company records the purchases and sales of securities on the trade date. Realized gains and losses on investments sold are recorded on the basis of the specific identification method.
Cash and Cash Equivalents
The Company has defined cash and cash equivalents as cash and short-term, highly liquid investments with original maturities of three months or less from the date of purchase. The Company maintains its cash in a bank account which, at times, may exceed federal insured limits. The Adviser monitors the performance of the financial institution where the account is held in order to manage any risk associated with such account.
As of December 31, 2022, the Company held cash in a Computershare Corporate Trust interest earning cash deposit account with a balance of $35,591. This account is classified as Level I in the fair value hierarchy.
34
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
Expense Recognition
Expenses are recorded on the accrual basis of accounting.
Prepaid Expenses
Prepaid expenses consist primarily of insurance premiums, filing fees, shelf registration expenses, ATM program expenses and the Committed Equity Financing expenses (refer to Note 5 “Common Stock”). Insurance premiums are amortized over the term of the current policy. Prepaid shelf registration expenses, ATM program expenses and Committed Equity Financing expenses represent fees and expenses incurred in connection with the initial registration of the Company’s current shelf registration, ATM program and the Committed Equity Financing. Such costs are allocated pro-rata based on the amount issued relative to the total respective offering amount to paid-in-capital or expense depending on the security being issued pursuant to the shelf registration, ATM program and the Committed Equity Financing. Any subsequent costs incurred to maintain the Company’s ATM program and the Committed Equity Financing are expensed as incurred.
Any unallocated prepaid expense balance associated with the shelf registration, ATM program and the Committed Equity Financing are accelerated into expense at the earlier of the end of the program period or at the effective date of a new shelf registration or ATM program.
Deferred Financing Costs
Deferred financing costs consist of fees and expenses incurred in connection with the BNP Credit Facility (refer to Note 9 “Revolving Credit Facility”). Deferred financing costs are capitalized and amortized over the term of the BNP Credit Facility, and are reflected in borrowings under the credit facility on the Statement of Asset and Liabilities (if any). Amortization of deferred financing costs is recorded as an expense on the Statement of Operations on a straight-line basis, which approximates the effective interest method.
Offering Expenses
Offering expenses associated with the issuance and sale of shares of common stock, inclusive of expenses incurred associated with offerings under the ATM program, are charged to paid-in capital at the time the shares are sold in accordance with guidance noted in FASB ASC Topic 946-20-25-5, Investment Companies – Investment Company Activities – Recognition, during the period incurred.
Federal and Other Taxes
The Company intends to continue to operate so as to qualify to be taxed as a RIC under subchapter M of the Code and, as such, to not be subject to federal income tax on the portion of its taxable income and gains distributed to stockholders. To qualify for RIC tax treatment, among other requirements, the Company is required to distribute at least 90% of its investment company taxable income, as defined by the Code. Accordingly, the Company intends to distribute its taxable income and net realized gains, if any, to stockholders in accordance with timing requirements imposed by the Code. Therefore, no federal income tax provision is required. The Company’s tax year end is December 31. The Company intends to file federal income and excise tax returns as well as any applicable state tax filings. The statute of limitations on the Company’s tax return filings generally remains open for three years. The Company has analyzed its tax positions for its tax year ended December 31, 2022, including open tax years, and does not believe there are any uncertain tax positions requiring recognition in the Company’s financial statements.
Because U.S. federal income tax regulations differ from U.S. GAAP, distributions in accordance with tax regulations may differ from net investment income and realized capital gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term capital gains as ordinary income for federal income tax purposes. The tax basis components of distributable earnings differ from the amounts reflected in the Statement of Assets and Liabilities due to temporary book/tax differences arising primarily from partnerships and passive foreign investment company investments.
For the year ended December 31, 2022, $196,812 of nondeductible offering expenses related to the Series A Term Preferred Stock, and $255,000 and $19,572 of nondeductible U.S. federal excise taxes incurred in relation to the 2022
35
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
and 2021 excise tax years, respectively, was reclassified between aggregate distributable earnings (losses) and paid-in capital. This difference has no effect on net assets or net asset value per share.
For the tax year ended December 31, 2022, the estimated components of distributable earnings, on a tax basis, were as follows:
| For
the tax year ended December 31, 2022 |
||||
| Undistributed ordinary income | $ | 6,689,300 | ||
| Capital loss carryforward | 14,302,577 | |||
| Net unrealized depreciation | (40,633,035 | ) | ||
The following table summarizes the tax character of distributions to common and preferred shareholders for the respective tax years. Tax information for the tax year ended December 31, 2022 is estimated and is not considered final until the Company files its tax return.
| Tax Year | Ordinary Dividend | Return of Capital | ||||||||
| 2022 | $ | 12,677,539 | $ | - | ||||||
| 2021 | 8,744,744 | - | ||||||||
| 2020 | 7,997,030 | 1,106,093 | ||||||||
| 2019 | 4,123,118 | - | ||||||||
As of December 31, 2022, the Company’s tax cost for federal income tax purposes was $184,013,241. Accordingly, accumulated net unrealized depreciation on investments held by the Company was $40,633,035, consisting of $0 gross unrealized appreciation and $40,633,035 gross unrealized depreciation.
Depending on the level of taxable income earned in a tax year, the Company is permitted to carry forward taxable income (including net capital gains, if any) in excess of its current year distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required.
The Company has determined that its estimated current year annual taxable income will be in excess of current year distributions from such income, as a result the Company has accrued a U.S. federal excise tax for the year ended December 31, 2022 of $255,000. The Company also incurred an additional $19,572 of U.S. federal excise tax related to the tax year ended December 31, 2021, both of which are reported on the Statement of Operations.
For the year ended December 31, 2022, the Company incurred $62,900 in Delaware franchise tax expense related to the 2022 tax year end, which is reported on the Statement of Operations.
Distributions
The composition of distributions paid to common stockholders from net investment income and capital gains are determined in accordance with U.S. federal income tax regulations, which differ from U.S. GAAP. Distributions to common stockholders and are comprised of net investment income, realized gains or losses and return of capital for U.S. federal income tax purposes and are intended to be paid monthly. Distributions payable to common stockholders are recorded as a liability on ex-dividend date. Unless a common stockholder opts out of the Company’s dividend reinvestment plan (the “DRIP”), distributions are automatically reinvested in full shares of the Company as of the payment date, pursuant to the DRIP. The Company’s common stockholders who opt-out of participation in the DRIP (including those common stockholders whose shares are held through a broker who has opted out of participation in the DRIP) generally will receive all distributions in cash.
In addition to the regular monthly distributions, and subject to available taxable earnings of the Company, the Company may make periodic special distributions representing the excess of the Company’s net taxable income over the Company’s aggregate monthly distributions paid during the year (or for other purposes).
36
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
For the year ended December 31, 2022, the Company declared and paid monthly distributions on common stock of approximately $10.8 million or approximately $1.53 per share. In addition, on January 24, 2022 the Company paid a special distribution on common stock of approximately $1.4 million or $0.20 per share, to shareholders of record as of December 23, 2021.
The characterization of distributions paid to common stockholders, as set forth in the Financial Highlights, reflect estimates made by the Company for federal income tax purposes. Such estimates are subject to change once the final determination of the source of all distributions has been made by the Company.
For the year ended December 31, 2022, the Company declared and paid dividends on the Series A Term Preferred Stock of approximately $1.9 million or approximately $1.25 per share of Series A Term Preferred Stock.
| 3. | INVESTMENTS |
Fair Value Measurement
The following table summarize the valuation of the Company’s investments measured and reported at fair value under the fair value hierarchy levels described in Note 2 “Summary of Significant Accounting Policies” as of December 31, 2022:
| Fair Value Measurement (in millions) | ||||||||||||||||
| Level I | Level II | Level III | Total | |||||||||||||
| Assets | ||||||||||||||||
| Cash and Cash Equivalents | $ | 0.04 | $ | - | $ | - | $ | 0.04 | ||||||||
| CLO Debt | - | 102.27 | - | 102.27 | ||||||||||||
| CLO Equity | - | - | 41.11 | 41.11 | ||||||||||||
| Total Assets at Fair Value | $ | 0.04 | $ | 102.27 | $ | 41.11 | $ | 143.42 | ||||||||
| Liabilities at Fair Value Under FVO | ||||||||||||||||
| Series A Term Preferred Stock | $ | 36.18 | $ | - | $ | - | $ | 36.18 | ||||||||
| Total Liabilities at Fair Value Under FVO | $ | 36.18 | $ | - | $ | - | $ | 36.18 | ||||||||
The changes in investments classified as Level III are as follows for the year ended December 31, 2022:
The net realized gains (losses) recorded for Level III investments, if any, are reported in the net realized gain (loss) on investments balance in the Statement of Operations. Net changes in unrealized appreciation (depreciation) are reported in the net change in unrealized appreciation (depreciation) on investments balance in the Statement of
37
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
Operations.
Valuation of CLO Debt
The Company’s investments in CLO debt have been valued using an independent pricing service. The valuation methodology of the independent pricing service includes incorporating data comprised of observable market transactions, executable bids, broker quotes from dealers with two sided markets, as well as transaction activity from comparable securities to those being valued. As the independent pricing service contemplates real time market data and no unobservable inputs or significant judgment has been used by the Adviser in the valuation of the Company’s investment in CLO debt, such positions are considered Level II assets.
Valuation of CLO Equity
The Adviser utilizes the output of a third-party financial model to estimate the fair value of CLO equity investments. The model contains detailed information on the characteristics of each CLO, including recent information about assets and liabilities from data sources such as trustee reports, and is used to project future cash flows to the CLO note tranches, as well as management fees.
The following table summarizes the quantitative inputs and assumptions used for investments categorized as Level III of the fair value hierarchy as of December 31, 2022. In addition to the techniques and inputs noted in the table below, the Adviser may use other valuation techniques and methodologies when determining the fair value measurements of the Company’s investments, as provided for in the Adviser’s valuation policy approved by the Board. The table below is not intended to be all-inclusive, but rather provides information on the significant Level III inputs as they relate to the Company’s fair value measurements as of December 31, 2022. Unobservable inputs and assumptions are periodically reviewed and updated as necessary to reflect current market conditions.
Increases (decreases) in the annual default rate, reinvestment price and expected yield in isolation would result in a lower (higher) fair value measurement. Increases (decreases) in the reinvestment spread and recovery rate in isolation would result in a higher (lower) fair value measurement. Changes in the annual prepayment rate may result in a higher (lower) fair value, depending on the circumstances. Generally, a change in the assumption used for the annual default rate may be accompanied by a directionally opposite change in the assumption used for the annual prepayment rate and recovery rate.
The Adviser categorizes CLO equity as Level III investments. Certain pricing inputs may be unobservable. An active market may exist, but not necessarily for CLO equity investments the Company holds as of the reporting date.
Valuation of Series A Term Preferred Stock
The Series A Term Preferred Stock is considered a Level I security and is valued at the official closing price, taken from the NYSE.
38
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
Investment Risk Factors
The following list is not intended to be a comprehensive list of all of the potential risks associated with the Company. The Company’s prospectus provides a detailed discussion of the Company’s risks and considerations. The risks described in the prospectus are not the only risks the Company faces. Additional risks and uncertainties not currently known to the Company or that are currently deemed to be immaterial also may materially and adversely affect its business, financial condition and/or operating results.
