Important Information
This report
is transmitted to the stockholders of Eagle Point Income Company Inc. (“we”, “us”, “our” or the “Company”).
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 March 31,
2021. 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.
About Eagle Point Income Company
Inc.
The Company
is a publicly-traded, non-diversified, closed-end management investment company. The Company’s investment objective is to generate
high current income, with a secondary objective to generate capital appreciation, by investing primarily in junior debt tranches of CLOs.
In addition, the Company may invest up to 20% of its total assets (at the time of investment) in CLO equity securities and related securities
and instruments. The Company is externally managed and advised by Eagle Point Income Management LLC.
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 net asset value (“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.
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.
Table of Contents
Eagle
Point Income Company Inc.
Statement
of Assets and Liabilities
As
of March 31, 2021
(expressed
in U.S. dollars)
(Unaudited)
ASSETS
|
|
|
|
Investments,
at fair value (cost $124,537,307)
|
|
$
|
120,891,256
|
|
Interest receivable
|
|
|
1,926,778
|
|
Prepaid expenses
|
|
|
292,244
|
|
Cash
|
|
|
19,486
|
|
Total
Assets
|
|
|
123,129,764
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Borrowings under credit
facility (less unamortized deferred financing costs of $29,044 (Note 8))
|
|
|
19,095,