Risks of Investing in CLOs and Other Structured Debt Securities.
CLOs and other structured finance securities are generally backed by a pool of credit-related assets that serve as collateral. Accordingly, CLO and structured finance securities present risks similar to those of other types of credit investments, including default (credit), interest rate and prepayment risks. In addition, CLOs and other structured finance securities are often governed by a complex series of legal documents and contracts, which increases the risk of dispute over the interpretation and enforceability of such documents relative to other types of investments.
Subordinated Securities Risk
CLO junior debt and equity securities that the Company may acquire are subordinated to more senior tranches of CLO debt. CLO junior debt and equity securities are subject to increased risks of default relative to the holders of superior priority interests in the same CLO. In addition, at the time of issuance, CLO equity securities are under-collateralized in that the face amount of the CLO debt and CLO equity of a CLO at inception exceed its total assets. The Company will typically be in a subordinated or first loss position with respect to realized losses on the underlying assets held by the CLOs in which the Company is invested.
High-Yield Investment Risk
The CLO junior debt and equity securities that the Company acquires are typically rated below investment grade or, in the case of CLO equity securities, unrated and are therefore considered “higher-yield” or “junk” securities and are considered speculative with respect to timely payment of interest and repayment of principal. The senior secured loans and other credit-related assets underlying CLOs are also typically higher-yield investments. Investing in CLO junior debt and equity securities and other high-yield investments involves greater credit and liquidity risk than investment grade obligations, which may adversely impact the Company’s performance.
Leverage Risk
The use of leverage, whether directly or indirectly through investments such as CLO junior debt and equity securities that inherently involve leverage, may magnify the Company’s risk of loss. CLO junior debt and equity securities are very highly leveraged (with CLO equity securities typically being leveraged ten times), and therefore the CLO securities in which the Company invests are subject to a higher degree of loss since the use of leverage magnifies losses.
Credit Risk
If (1) a CLO in which the Company invests, (2) an underlying asset of any such CLO or (3) any other type of credit investment in the Company’s portfolio declines in price or fails to pay interest or principal when due because the issuer or debtor, as the case may be, experiences a decline in its financial status, the Company’s income, net asset value (“NAV”) and/or market price would be adversely impacted.
Key Personnel Risk
The Company is dependent upon the key personnel of the Adviser for its future success.
Conflicts of Interest Risk
The Company’s executive officers and directors, and the Adviser and certain of its affiliates and their officers and employees, including the Senior Investment Team, have several conflicts of interest as a result of the other activities in which they engage.
Prepayment Risk
The assets underlying the CLO securities in which the Company invests are subject to prepayment by the underlying
39
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
corporate borrowers. As such, the CLO securities and related investments in which the Company invests are subject to prepayment risk. If the Company or a CLO collateral manager are unable to reinvest prepaid amounts in a new investment with an expected rate of return at least equal to that of the investment repaid, the Company’s investment performance will be adversely impacted.
LIBOR Risk
Certain CLO debt and equity securities in which the Company invests earn interest at, and CLOs in which the Company invests typically obtain financing at, a floating rate based on LIBOR. After the global financial crisis, regulators globally determined that existing interest rate benchmarks should be reformed based on concerns that LIBOR was susceptible to manipulation. Replacement rates that have been identified include the Secured Overnight Financing Rate (SOFR, which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities) and the Sterling Overnight Index Average Rate (SONIA, which is intended to replace pound sterling LIBOR and measures the overnight interest rate paid by banks for unsecured transactions in the sterling market). To the extent that any LIBOR replacement rate utilized for senior secured loans differs from that utilized for debt of a CLO that holds those loans, for the duration of such mismatch, the CLO would experience an interest rate mismatch between its assets and liabilities, which could have an adverse impact on the cash flows distributed to CLO equity investors as well as the Company’s net investment income and portfolio returns until such mismatch is corrected or minimized. As of the date hereof, certain senior secured loans have transitioned to utilizing SOFR based interest rates and certain CLO debt securities have also transitioned to SOFR.
Certain underlying loans held by CLOs do not include a “fall back” provision that addresses how interest rates will be determined once LIBOR stops being published, or otherwise leave certain aspects of the replacement rate to be negotiated between the loan issuer and the lender group. For example, certain loans held by CLOs in which the Company invests provide for a negotiated “credit spread adjustment” (i.e., a marginal increase in the applicable replacement rate to compensate lenders for the tendency of SOFR and other alternative rates to price lower than LIBOR). If a CLO’s collateral manager and other members of the lending group agree to (or fail to reject) an amendment to an underlying loan that provides for a below-market spread adjustment, then the equity investors in such CLO (such as the Company) would be disadvantaged if the debt securities issued by the CLO have a larger spread adjustment.
Liquidity Risk
Generally, there is no public market for the CLO investments in which the Company targets. As such, the Company may not be able to sell such investments quickly, or at all. If the Company is able to sell such investments, the prices the Company receives may not reflect the Adviser’s assessment of their fair value or the amount paid for such investments by the Company.
Management Fee Risk
The Company’s management fee structure may incentivize the Adviser to use leverage in a manner that adversely impacts the Company’s performance.
Fair Valuation of the Company’s Portfolio Investments
Generally, there is no public market for the CLO investments in which the Company invests. The Adviser values these securities at least quarterly, or more frequently as may be required from time to time, at fair value. The Adviser’s determinations of the fair value of the Company’s investments have a material impact on the Company’s net earnings through the recording of unrealized appreciation or depreciation of investments and may cause the Company’s NAV on a given date to understate or overstate, possibly materially, the value that the Company ultimately realizes on one or more of the Company’s investments.
Limited Investment Opportunities Risk
The market for CLO securities is more limited than the market for other credit related investments. The Company can offer no assurances that sufficient investment opportunities for the Company’s capital will be available.
40
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
Market Risk
Political, regulatory, economic and social developments, and developments that impact specific economic sectors, industries or segments of the market, can affect the value of the Company’s investments. A disruption or downturn in the capital markets and the credit markets could impair the Company’s ability to raise capital, reduce the availability of suitable investment opportunities for us, or adversely and materially affect the value of the Company’s investments, any of which would negatively affect the Company’s business. These risks may be magnified if certain events or developments adversely interrupt the global supply chain, and could affect companies worldwide.
Loan Accumulation Facilities Risk
The Company may invest in LAFs, which are short to medium term facilities often provided by the bank that will serve as placement agent or arranger on a CLO transaction and which acquire loans on an interim basis which are expected to form part of the portfolio of a future CLO. Investments in LAFs have risks similar to those applicable to investments in CLOs. Leverage is typically utilized in such a facility and as such the potential risk of loss will be increased for such facilities employing leverage. In the event a planned CLO is not consummated, or the loans are not eligible for purchase by the CLO, the Company may be responsible for either holding or disposing of the loans. This could expose the Company to credit and/or mark-to-market losses, and other risks.
Currency Risk
Although the Company primarily makes investments denominated in U.S. dollars, the Company may make investments denominated in other currencies. The Company’s investments denominated in currencies other than U.S. dollars will be subject to the risk that the value of such currency will decrease in relation to the U.S. dollar. The Company may or may not hedge currency risk.
Hedging Risk
Hedging transactions seeking to reduce risks may result in poorer overall performance than if the Company had not engaged in such hedging transactions. Additionally, such transitions may not fully hedge the Company’s risks.
Reinvestment Risk
CLOs will typically generate cash from asset repayments and sales that may be reinvested in substitute assets, subject to compliance with applicable investment tests. If the CLO collateral manager causes the CLO to purchase substitute assets at a lower yield than those initially acquired or sale proceeds are maintained temporarily in cash, it would reduce the excess interest-related cash flow, thereby having a negative effect on the fair value of the Company’s assets and the market value of the Company’s securities. In addition, the reinvestment period for a CLO may terminate early, which would cause the holders of the CLO’s securities to receive principal payments earlier than anticipated. There can be no assurance that the Company will be able to reinvest such amounts in an alternative investment that provides a comparable return relative to the credit risk assumed.
Interest Rate Risk
The price of certain of the Company’s investments may be significantly affected by changes in interest rates, including recent increases in interest rates.
Refinancing Risk
If the Company incurs debt financing and subsequently refinance such debt, the replacement debt may be at a higher cost and on less favorable terms and conditions. If the Company fails to extend, refinance or replace such debt financings prior to their maturity on commercially reasonable terms, the Company’s liquidity will be lower than it would have been with the benefit of such financings, which would limit the Company’s ability to grow, and holders of the Company’s common stock would not benefit from the potential for increased returns on equity that incurring leverage creates.
Tax Risk
If the Company fails to qualify for tax treatment as a RIC under Subchapter M of the Code for any reason, or otherwise becomes subject to corporate income tax, the resulting corporate taxes (and any related penalties) could substantially reduce the Company’s net assets, the amount of income available for distributions to the Company’s stockholders, and the amount of income available for payment of the Company’s other liabilities.
41
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
Derivatives Risk
Derivative instruments in which the Company may invest may be volatile and involve various risks different from, and in certain cases greater than, the risks presented by other instruments. The primary risks related to derivative transactions include counterparty, correlation, liquidity, leverage, volatility, over-the-counter trading, operational and legal risks. In addition, a small investment in derivatives could have a large potential impact on the Company’s performance, effecting a form of investment leverage on the Company’s portfolio. In certain types of derivative transactions, the Company could lose the entire amount of the Company’s investment; in other types of derivative transactions the potential loss is theoretically unlimited.
Counterparty Risk
The Company may be exposed to counterparty risk, which could make it difficult for the us or the CLOs in which the Company invests to collect on obligations, thereby resulting in potentially significant losses.
Global Economy Risk
Global economies and financial markets are highly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market.
Price Risk
Investors who buy shares at different times will likely pay different prices.
Russia Risk
Russia’s military incursion into Ukraine, the response of the United States and other countries, and the potential for wider conflict, has increased volatility and uncertainty in the financial markets and may adversely affect the Company.
Synthetic Investments Risk
The Company may invest in synthetic investments, such as significant risk transfer securities and credit risk transfer securities issued by banks or other financial institutions, or acquire interests in lease agreements that have the general characteristics of loans and are treated as loans for withholding tax purposes. In addition to the credit risks associated with the applicable reference assets, the Company will usually have a contractual relationship only with the counterparty of such synthetic investment, and not with the reference obligor of the reference asset. Accordingly, the Company generally will have no right to directly enforce compliance by the reference obligor with the terms of the reference asset nor will it have any rights of setoff against the reference obligor or rights with respect to the reference asset. The Company will not directly benefit from the collateral supporting the reference asset and will not have the benefit of the remedies that would normally be available to a holder of such reference asset. In addition, in the event of the insolvency of the counterparty, the Company may be treated as a general creditor of such counterparty, and will not have any claim with respect to the reference asset.
| 4. | RELATED PARTY TRANSACTIONS |
Investment Adviser
On October 5, 2018, the Company entered into an investment advisory agreement with the Adviser (the “Advisory Agreement”). Pursuant to the terms of the Advisory Agreement, the Company pays the Adviser, for its services, a management fee equal to an annual rate of 1.25% of the Company’s “Managed Assets”. Managed Assets are defined as the Company’s total assets (including assets attributable to the Company’s use of leverage) minus the sum of the Company’s accrued liabilities (other than liabilities incurred for the purpose of creating leverage). The management fee is calculated monthly and payable quarterly in arrears based on the Company’s Managed Assets at the end of each calendar month. For the year ended December 31, 2022, the Company was charged a management fee of approximately $2.0 million, of which $0.5 million was payable as of December 31, 2022.
Administrator
Effective October 5, 2018, the Company entered into an administration agreement (the “Administration Agreement”) with the Administrator, an affiliate of the Adviser. Pursuant to the Administration Agreement, the
42
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
Administrator performs, or arranges for the performance of, the Company’s required administrative services, which include being responsible for the financial records which the Company is required to maintain and preparing reports which are disseminated to the Company’s stockholders. In addition, the Administrator provides the Company with accounting services, assists the Company in determining and publishing its NAV, oversees the preparation and filing of the Company’s tax returns, monitors the Company’s compliance with tax laws and regulations, and prepares and assists the Company with any audits by an independent public accounting firm of the financial statements. The Administrator is also responsible for printing and disseminating reports to the Company’s stockholders and maintaining the Company’s website, providing support to investor relations, generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others, and providing such other administrative services as the Company may from time to time designate.
Payments under the Administration Agreement are equal to an amount based upon the Company’s allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s allocable portion of the compensation of the Company’s chief compliance officer, chief financial officer, chief operating officer and the Company’s allocable portion of the compensation of any related support staff. The Company’s allocable portion of such compensation is based on an allocation of the time spent on the Company relative to other matters. To the extent the Administrator outsources any of its functions, the Company pays the fees on a direct basis, without profit to the Administrator. Certain accounting and other administrative services have been delegated by the Administrator to SS&C Technologies, Inc. (“SS&C”). The Administration Agreement may be terminated by the Company without penalty upon not less than sixty days’ written notice to the Administrator and by the Administrator upon not less than ninety days’ written notice to the Company. The Administration Agreement is approved by the Board, including by a majority of the Company’s independent directors, on an annual basis.
For the year ended December 31, 2022, the Company was charged a total of approximately $0.6 million in administration fees consisting of approximately $0.5 million and $0.1 million, relating to services provided by the Administrator and SS&C, respectively, which are included in the Statement of Operations, and of which approximately $0.1 million was payable as of December 31, 2022 and reflected on the Statement of Assets and Liabilities.
Affiliated Ownership
As of December 31, 2022, the Adviser and its affiliates and senior investment team held an aggregate of 0.6% of the Company’s common stock. Additionally, the senior investment team held an aggregate of 0.1% of the Series A Term Preferred Stock as of December 31, 2022. An affiliate of Enstar holds an indirect non-controlling ownership interest in the Adviser. As of December 31, 2022, subsidiaries of Enstar, including Cavello Bay, held an aggregate of 47.7% of the Company’s common stock.
Exemptive Relief
On March 17, 2015, the SEC granted exemptive relief to the Adviser and its affiliates which permits the Company to participate in certain negotiated co-investments alongside other accounts managed by the Adviser, or its affiliates, subject to certain conditions.
| 5. | COMMON STOCK |
As of December 31, 2022, there were 150,000,000 shares of common stock authorized, of which 7,896,757 shares were issued and outstanding.
On May 29, 2020, the Company filed a new shelf registration statement with 150,000,000 shares of common stock authorized.
On December 20, 2021, the Company launched a new ATM offering to sell up to $2.6 million aggregate amount of its common stock, pursuant to a prospectus supplement filed with the SEC on May 29, 2020 and additional supplements thereafter.
43
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
On November 10, 2022, the Company launched a new ATM offering to sell up to $11.3 million aggregate amount of its common stock, pursuant to a prospectus supplement filed with the SEC on May 29, 2020 and additional supplements thereafter.
On December 13, 2022, the Company launched a new ATM offering to sell up to $4.0 million aggregate amount of its common stock, pursuant to a prospectus supplement filed with the SEC on May 29, 2020 and additional supplements thereafter. Costs incurred to maintain the ATM program are expensed as incurred and are included in the Statement of Operations.
On August 16, 2022, the Company entered into an agreement (the “Purchase Agreement”) with B. Riley Principal Capital II, LLC (“BRPC II”) in which BRPC II has committed to purchase from the Company, at the Company’s discretion, up to $20.0 million of the Company’s common stock, subject to terms and conditions specified in the Purchase Agreement (referred to as the “Committed Equity Financing”). The Company filed a registration statement on December 15, 2022 in relation to the Committed Equity Financing. In connection with the Committed Equity Financing, the Company incurred a $500,000 upfront commitment fee which was expensed as incurred and included in the Statement of Operations.
For the year ended December 31, 2022, the Company sold 1,006,487 shares of its common stock, pursuant to the ATM offerings, for total net proceeds to the Company of approximately $14.3 million. In connection with such sales, the Company paid a total of approximately $0.3 million in sales agent commissions.
For the year ended December 31, 2022, 8,306 shares of common stock were issued in connection with the DRIP for total net proceeds to the Company of approximately $0.1 million.
| 6. | MANDATORY REDEEMABLE PREFERRED STOCK |
As of December 31, 2022, there were 20,000,000 shares of preferred stock authorized, par value $0.001 per share, of which 1,521,649 shares of Series A Term Preferred Stock were issued and outstanding.
The Company is required to redeem all outstanding shares of the Series A Term Preferred Stock on October 30, 2026, at a redemption price of $25 per share (the “Series A Liquidation Preference”), plus accumulated but unpaid dividends, if any. At any time on or after October 31, 2023, the Company may, at its sole option, redeem the outstanding shares of the Series A Term Preferred Stock.
The Company has accounted for its Series A Term Preferred Stock utilizing the FVO under ASC 825. Accordingly, the Series A Term Preferred Stock is measured at fair value. The Company incurred additional issuance costs in the aggregate amount of approximately $0.1 million, which consisted of approximately eighty thousand of professional fees and ten thousand of other expenses, which were expensed as incurred in the year ended December 31, 2022.
The estimated change in fair value of the Series A Term Preferred Stock attributable to market risk for the year ended December 31, 2022 is approximately $3.7 million, which is recorded as unrealized (appreciation) depreciation on liabilities at fair value under the FVO on the Statement of Operations.
The estimated change in fair value of the Series A Term Preferred Stock attributable to instrument-specific credit risk for the year ended December 31, 2022 is approximately ($1.0) million, which is recorded as unrealized (appreciation) depreciation on liabilities at fair value under the FVO on the Statement of Comprehensive Income. The Company defines the change in fair value attributable to instrument-specific credit risk as the excess of the total change in fair value over the change in fair value attributable to changes in a base market rate, such as a United States treasury bond index with a similar maturity to the instrument being valued.
Except where otherwise stated in the 1940 Act or the Company’s certificate of incorporation, each holder of Preferred Stock will be entitled to one vote for each share of preferred stock held on each matter submitted to a vote of the Company’s stockholders. The Company’s preferred stockholders and common stockholders will vote together as a single class on all matters submitted to the Company’s stockholders. Additionally, the Company’s preferred
44
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
stockholders will have the right to elect two Preferred Directors at all times, while the Company’s preferred stockholders and common stockholders, voting together as a single class, will elect the remaining members of the Board.
On December 20, 2021, the Company launched a new ATM offering to sell up to 140,000 shares of Series A Term Preferred Stock with an aggregate liquidation preference of $3.5 million, pursuant to a prospectus supplement filed with the SEC on May 29, 2020 and additional supplements thereafter.
For the year ended December 31, 2022, the Company sold 121,649 shares of its Series A Term Preferred Stock, pursuant to the ATM offerings for total net proceeds to the Company of approximately $3.0 million. In connection with such sales, the Company paid a total of approximately $0.1 million in sales agent commissions.
See Note 10 “Asset Coverage” for further discussion on the Company’s calculation of asset coverage with respect to its Preferred Stock.
| 7. | COMMITMENTS AND CONTINGENCIES |
The Company is not currently subject to any material legal proceedings. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect these proceedings will have a material effect upon its financial condition or results of operations.
As of December 31, 2022, the Company had no unfunded commitments.
| 8. | INDEMNIFICATIONS |
Under the Company’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Company. In addition, during the normal course of business, the Company enters into contracts containing a variety of representations which provide general indemnifications. The Company’s maximum exposure under these agreements cannot be known; however, the Company expects any risk of loss to be remote.
| 9. | REVOLVING CREDIT FACILITY |
The Company may utilize leverage to the extent permitted by the 1940 Act. The Company may obtain leverage using any form of financial leverage instruments, including funds borrowed from banks or other financial institutions, margin facilities, notes or preferred stock and leverage attributable to repurchase agreements or similar transactions. Instruments that create leverage are generally considered to be senior securities under the 1940 Act. The use of leverage creates an opportunity for increased net income and capital appreciation, but also creates additional risks and expenses which will be borne entirely by common stock holders. The Company’s leverage strategy may not ultimately be successful.
On September 24, 2021 the Company entered into a credit agreement, which was amended on September 6, 2022, with BNP Paribas, as lender, that established a revolving credit facility (the “BNP Credit Facility”). Pursuant to the terms of the BNP Credit Facility, the Company can borrow up to an aggregate principal balance of $25,000,000 (the “Commitment Amount”). Such borrowings under the BNP Credit Facility bore interest at 1 month LIBOR plus a spread under the original credit agreement, and will bear interest at Term SOFR plus a spread under the amended credit agreement. The Company is required to pay a commitment fee on the unused amount.
The BNP Credit Facility will mature on the earlier of (i) the termination of the Commitment, as defined by the terms of the BNP Credit Facility or (ii) the scheduled maturity date of September 23, 2023. The Company has the option to extend the maturity from time to time in accordance with the BNP Credit Facility agreement.
45
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
For the year ended December 31, 2022, the Company had an average outstanding borrowing and average interest rate of approximately $18.2 million and 3.52%, respectively. The interest expense for the year ended December 31, 2022 on the BNP Credit Facility was approximately $0.6 million, inclusive of the unused fee, and is recorded on the Statement of Operations. As of December 31, 2022, the current outstanding borrowing amount was approximately $9.0 million, which is presented on the Statement of Assets and Liabilities.
See Note 10 “Asset Coverage” for further discussion on the Company’s calculation of asset coverage with respect to the BNP Credit Facility.
| 10. | ASSET COVERAGE |
Under the provisions of the 1940 Act, the Company is permitted to issue senior securities, including debt securities and preferred stock, and borrow from banks or other financial institutions, provided that the Company satisfies certain asset coverage requirements.
With respect to senior securities that are stocks, such as the Series A Term Preferred Stock, the Company is required to have asset coverage of at least 200%, as measured at the time of the issuance of any such senior securities that are stocks and calculated as the ratio of the Company’s total assets, less all liabilities and indebtedness not represented by senior securities, over the aggregate amount of the Company’s outstanding senior securities representing indebtedness plus the aggregate liquidation preference of any outstanding shares of senior securities that are stocks.
With respect to senior securities representing indebtedness, such as the BNP Credit Facility or any bank borrowings (other than temporary borrowings as defined under the 1940 Act), the Company is required to have asset coverage of at least 300%, as measured at the time of borrowing and calculated as the ratio of the Company’s total assets, less all liabilities and indebtedness not represented by senior securities, over the aggregate amount of the Company’s outstanding senior securities representing indebtedness.
If the Company’s asset coverage declines below 300% (or 200%, as applicable), the Company would be prohibited under the 1940 Act from incurring additional debt or issuing additional preferred stock and from declaring certain distributions to its stockholders. In addition, the terms of the BNP Credit Facility require the Company to cure any breach of the applicable asset coverage if the Company fails to maintain the applicable asset coverage, and the terms of the Preferred Stock require the Company to redeem shares of the Preferred Stock, if such failure to maintain the applicable asset coverage is not cured by a certain date.
The following table summarizes the Company’s asset coverage with respect to its Series A Term Preferred Stock and credit facilities as of December 31, 2022, and as of December 31, 2021:
46
Eagle Point Income Company Inc.
Notes to the Financial Statements
December 31, 2022
| 11. | SUBSEQUENT EVENTS |
On January 31, 2023, the Company paid a monthly distribution of $0.16 per share on its common stock to holders of record as of January 11, 2023.
On January 31, 2023, the Company paid a monthly distribution of $0.104167 per share on its Series A Preferred Stock to holders of record as of January 11, 2023.
For the period from January 1, 2023 to February 21, 2023, the Company sold 435,808 shares of its common stock, pursuant to the ATM offering, for total net proceeds to the Company of approximately $6.1 million. In connection with such sales, the Company paid a total of approximately $0.1 million in sales agent commissions.
For the period from January 1, 2023 to February 21, 2023, the Company sold 53,390 shares of its common stock, pursuant to the Committed Equity Financing, for total net proceeds to the Company of approximately $0.7 million.
On January 20, 2023, the Company filed a prospectus supplement to update the aggregate offering price of common stock sold through the existing ATM offering from $4,000,000 to $5,750,000, exclusive of any shares of common stock previously sold through the ATM offering. The Company is not currently selling shares of Series A Term Preferred Stock through the ATM offering.
As of February 21, 2023, the Company has fully paid down the outstanding principal amount borrowed from the BNP Credit Facility.
Management’s unaudited estimate of the range of the Company’s NAV per common share as of January 31, 2023 was $13.67 to $13.77.
Management of the Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date of release of this report, and has determined there are no events in addition to those described above which would require adjustment to or disclosure in the financial statements and related notes through the date of release of this report.
47
Eagle Point Income Company Inc.
Financial Highlights
48
Eagle Point Income Company Inc.
Financial Highlights
Footnotes to the Financial Highlights:
| (1) | Per share amounts are based on the weighted average of shares of common stock outstanding for the period. | |
| (2) | Per share distributions paid to preferred stockholders are reflected in net investment income, and totaled ($0.27) and ($0.05) per share of common stock for the years ended December 31, 2022 and December 31, 2021, respectively. | |
| (3) | Net realized gain (loss) and change in unrealized appreciation (depreciation) on investments may include a balancing figure to reconcile to the change in NAV per share at the end of each period. The amount shown for a share outstanding throughout the period may not agree with the change in the aggregate net realized gain (loss) and change in unrealized appreciation (depreciation) on investments for the period because of the timing of sales of the Company’s common stock in relation to fluctuating market values for the portfolio. | |
| (4) | The information provided is based on estimates available at each respective period. The Company’s final taxable income and the actual amount required to be distributed will be finally determined when the Company files its final tax returns and may vary from these estimates. | |
| (5) | Represents the difference between the per share amount distributed to common stockholders of record and the per share amount distributed based on the weighted average of shares of common stock outstanding for the period. | |
| (6) | Represents the effect per share of the Company’s issuance of shares of common stock pursuant to a private placement in May 2019 and the Company’s ATM and follow on offerings. Effect of shares issued reflect the impact of the offering price when compared to management’s estimated NAV per share at the time of each respective offering. | |
| (7) | Represents the effect per share of offering expenses incurred prior to or in connection with the Company’s IPO. | |
| (8) | Represents the effect of the paid-in capital contribution made by an affiliate of the Adviser pursuant to a private placement in May 2019. | |
| (9) | Represents the IPO price as of July 23, 2019 for the year ended December 31, 2019. | |
| (10) | Total return based on market value is calculated assuming shares of the Company’s common stock were purchased at the market price as of the beginning of the period, and distributions paid to common stockholders during the period were reinvested at prices obtained by the Company’s dividend reinvestment plan, and the total number of shares were sold at the closing market price per share on the last day of the period. For the year ended December 31, 2019 the total return on market value is calculated as the change in market value per share for the period commencing July 23, 2019, the date of the Company’s IPO, through December 31, 2019. The beginning market value per share is based on the initial public offering price of $19.89 per share. Total return does not reflect any sales load. | |
| (11) | Total return based on net asset value is calculated as the change in net asset value per share during the period plus declared and paid dividends per share, divided by the beginning net asset value per share. | |
| (12) | Ratios for the period from October 16, 2018 to December 31, 2018 are annualized. Ratios include the impact of the fee waivers and expenses reimbursed by the Adviser, where applicable. | |
| (13) | Expenses of the Company for the period from October 16, 2018 to December 31, 2018 and for the period from January 1, 2019 to May 31, 2019 were reimbursed by the Adviser. In addition, the Adviser has voluntarily waived the management fee and the Administrator has voluntarily waived the administration fee for the same periods from October 16, 2018 to December 31, 2018 and from January 1, 2019 to May 31, 2019. | |
| (14) | Ratios for the year ended December 31, 2022 and the years ended December 31, 2021, December 31, 2020 and December 31, 2019 include interest expense on the credit facility of 0.63%, 0.40%, 0.60% and 0.04% of average net assets, respectively. Ratios for the year ended December 31, 2022 and the year ended December 31, 2021 include interest expense on the Series A Term Preferred Stock of 1.83% and 0.31% of average net assets, respectively. Ratios for the year ended December 31, 2022 and the years ended December 31, 2021 and December 31, 2019 include excise tax expense of 0.27%, 0.06% and 0.10% of average net assets, respectively. | |
| (15) | The portfolio turnover rate is calculated as the lesser of total investment purchases executed during the period or the total of investment sales and repayments of principal executed during the period, divided by the average fair value of the investments for the same period. | |
| (16) | The asset coverage per unit figure is the ratio of the Company’s total assets, less liabilities and indebtedness not represented by the credit facility, to the aggregate dollar amount of outstanding borrowings of the credit facility, in accordance with section 18(h) of the 1940 Act. The asset coverage per unit figure is expressed in terms of dollar amounts per $1,000 principal amount. |
49
Eagle Point Income Company Inc.
Financial Highlights
Financial highlights for the period from October 4, 2018 (Commencement of Operations) to October 15, 2018 for the Members are as follows:
| For the period from | |||
| October 4, 2018 | |||
| (Commencement of Operations) | |||
| Per Unit Data | to October 15, 2018 | ||
| Net asset value at beginning of period | $ | 1,000.00 | |
| Net investment income | 2.69 | ||
| Net change in unrealized appreciation (depreciation) on investments | 0.51 | ||
| Net income (loss) and net increase (decrease) in net assets resulting from operations | 3.20 | ||
| Net asset value at end of period | $ | 1,003.20 | |
| Total return (1) | 0.32% | ||
| Ratios and Supplemental Data: | |||
| Net asset value at end of period | $ | 75,391,911 | |
| Ratio of net investment income to average net assets (1) | 0.27% | ||
| Ratio of expenses to average net assets (2) | 0.00% | ||
| Portfolio turnover rate (3) | 0.00% | ||
| (1) | Total return and ratio of net investment income to average net assets for the period from October 4, 2018 (Commencement of Operations) to October 15, 2018 are not annualized. | |
| (2) | No expenses were borne by the Company from October 4, 2018 (Commencement of Operations) to October 15, 2018. | |
| (3) | The Company did not enter transactions to purchase or sell securities from October 4, 2018 (Commencement of Operations) to October 15, 2018. As such, the portfolio turnover rate is 0.00%. |
Note: The above Financial Highlights for the period from October 4, 2018 (Commencement of Operations) to October 15, 2018 for Members represents the period when the Company was initially organized as a Delaware limited liability company.
50
Eagle Point Income Company Inc.
Supplemental Information
Senior Securities Table
Information about the Company’s senior securities shown in the following table has been derived from the Company’s financial statements as of and for the dates noted.
| Class | Total Amount Outstanding Exclusive of Treasury Securities (in millions) |
Asset Coverage Per Unit (1) |
Involuntary Liquidating Preference Per Unit (2) |
Average Market Value Per Unit (3) | ||||
| For the year ended December 31, 2022 | ||||||||
| Preferred Stock | $38,041,225 | $78.16 | $25 | $23.68 | ||||
| Credit Facility (BNP Paribas) | $9,030,000 | $16,296.64 | N/A | N/A | ||||
| For the year ended December 31, 2021 | ||||||||
| Preferred Stock | $35,000,000 | $78.24 | $25 | $25.32 | ||||
| Credit Facility (BNP Paribas) | $19,550,000 | $8,732.75 | N/A | N/A | ||||
| For the year ended December 31, 2020 | ||||||||
| Credit Facility (Société Générale) | $14,815,000 | $7,960.52 | N/A | N/A | ||||
| For the year ended December 31, 2019 | ||||||||
| Credit Facility (Société Générale) | $13,743,000 | $9,470.38 | N/A | N/A |
| (1) | The asset coverage per unit figure is the ratio of the Company’s total assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate dollar amount of senior securities, as calculated separately for each of the Series A Term Preferred Stock and Credit Facilities in accordance with section 18(h) of the 1940 Act. With respect to the Series A Term Preferred Stock, the asset coverage per unit figure is expressed in terms of dollar amounts per share of outstanding preferred stock (based on a per share liquidation preference of $25). With respect to the Credit Facilities, the asset coverage per unit figure is expressed in terms of dollar amounts per $1,000 of indebtedness. | |
| (2) | The involuntary liquidating preference per unit is the amount to which a share of Preferred Stock would be entitled in preference to any security junior to it upon our involuntary liquidation. | |
| (3) | The average market value per unit is calculated by taking the average of the closing price of the Series A Term Preferred Stock (NYSE: EICA). |
51
| KPMG LLP | |
| 345 Park Avenue | |
| New York, NY 10154-0102 |
To the Shareholders and Board of Directors
Eagle Point Income Company Inc:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Eagle Point Income Company Inc. (the Company), including the schedule of investments as of December 31, 2022, the related statements of operations, comprehensive income and cash flows for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the financial statements), and the financial highlights for the four-year period then ended, the period from October 16, 2018 to December 31, 2018, and the period from October 4, 2018 (commencement of operations) to October 15, 2018. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the four-year period then ended, the period of October 16, 2018 through December 31, 2018, and the period from October 4, 2018 through October 15, 2018, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2022, by correspondence with custodians and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
Accompanying Supplemental Information
We have also previously audited, in accordance with the standards of the PCAOB, the statements of assets and liabilities, including the schedules of investments, of the Company as of December 31, 2021, 2020 and 2019 and the related statements of operations and cash flows for the respective years then ended and the statements of changes in net assets for each of the years in the respective two-year periods then ended, and the related notes, and the statement of comprehensive income for the year ended December 31, 2021 (none of
KPMG LLP, a Delaware limited liability partnership and a member firm of
the KPMG global organization of Independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee.
52
which is presented herein), and we expressed unqualified opinions on those financial statements. The senior securities table on page 51 has been subjected to audit procedures performed in conjunction with the audits of the Company’s respective financial statements. The supplemental information is the responsibility of the Company’s management. Our audit procedures included determining whether the supplemental information reconciles to the respective financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the instructions in Form N-2. In our opinion, the senior securities table is fairly stated, in all material respects, in relation to the respective financial statements as a whole.
We have served as the auditor of one or more companies advised by an affiliate of Eagle Point Income Management LLC since 2014.
New York, New York
February 22, 2023
53
Price Range of Common Stock
Our common stock began trading on July 24, 2019 and is currently traded on the NYSE under the symbol “EIC.” The following table lists the high and low closing sale price for our common stock, the high and low closing sale price as a percentage of NAV and distributions declared per share each quarter since January 1, 2021.
| Closing Sales Price | Premium (Discount) |
Premium (Discount) |
||||
| Period | NAV(1) | High | Low |
of High |
of Low Sales Price to NAV(2) |
Distributions Declared(3) |
| Fiscal year ending December 31, 2021(4) | ||||||
| First quarter | $16.90 | $15.48 | $14.60 | (8.4)% | (13.6)% | $0.26 |
| Second quarter | $17.38 | $16.20 | $15.29 | (6.8)% | (12.0)% | $0.27 |
| Third quarter | $17.69 | $17.65 | $16.11 | (0.2)% | (8.9)% | $0.36 |
| Fourth quarter | $16.76 | $19.36 | $16.79 | 15.5% | 0.2% | $0.56 |
| Fiscal year ending December 31, 2022(5) | ||||||
| First quarter | $16.52 | $17.38 | $15.85 | 5.2% | (4.1)% | $0.38 |
| Second quarter | $13.66 | $17.91 | $14.75 | 31.1% | 8.0% | $0.38 |
| Third quarter | $13.05 | $17.29 | $13.60 | 32.5% | 4.2% | $0.42 |
| Fourth quarter | $12.91 | $16.11 | $13.57 | 24.8% | 5.1% | $0.48 |
| (1) | NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period. | |
| (2) | Calculated as of the respective high or low closing sales price divided by the quarter end NAV. | |
| (3) | Represents the cash distributions (including dividends, dividends reinvested and returns of capital, if any) per share that we have declared on our common stock in the specified quarter. Tax characteristics of distributions will vary. | |
| (4) | For the fiscal year ending December 31, 2021, as reported on the Company’s 2021 Form 1099-DIV, distributions made by the Company were comprised of net investment income, as calculated on a per share basis, of 100% (or $1.325 per share of common stock). | |
| (5) | For the fiscal year ending December 31, 2022, as reported on the Company’s 2022 Form 1099-DIV, distributions made by the Company were comprised of net investment income, as calculated on a per share basis, of 100% (or $1.53 per share of common stock). |
Shares of closed-end management investment companies may trade at a market price that is less than the NAV that is attributable to those shares. The possibility that the Company’s shares of common stock will trade at a discount to NAV or at a premium that is unsustainable over the long term is separate and distinct from the risk that the Company’s NAV will decrease. It is not possible to predict whether the Company’s shares will trade at, above or below NAV in the future. Our NAV per share was $12.91 as of December 31, 2022. The closing sales price for shares of the Company’s common stock on the NYSE on December 31, 2022 was $13.87, which represented a 7.44% premium to NAV per share. On February 15, 2023, the last reported closing sales price of the Company’s common stock was $14.59 per share. As of February 15, 2023, there were 10 stockholders of record of the Company’s common stock (which does not reflect holders whose shares are held in street name by a broker, bank or other nominee).
54
Dividend Reinvestment Plan
The Company has adopted a dividend reinvestment plan (“DRIP”). Under the DRIP, each registered holder of at least one full share of our common stock will be automatically enrolled in the DRIP and distributions on shares of the Company’s common stock are automatically reinvested in additional shares of the Company’s common stock by American Stock Transfer & Trust Company, LLC (the “DRIP Agent”) unless a stockholder “opts-out” of the DRIP. Holders of the Company’s common stock who receive distributions in the form of additional shares of the Company’s common stock are nonetheless required to pay applicable federal, state or local taxes on the reinvested distribution but will not receive a corresponding cash distribution with which to pay any applicable tax. Distributions that are reinvested through the issuance of new shares increase the Company’s stockholders’ equity on which a management fee is payable to the Adviser. If we declare a distribution payable in cash, holders of shares of the Company’s common stock who opt-out of participation in the DRIP (including those holders whose shares are held through a broker or other nominee who has opted out of participation in the DRIP) generally will receive such distributions in cash.
The DRIP Agent, on the Company’s behalf, will primarily use newly-issued, authorized shares of common stock to implement reinvestment of distributions under the DRIP (regardless of whether the outstanding shares are trading at a premium or at a discount to the Company’s net asset value (the “NAV”)). However, the Company reserves the right to instruct the DRIP Agent to purchase shares of the Company’s common stock on the open market (on the New York Stock Exchange or elsewhere) in connection with the reinvestment of distributions under the DRIP to the extent that the Company’s shares of common stock are trading at a discount to NAV per share.
The number of shares of common stock to be credited to each participant’s account will be determined based on the closing market price per share of common stock on the payment date (the “Market Price”). If 95% of the Market Price is greater than the Company’s last determined NAV per share, the number of shares to be credited to each participant’s account pursuant to DRIP will be determined by dividing the aggregate dollar amount of the distribution by 95% of the Market Price. If 95% of the Market Price is less than the Company’s last determined NAV per share, the number of shares to be credited to each participant’s account pursuant to DRIP will be determined by dividing the aggregate dollar amount of the distribution by the lesser of (i) the last determined NAV per share and (ii) the Market Price.
In the event that the DRIP Agent is instructed to buy shares of our common stock on the open market, any shares so purchased will be allocated to each participant based upon the average purchase price (excluding any brokerage charges or other fees) of all shares purchased with respect to the distribution. In any case, the DRIP Agent (or the DRIP Agent’s broker) will have until the last business day before the next date on which the shares trade on an “ex-dividend” basis or 30 days after the payment date for the applicable distribution, whichever is sooner, to invest the distribution amount in shares acquired on the open market. To the extent that the DRIP Agent is unable to reinvest the full amount of the distribution through open market purchases, the balance shall be credited to participants’ accounts in the form of newly-issued shares of common stock, in accordance with the procedures described above. Open market purchases may be made on any securities exchange where shares of our common stock are traded, in the over-the-counter market or in negotiated transactions, and may be on such terms as to price, delivery and otherwise as the DRIP Agent shall determine.
There are no brokerage charges with respect to shares of common stock issued directly by the Company. However, whenever shares are purchased or sold on the NYSE or otherwise on the open market, each participant will pay a pro rata portion of brokerage trading fees, currently $0.07 per share purchased or sold. Brokerage trading fees will be deducted from amounts to be invested.
Holders of the Company’s common stock can also sell shares held in the DRIP account at any time by contacting the DRIP Agent in writing at American Stock Transfer & Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, NY 10269-0560. The DRIP Agent will mail a check to such holder (less applicable brokerage trading fees) on the settlement date, which is three business days after the shares have been sold. If a stockholder chooses to sell its shares through a broker, the
55
holder will need to request that the DRIP Agent electronically transfer their shares to the broker through the Direct Registration System.
Stockholders participating in the DRIP may withdraw from the DRIP at any time by contacting the DRIP Agent in writing at American Stock Transfer & Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, NY 10269-0560. Such termination will be effective immediately if the notice is received by the DRIP Agent prior to any dividend or distribution record date; otherwise, such termination will be effective on the first trading day after the payment date for such dividend or distribution and thus apply to any subsequent dividend or distribution. If a holder of the Company’s common stock withdraws, full shares will be credited to their account, and the stockholder will be sent a check for the cash adjustment of any fractional share at the market value per share of the Company’s common stock as of the close of business on the day the termination is effective, less any applicable fees. Alternatively, if the stockholder wishes, the DRIP Agent will sell their full and fractional shares and send them the proceeds, less a transaction fee of $15.00 and less brokerage trading fees of $0.07 per share. If a stockholder does not maintain at least one whole share of common stock in the DRIP account, the DRIP Agent may terminate such stockholder’s participation in the DRIP after written notice. Upon termination, stockholders will be sent a check for the cash value of any fractional share in the DRIP account, less any applicable broker commissions and taxes.
Stockholders who are not participants in the DRIP, but hold at least one full share of our common stock, may join the DRIP by notifying the DRIP Agent in writing at American Stock Transfer & Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, NY 10269-0560. If received in proper form by the DRIP Agent before the record date of a dividend, the election will be effective with respect to all dividends paid after such record date. If a stockholder wishes to participate in the DRIP and their shares are held in the name of a brokerage firm, bank or other nominee, the stockholder should contact their nominee to see if it will participate in the DRIP. If a stockholder wishes to participate in the DRIP, but the brokerage firm, bank or other nominee is unable to participate on their behalf, the stockholder will need to request that their shares be re-registered in their own name, or the stockholder will not be able to participate. The DRIP Agent will administer the DRIP on the basis of the number of shares certified from time to time by the stockholder as representing the total amount registered in their name and held for their account by their nominee.
Experience under the DRIP may indicate that changes are desirable. Accordingly, the Company and the DRIP Agent reserve the right to amend or terminate the DRIP upon written notice to each participant at least 30 days before the record date for the payment of any dividend or distribution by the Company.
All correspondence or additional information about the DRIP should be directed to American Stock Transfer & Trust Company, LLC, 6201 15th Avenue, Brooklyn, NY 11219.
56
Additional Information
Management
Our Board of Directors (the “Board”) is responsible for managing the Company’s affairs, including the appointment of advisers and sub-advisers. The Board has appointed officers who assist in managing the Company’s day-to-day affairs.
The Board
The Board currently consists of six members, four of whom are not “interested persons” (as defined in the 1940 Act) of the Company. The Company refers to these directors as the Company’s “independent directors.”
Under our certificate of incorporation and bylaws, our board of directors is divided into three classes with staggered terms, with the term of only one of the three classes expiring at each annual meeting of our stockholders. The classification of the board across staggered terms may prevent replacement of a majority of the directors for up to a two-year period.
The directors and officers of the Company are listed below. Except as indicated, each individual has held the office shown or other offices with the same company for the last five years. Certain of the Company’s officers and directors also are officers or managers of our Adviser and its affiliates. Each of our directors also serves as a director/trustee of Eagle Point Credit Company Inc., and Eagle Point Institutional Income Fund, each a registered investment company for which an affiliate of our Adviser serves as investment adviser.
57
|
Name, Address1 and Age |
Position(s) held
with the Company |
Term
of Office and Length of Time Served |
Principal Occupation(s) During the Past 5 Years |
Other Directorships3 | |||
| Kevin
F. McDonald Age: 56 |
Class III Director |
Since inception; Term expires 2023 |
Chief Operating Officer of AltaRock Partners, an asset management firm, since January 2019; Director of Business Development and Investor Relations of Folger Hill Asset Management, LP from December 2014 to July 2018; Principal of Taylor Investment Advisors, LP from March 2002 to March 2017.
|
Eagle
Point Credit | |||
|
Paul
E.
|
Class II Director |
Since inception; Term expires 2025 |
Senior Managing Director and Portfolio Manager at First Republic Investment Management since October 2015. | Eagle
Point Credit Company Inc. and Eagle Point Institutional Income Fund | |||
| Jeffrey L.
Weiss Age: 61 |
Class I Director |
Since inception; Term expires 2024 |
Private Investor since June 2012; Managing Partner of Colter Lewis Investment Partners since January 2018. | Eagle
Point Credit Company Inc. and Eagle Point Institutional Income Fund |
| 1 | The business address of each of our directors is c/o Eagle Point Income Company Inc., 600 Steamboat Road, Suite 202, Greenwich, Connecticut 06830. | |
| 2 | Mr. Majewski is an interested director due to his position as our Chief Executive Officer and his position with the Adviser. Mr. Matthews is an interested director due to his position with Stone Point Capital LLC, which is an affiliate of the Adviser. | |
| 3 | Eagle Point Credit Company Inc. and Eagle Point Institutional Income Fund are each considered to be in the same fund complex as us and, as a result, each director serves as a director/trustee of three investment companies in the same complex. Each director was elected as trustee of Eagle Point Institutional Income Fund in January 2022. |
The Company’s registration statement, prospectus and proxy statement for the annual stockholders’ meeting include additional information about our directors. A copy of the prospectus and proxy statement is available free of charge at www.eaglepointincome.com or upon request by calling (844) 810-6501.
Officers
Information regarding our officers who are not directors is as follows:
|
Name, Address1 |
Positions
Held with the Company |
Term
of Office and Length of Time Served2 |
Principal Occupation(s) During the Last Five Years | |||
|
Kenneth
P. Onorio |
Chief Financial Officer and Chief Operating Officer |
Since inception |
Chief Financial Officer of Eagle Point Credit Company Inc. since July 2014 and Chief Operating Officer of Eagle Point Credit Company Inc. since November 2014; Chief Financial Officer and Chief Operating Officer of Eagle Point Institutional Income Fund since January 2022; Chief Financial Officer of the Adviser since October 2018 and Eagle Point Credit Management since July 2014; Chief Operating Officer of the Adviser since October 2018 and Eagle Point Credit Management since August 2014.
| |||
|
Nauman S. Malik Age: 42 |
Chief Compliance Officer | Since inception |
Chief Compliance Officer of Eagle Point Credit Company Inc. since September 2015 and Eagle Point Institutional Income Fund since January 2022; General Counsel of the Adviser since October 2018 and Eagle Point Credit Management since June 2015; Chief Compliance Officer of the Adviser from October 2018 to March 2020 |
58
| and Eagle Point Credit Management from September 2015 to March 2020. | ||||||
|
Courtney
B. Age: 40 |
Secretary | Since inception |
Chief Compliance Officer of the Adviser and Eagle Point Credit Management since April 2020; Secretary of Eagle Point Credit Company Inc. since August 2015 and Eagle Point Institutional Income Fund since January 2022; Deputy Chief Compliance Officer of the Adviser from October 2018 to March 2020 and Eagle Point Credit Management from December 2014 to March 2020. |
| 1 | The business address of each of our officers is c/o Eagle Point Income Company Inc., 600 Steamboat Road, Suite 202, Greenwich, Connecticut 06830. All of our officers are officers or employees of the Adviser or affiliated companies. | |
| 2 | Each officer holds office until his or her successor is chosen and qualifies, or until his or her earlier resignation or removal. |
Director and Officer Compensation
Our independent directors received compensation from the Company in the amounts set forth in the following table during the fiscal year ended December 31, 2022.
| Name | Aggregate
Compensation from the Company1, 2 | |
|
Scott W. Appleby |
$65,000 | |
| Kevin F. McDonald | $60,000 | |
| Paul E. Tramontano | $60,000 | |
| Jeffrey L. Weiss | $70,000 | |
|
TOTAL |
$255,000* |
* Reflects $32,500, $30,000, $30,000, and $35,000 relating to the year ended December 31, 2021 that was payable to each of Mr. Appleby, Mr. McDonald, Mr. Tramontano and Mr. Weiss as of December 31, 2021, respectively, and paid during the year ended December 31, 2022; does not reflect $127,500 relating to the year ended December 31, 2022 that was paid during the month ended January 31, 2023, which amount was comprised of $32,500, $30,000, $30,000, and $35,000 paid to each of Mr. Appleby, Mr. McDonald, Mr. Tramontano and Mr. Weiss, respectively.
| 1 | For a discussion of the independent directors’ compensation, see below. | |
| 2 | The Company does not maintain a pension plan or retirement plan for any of our directors. |
As compensation for serving on the Board, each independent director receives an annual fee of $60,000, as well as reasonable out-of-pocket expenses incurred in attending Board and committee meetings. The chairman of the audit committee receives an additional annual fee of $10,000 and the chairman of the nominating committee receives an additional annual fee of $5,000 for their additional services in these capacities.
No compensation is, or is expected to be, paid by us to our directors who are “interested persons” of us, as such term is defined in the 1940 Act, or to our officers. Our officers are compensated by the Adviser or one of its affiliates, as applicable.
We have entered into an Administration Agreement pursuant to which Eagle Point Administration LLC, our administrator (“Eagle Point Administration”), performs, or arranges for the performance of, our required administrative services, among other things. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of Eagle Point Administration’s overhead in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the compensation of our chief financial officer and chief compliance officer and our allocable portion of the compensation of any administrative support staff. Our allocable portion of such total compensation is based on an allocation of the time spent on us relative to other matters. The Administration Agreement will remain in effect if approved by the Board, including by a majority of our independent directors, on an annual basis. The Administration Agreement was most recently approved by the Board in May 2022.
59
Stockholder Meeting Information
An annual meeting of stockholders of the Company was held on May 18, 2022. At the meeting, the two nominees for re-election as Class II directors, James R. Matthews and Paul E. Tramontano, were each elected to serve as a director for a term expiring at the Company’s 2025 annual meeting or until his successor is duly elected and qualified. A discussion regarding the voting at such meeting is available in our Semiannual Report for the period ended June 30, 2022. A copy of the Semiannual Report is available free of charge at www.eaglepointincome.com, upon request by calling (844) 810-6501, or from the EDGAR Database on the SEC’s website (www.sec.gov).
Investment Advisory Agreement
Subject to the overall supervision of our Board, the Adviser manages the day-to-day operations of, and provides investment advisory and management services to, us pursuant to an Investment Advisory Agreement (the “Advisory Agreement”). A discussion regarding the basis for the Board’s approval of the Advisory Agreement is available in our Semiannual Report for the period ended June 30, 2022. A copy of the Semiannual Report is available free of charge at www.eaglepointincome.com, upon request by calling (844) 810-6501, or from the EDGAR Database on the SEC’s website (www.sec.gov).
Portfolio Information
The Company files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Company’s Form N-PORT is available without charge, upon request by calling (844) 810-6501, or from the EDGAR Database on the SEC’s website (www.sec.gov).
Proxy Information
The Company has delegated its proxy voting responsibility to the Adviser. A description of these policies and procedures is available (1) without charge, upon request, by calling toll free (844) 810-6501; and (2) in the Company’s pre-effective amendment to its registration statement on Form N-2 filed on May 29, 2020 with the SEC, which can be found on the SEC’s website (www.sec.gov).
Information regarding how the Company voted proxies relating to portfolio securities for the 12-month period ending June 30, 2022 is available: (1) without charge, upon request, by calling toll free (844) 810-6501; and (2) in the Company’s Form N-PX filing made on July 21, 2022 with the SEC, which can be found on the SEC’s website (www.sec.gov). The Company also makes this information available on its website at www.eaglepointincome.com.
Tax Information
For the tax year ended December 31, 2022, the Company recorded distributions on our common stock equal to $1.53 per share or $10.8 million.
Privacy Notice
The Company is committed to protecting your privacy. This privacy notice explains the privacy policies of Eagle Point Income Company Inc. and its affiliated companies. The terms of this notice apply to both current and former stockholders. The Company will safeguard, according to strict standards of security and confidentiality, all information it receives about you. With regard to this information, the Company maintains procedural safeguards that are reasonably designed to comply with federal standards. We have implemented procedures that are designed to restrict access to your personal information to authorized employees of the Company’s investment adviser, Eagle Point Income Management, LLC and its affiliates who need to know your personal information to perform their jobs, and in connection with servicing your account. The Company’s goal is to limit the collection and use of information about you. While we may share your personal information with our affiliates in connection with servicing your account, our affiliates are not permitted to share your information with non-affiliated entities, except as permitted or required by law.
60
When you purchase shares of the Company’s common stock and in the course of providing you with products and services, we and certain of our service providers, such as a transfer agent, may collect personal information about you, such as your name, address, social security number or tax identification number. This information may come from sources such as account applications and other forms, from other written, electronic or verbal correspondence, from your transactions, from your brokerage or financial advisory firm, financial adviser or consultant, and/or information captured on applicable websites.
We do not disclose any personal information provided by you or gathered by us to non-affiliated third parties, except as permitted or required by law or for our everyday business purposes, such as to process transactions or service your account. For example, we may share your personal information in order to send you annual and semiannual reports, proxy statements and other information required by law, and to send you information the Company believes may be of interest to you. We may disclose your personal information to unaffiliated third party financial service providers (which may include a custodian, transfer agent, accountant or financial printer) who need to know that information in order to provide services to you or to the Company. These companies are required to protect your information and use it solely for the purpose for which they received it or as otherwise permitted by law. We may also provide your personal information to your brokerage or financial advisory firm and/or to your financial adviser or consultant, as well as to professional advisors, such as accountants, lawyers and consultants.
We reserve the right to disclose or report personal or account information to non-affiliated third parties in limited circumstances where we believe in good faith that disclosure is required by law, such as in accordance with a court order or at the request of government regulators or law enforcement authorities or to protect our rights or property. We may also disclose your personal information to a non-affiliated third party at your request or if you consent in writing to the disclosure.
If you have any queries or concerns about the privacy of your personal information, please contact our investor relations team at (203) 340-8510 or (844) 810-6501.
We will review this policy from time to time and may update it at our discretion.
* * *
61
End of Annual Report. Back Cover Follows.
Item 2. Code of Ethics
As of the end of the period covered by this report, Eagle Point Income Company Inc. (the “registrant”) has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party (the “SOX Code of Ethics”). The registrant did not amend, or grant any waivers from, any provisions of the SOX Code of Ethics during the period covered by this report. The registrant’s SOX Code of Ethics is available upon request to any person without charge. Such requests should be submitted to the registrant’s Chief Compliance Officer at (203) 340-8500, toll free (844) 810-6501 or cco@eaglepointcredit.com.
Item 3. Audit Committee Financial Expert
The registrant’s board of directors has determined that the registrant has at least one “audit committee financial expert” (as defined in Item 3 of Form N-CSR) serving on its Audit Committee. The board of directors has determined that Jeffrey Weiss satisfies the requirements of an audit committee financial expert. Mr. Weiss is “independent” within the meaning of that term used in Form N-CSR.
Item 4. Principal Accountant Fees and Services
| (a) | Audit Fees. The aggregate fees billed for professional services rendered by KPMG LLP (“KPMG”), the registrant’s independent registered public accounting firm, for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2021 and December 31, 2022 were $163,000 and $168,000, respectively. |
| (b) | Audit-Related Fees. The aggregate fees billed for assurance and related services by KPMG that are reasonably related to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item 4 in the fiscal years ended December 31, 2021 and December 31, 2022 were $69,500 and $224,000, respectively. These fees include audit-related services in connection with the registrant’s “at the market” common stock and preferred stock issuance program, the filing of its registration statement for a committed equity facility, the issuance of common stock through an underwritten follow-on offering and the issuance of 5.00% Series A Term Preferred Stock due 2026. |
| (c) | Tax Fees. The aggregate fees billed for professional services by KPMG for tax compliance, tax advice and tax planning in the fiscal years ended December 31, 2021 and December 31, 2022 were $33,120 and $67,685, respectively. These fees were in connection with the preparation of the registrant’s regulated investment company tax compliance and related tax advice. |
| (d) | All Other Fees. The aggregate fees billed for all other services not listed in (a) through (c) above by KPMG in the fiscal years ended December 31, 2021 and December 31, 2022e respectively. |
| (e) | (1) The registrant’s Audit Committee has adopted written policies relating to the pre-approval of audit and permitted non-audit services to be performed by the registrant’s independent registered public accounting firm. Under the policies, on an annual basis, the registrant’s Audit Committee reviews and pre-approves proposed audit and permitted non-audit services to be performed by the independent registered public accounting firm on behalf of the registrant. |
In addition, the registrant’s Audit Committee pre-approves annually any permitted non-audit services (including audit-related services) to be provided by the independent registered public accounting firm to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the registrant’s investment adviser that provides ongoing services to the registrant (together, the “Service Affiliates”), provided, in each case, that the engagement relates directly to the operations and financial reporting of the registrant. Although the Audit Committee does not pre-approve all services provided by the independent registered public accounting firm to Service Affiliates (for instance, if the engagement does not relate directly to the operations and financial reporting of the registrant), the Audit Committee receives an annual report showing the aggregate fees paid by Service Affiliates for such services.
The registrant’s Audit Committee may also from time to time pre-approve individual non-audit services to be provided to the registrant or a Service Affiliate that were not pre-approved as part of the annual process described above. The Audit Committee may form and delegate authority to subcommittees consisting of one (1) or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that any decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.
The pre-approval policies provide for waivers of the requirement that the Audit Committee pre-approve permitted non-audit services provided to the registrant pursuant to de minimis exceptions described in Section 10A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and applicable regulations.
(2) None of the independent accountant’s expenses described in paragraphs (b) through (d) of this item were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X as all such expenses were pre-approved by the Audit Committee.
| (f) | Not Applicable |
| (g) | For the fiscal years ended December 31, 2021 and December 31, 2022, the aggregate fees billed by KPMG for non-audit services rendered to the registrant and for non-audit services rendered to the registrant’s investment adviser and/or to any entity controlling, controlled by or under common control with the registrant’s investment adviser that provides ongoing services to the registrant were $112,120 and $291,685, respectively. For the years ended December 31, 2021 and December 31, 2022, these fees were for the services rendered in connection with tax compliance, tax advice, tax planning, the registrant’s “at the market” common stock and preferred stock issuance program, the filing of its registration statement for a committed equity facility, the issuance of common stock through an underwritten follow-on offering and the offering of 5.00% Series A Term Preferred Stock. These fees exclude any fees paid by Eagle Point Credit Management LLC and its affiliates. |
| (h) | The registrant’s Audit Committee has considered whether the provision of non-audit services that were rendered to the investment adviser and/or to any entity controlling, controlled by or under common control with the registrant’s investment adviser that provides ongoing services to the registrant that were not required to be pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining KPMG’s independence. |
Item 5. Audit Committee of Listed Registrant
The registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the committee are Jeffrey L. Weiss (chair), Scott Appleby, Kevin McDonald and Paul Tramontano.
Item 6. Investments
A schedule of investments is included in the Company’s report to stockholders under Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
The registrant has delegated its proxy voting responsibility to the Adviser. The Proxy Voting Policies and Procedures of the Adviser are set forth below. The guidelines will be reviewed periodically by the Adviser and the registrant’s independent directors, and, accordingly, are subject to change.
Introduction
An investment adviser registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, the Adviser recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of the Adviser’s clients.
These policies and procedures for voting proxies for the Adviser’s investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
Proxy Policies
Based on the nature of the registrant’s investment strategy, the Adviser does not expect to receive proxy proposals but may from time to time receive amendments, consents or resolutions applicable to investments held by the registrant. The Adviser’s general policy is to exercise voting or consult authority in a manner that serves the interests of the registrant’s stockholders. The Adviser may occasionally be subject to material conflicts of interest in voting proxies due to business or personal relationships it maintains with persons having an interest in the outcome of certain votes. If at any time the Adviser becomes aware of a material conflict of interest relating to a particular proxy proposal, the Adviser’s Chief Compliance Officer will review the proposal and determine how to vote the proxy in a manner consistent with interests of the registrant’s stockholders.
Proxy Voting Records
Information regarding how the Adviser voted proxies relating to the registrant’s portfolio securities is available: (1) without charge, upon request, by calling toll free (844) 810-6501; and (2) on the SEC’s website at http://www.sec.gov. You may also obtain information about how the Adviser voted proxies by making a written request for proxy voting information to: Eagle Point Income Management LLC, 600 Steamboat Road, Suite 202, Greenwich, CT 06830 or cco@eaglepointcredit.com.
Item 8. Portfolio Managers of Closed-End Investment Companies
Information pertaining to the portfolio managers of the registrant, and information relating to the registrant’s investment adviser, is set forth below as of December 31, 2022.
The management of the registrant’s investment portfolio is the responsibility of the Adviser pursuant to an investment advisory agreement (“Investment Advisory Agreement”).
Our executive officers and directors, and the Adviser and certain of its affiliates and their officers and employees, including the senior investment team, have several conflicts of interest as a result of the other activities in which they engage. The Adviser is affiliated with other entities engaged in the financial services business. Also, under a personnel and resources agreement, Eagle Point Credit Management LLC makes available certain personnel and resources, including portfolio managers and investment personnel, to the Adviser as the Adviser may determine to be reasonably necessary to the conduct of its operations. These relationships may cause the Adviser’s and certain of its affiliates’ interests, and the interests of their officers and employees, including the senior investment team, to diverge from the registrant’s interests and may result in conflicts of interest that may not be foreseen or resolved in a manner that is always or exclusively in the registrant’s best interest. The Adviser has entered into, and may in the future enter into additional, business arrangements with certain of the registrant’s stockholders. In such cases, such stockholders may have an incentive to vote shares held by them in a manner that takes such arrangements into account.
There are no restrictions on the ability of the Adviser and certain of its affiliates to manage accounts for multiple clients, including accounts for affiliates of the Adviser or their directors, officers or employees, following the same, similar or different investment objectives, philosophies and strategies as those used by the Adviser for the registrant’s account. In those situations, the Adviser and its affiliates may have conflicts of interest in allocating investment opportunities between the registrant and any other account managed by the Adviser or an affiliate. Such conflicts of interest would be expected to be heightened where the Adviser manages an account for an affiliate or its directors, officers or employees. In addition, certain of these accounts may provide for higher management fees or have incentive fees or may allow for higher expense reimbursements, all of which may contribute to a conflict of interest and create an incentive for the Adviser to favor such other accounts. Further, accounts managed by the Adviser or certain of its affiliates hold, and may in the future be allocated, certain investments in collateralized loan obligations (“CLOs”), such as debt tranches, which conflict with the positions held by other accounts in such CLOs, such as the registrant. In these cases, when exercising the rights of each account with respect to such investments, the Adviser and/or its affiliates will have a conflict of interest as actions on behalf of one account may have an adverse effect on another account managed by the Adviser or such affiliate, including the registrant. In such cases, such conflicts may not be resolved in a manner that is always or exclusively in our best interests.
In addition, certain of the Adviser’s affiliates (and the investment funds that they manage) may also invest in companies that compete with the Adviser and that therefore manage other accounts and funds that compete for investment opportunities with the registrant. The registrant’s executive officers and Directors, as well as other current and potential future affiliated persons, officers and employees of the Adviser and certain of its affiliates, may serve as officers, directors or principals of, or manage the accounts for, other entities with investment strategies that substantially or partially overlap with the strategy that the registrant pursues. Accordingly, they may have obligations to investors in those entities, the fulfillment of which obligations may not be in the best interests of the registrant or the registrant’s common stockholders.
Further, the professional staff of the Adviser will devote as much time to the registrant as such professionals deem appropriate to perform their duties in accordance with the Investment Advisory Agreement. However, such persons are also committed to providing investment advisory and other services for other clients and engage in other business ventures in which the registrant has no interest. Certain of the Adviser’s and its affiliates’ senior personnel and ultimate managers serve and may serve as officers, directors, managers or principals of other entities that operate in the same or a related line of business as the Adviser, and its affiliates, or that are service providers to firms or entities such as the Adviser, the registrant, CLOs or other similar entities. Accordingly, such persons may have obligations to investors in those entities the fulfillment of which may not be in the registrant’s best interest. In addition, certain of such persons hold direct and indirect personal investments in various companies, including certain investment advisers and other operating companies, some of which do or may provide services to the Adviser, the registrant, or other accounts serviced by the Adviser or its affiliates, or to any issuer in which the registrant may invest. The registrant may pay fees or other compensation to any such operating company or financial institution for services received. Further, these relationships may result in conflicts of interest that may not be foreseen or may not be resolved in a manner that is always or exclusively in the registrant’s best interest. As a result of these separate business activities and payment structures, the Adviser and the portfolio managers have conflicts of interest in allocating management time, services and functions among the registrant and its affiliates and other business ventures or clients.
As a fiduciary, the Adviser owes a duty of loyalty to its clients, including the registrant, and must treat each client fairly. When the Adviser purchases or sells securities for more than one account, the trades must be allocated in a manner consistent with its fiduciary duties. To this end, the Adviser and Eagle Point Credit Management LLC have adopted and reviewed policies and procedures pursuant to which it allocates investment opportunities appropriate for more than one client account in a manner deemed appropriate in its sole discretion to achieve a fair and equitable result over time. Pursuant to these policies and procedures, when allocating investment opportunities, the Adviser and Eagle Point Credit Management LLC may take into account regulatory, tax or legal requirements applicable to an account. In allocating investment opportunities, the Adviser may use rotational, percentage or other allocation methods provided that doing so is consistent with the Adviser’s and Eagle Point Credit Management LLC’s internal conflict of interest and allocation policies and the requirements of the Advisers Act, the Investment Company Act of 1940, as amended (the “1940 Act”), and other applicable laws. In addition, an account managed by the Adviser, such as the registrant, is expected to be considered for the allocation of investment opportunities together with other accounts managed by affiliates of the Adviser and Eagle Point Credit Management. There is no assurance that investment opportunities will be allocated to any particular account equitably in the short-term or that any such account, including the registrant, will be able to participate in all investment opportunities that are suitable for it.
In the ordinary course of business, the registrant may enter into transactions with persons who are affiliated with the registrant by reason of being under common control of the Adviser or its affiliates. In order to ensure that the registrant does not engage in any prohibited transactions with any affiliated persons, the registrant has implemented certain policies and procedures whereby its executive officers screen each of its transactions for any possible affiliations between the registrant, the Adviser and its affiliates and the registrant’s employees, officers and directors. The registrant will not enter into any such transactions unless and until it is satisfied that doing so is consistent with the 1940 Act, applicable SEC exemptive rules, interpretations or guidance, or the terms of the registrant’s exemptive order (discussed below), as applicable. The registrant’s affiliations may require it to forgo attractive investment opportunities.
The registrant may co-invest on a concurrent basis with other accounts managed by the Adviser and may do so with other accounts managed by certain of the Adviser’s affiliates subject to compliance with applicable regulations and regulatory guidance and applicable written allocation procedures. The registrant is able to rely on the exemptive relief granted by the SEC to Eagle Point Credit Management LLC and certain of its affiliates to participate in certain negotiated co-investments alongside other accounts managed by Eagle Point Credit Management LLC or certain of its affiliates, including Eagle Point Credit Company Inc. and Eagle Point Institutional Income Fund, subject to certain conditions, including that (i) a majority of the registrant’s directors who have no financial interest in the transaction and a majority of the registrant’s directors who are not interested persons, as defined in the 1940 Act, of the registrant approve the co-investment and (ii) the price, terms and conditions of the co-investment are the same for each participant. The Adviser may determine not to allocate certain potential co-investment opportunities to the registrant after taking into account regulatory requirements or other considerations. A copy of the registrant’s application for exemptive relief, including all of the conditions, and the related order are available on the SEC’s website at www.sec.gov.
In order to address such conflicts of interest, the registrant has adopted a Code of Ethics. Similarly, the Adviser has separately adopted a Code of Ethics (“Code”). The Adviser’s Code requires the officers and employees of the Adviser to act in the best interests of its client accounts (including the registrant), act in good faith and in an ethical manner, avoid conflicts of interests with the client accounts to the extent reasonably possible and identify and manage conflicts of interest to the extent that they arise. Personnel subject to each code of ethics may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements. The registrant’s Directors and officers, and the officers and employees of the Adviser, are also required to comply with applicable provisions of the U.S. federal securities laws and make prompt reports to supervisory personnel of any actual or suspected violations of law.
In addition, the Adviser has built a professional working environment, firm-wide compliance culture and compliance procedures and systems designed to protect against potential incentives that may favor one account over another. The Adviser has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time.
Investment Personnel. The senior investment team of the Adviser is primarily responsible for the registrant’s day-to-day investment management and the implementation of the registrant’s investment strategy and process, with oversight provided by the Adviser’s board of managers. Biographical information on the senior investment team, each of whom has served as a portfolio manager since the registrant’s inception, is set forth below:
Thomas P. Majewski, Managing Partner (Since November 2012). Mr. Majewski is a Managing Partner of the Adviser and Managing Partner and a founder of Eagle Point Credit Management, and serves as director, Chairman and Chief Executive Officer of the registrant; director and Chief Executive Officer of Eagle Point Credit Company Inc.; and trustee, Chairman and Chief Executive Officer of Eagle Point Institutional Income Fund. Mr. Majewski has been involved in the formation and/or monetization of many CLO transactions across multiple market cycles. Mr. Majewski led the creation of some of the earliest refinancing CLOs, introducing techniques that are now commonplace in the market. Mr. Majewski’s experience in the CLO market dates back to the 1990s. He has spent his entire career in the structured finance and credit markets. Mr. Majewski is also a member of the Adviser’s Board of Managers and Eagle Point Credit Management’s investment committee.
Prior to joining Eagle Point Credit Management LLC in September 2012, Mr. Majewski was a Managing Director and U.S. Head of CLO Banking at RBS Securities Inc., or “RBS,” from September 2011 through September 2012, where he was responsible for all aspects of RBS’s new-issue CLO platform. Prior to joining RBS, Mr. Majewski was the U.S. country head at AMP Capital Investors (US) Ltd. and AE Capital Advisers (US) LLC, where he was responsible for investing in credit, structured products and other private assets on behalf of several Australian investors. Prior to this, Mr. Majewski was a Managing Director and head of CLO banking at Merrill Lynch Pierce Fenner and Smith Inc. Mr. Majewski also has held leadership positions within the CLO groups at JPMorgan Securities Inc. and Bear, Stearns & Co. Inc. Mr. Majewski has a B.S. from Binghamton University and has been a Certified Public Accountant (inactive).
Daniel W. Ko, Principal and Portfolio Manager (Since December 2012). Mr. Ko is a Portfolio Manager of the Adviser and Eagle Point Credit Management. Mr. Ko is responsible for manager evaluation and structuring investment opportunities in the primary CLO market, analyzing secondary CLO market opportunities, executing trades and monitoring investments. Mr. Ko has specialized in structured finance throughout his entire career.
Prior to joining Eagle Point Credit Management in December 2012, Mr. Ko was with Bank of America Merrill Lynch, or “BAML,” for the previous six years, most recently as Vice President of the CLO structuring group, where he was responsible for modeling the projected deal cash flows, negotiating deal terms with both debt and equity investors and coordinating the rating process. In addition, he was responsible for exploring non-standard structuring initiatives such as financing trades with dynamic leverage, emerging market collateralized bond obligations and European CLOs. Prior to joining the CLO structuring group, Mr. Ko managed BAML’s legacy CLO, trust-preferred securities CDO and asset-backed securities CDO portfolios. Prior to Bank of America’s merger with Merrill Lynch, Mr. Ko was an associate in Merrill Lynch’s CDO structuring group, Mr. Ko graduated magna cum laude from the University of Pennsylvania’s Wharton School with a B.S. in finance and accounting.
Daniel M. Spinner (CAIA), Principal and Portfolio Manager (Since February 2013). Mr. Spinner is a Principal and Portfolio Manager of the Adviser and Eagle Point Credit Management. Mr. Spinner is primarily responsible for manager evaluation and due diligence and for monitoring investments. Mr. Spinner is also actively involved in investor relations and communications. Mr. Spinner is an alternative asset management industry specialist with 20 years of experience advising, financing and investing in alternative asset management firms and funds. Mr. Spinner’s experience in the CLO market dates back to the late 1990s.
Prior to joining Eagle Point Credit Management in February 2013, Mr. Spinner was an Investment Analyst at the 1199SEIU Benefit and Pension Funds, from June 2009 to February 2013, where he oversaw the private equity, special opportunities credit and real estate allocations. The 1199SEIU Benefit and Pension Funds are collectively among the largest Taft-Hartley plans in the United States. Prior to this, Mr. Spinner was a Managing Director at Bear, Stearns & Co. Inc. focused on alternative asset managers. Prior to Bear Stearns, Mr. Spinner was the co-founder and president of Structured Capital Partners, Inc., a financial holding company formed to invest in structured credit managers. Mr. Spinner was credit trained at Chase Manhattan Bank where he began his career as an investment banker and spent seven years in the Financial Institutions Group (including at JPMorgan Securities Inc. post-merger), where he had coverage responsibility for asset management firms including CLO collateral managers. Mr. Spinner serves as a member of the board of managers and investment committee of Marble Point. Mr. Spinner earned a B.A., summa cum laude, from Gettysburg College and an M.B.A. from Columbia University.
The following table sets forth other accounts within each category listed for which members of the senior investment team are jointly and primarily responsible for day-to-day portfolio management as of December 31, 2022. Among the accounts listed below, two of the “Registered Investment Companies” (with total assets of $774.6), seven of the “Other Pooled Investment Vehicles” (with total assets of $2,350.1) and 26 of the “Other Accounts” (with total assets of $1,710.6) are subject to a performance fee.
| Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts |
||||||||||||||||||||||
| Portfolio Manager | Number of Accounts |
Total Assets (in millions) |
Number
of Accounts |
Total Assets (in millions) |
Number
of Accounts |
Total Assets (in millions) |
||||||||||||||||||
| Thomas P. Majewski | 2 | $ | 774.6 | 10 | $ | 2,652.4 | 55 | $ | 4,617.9 | |||||||||||||||
| Daniel W. Ko | 2 | $ | 774.6 | 10 | $ | 2,652.4 | 55 | $ | 4,617.9 | |||||||||||||||
| Daniel M. Spinner | 2 | $ | 774.6 | 10 | $ | 2,652.4 | 55 | $ | 4,617.9 | |||||||||||||||
* Total Assets are estimated and unaudited and may vary from final audited figures. Total assets exclude amounts invested in the equity of another investment vehicle managed by the portfolio manager so as to avoid double counting.
Compensation.
Investment professionals of the Adviser are paid out of the total revenues of the Adviser and certain of its affiliates, including Eagle Point Credit Management LLC, including the advisory fees earned with respect to providing advisory services to the registrant. Professional compensation is structured so that key professionals benefit from strong investment performance generated on accounts that the Adviser and such affiliates manage and from their longevity with the Adviser and its affiliates. Each member of the senior investment team has indirect equity ownership interests in the Adviser and related long-term incentives. Members of the senior investment team also receive a fixed base salary and an annual market and performance-based cash bonus. The bonus is determined by the Adviser’s ultimate board of managers, and is based on both quantitative and qualitative analysis of several factors, including the profitability of the Adviser and its affiliates, and the contribution of the individual employee. Many of the factors considered by management in reaching its compensation determinations will be impacted by the registrant’s long-term performance and the value of the registrant’s assets as well as the portfolios managed for the Adviser’s and such affiliates’ other clients.
Securities Owned in the Company by Portfolio Managers.
The table below sets forth the dollar range of the value of the shares of the registrant’s common stock which are owned beneficially by each portfolio manager as of December 31, 2022. For purposes of this table, beneficial ownership is defined to mean a direct or indirect pecuniary interest.
| Name of Portfolio Manager | Dollar
Range of Equity Securities in the Company(1) | |
| Thomas P. Majewski | $100,001-$500,000 | |
| Daniel W. Ko | $50,001-$100,000 | |
| Daniel M. Spinner | $100,001-$500,000 |
| (1) | Dollar ranges are as follows: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, $100,001 – $500,000, $500,001 – $1,000,000 and over $1,000,000. |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchases
There have been no purchases by or on behalf of the registrant of shares or other units of any class of the registrant’s equity securities that are registered pursuant to Section 12 of the Exchange Act during the period covered by this report.
Item 10. Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which stockholders may recommend nominees to the registrant’s board of directors.
Item 11. Controls and Procedures
| (a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30(a)-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Exchange Act. |
| (b) | There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
The registrant did not engage in securities lending activity during the fiscal year ended December 31, 2022.
Item 13. Exhibits
| (a) (2) | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith. |
| (b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith. |
| (c) | Consent of Independent Registered Public Accounting Firm. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| EAGLE POINT INCOME COMPANY INC. | ||
| By: | /s/ Thomas P. Majewski | |
| Thomas P. Majewski | ||
| Chief Executive Officer | ||
| Date: | February 23, 2023 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.
| By: | /s/ Thomas P. Majewski | |
| Thomas P. Majewski | ||
| Chief Executive Officer (principal executive officer) | ||
| Date: | February 23, 2023 | |
| By: | /s/ Kenneth P. Onorio | |
| Kenneth P. Onorio | ||
| Chief Financial Officer (principal financial officer) | ||
| Date: | February 23, 2023 |
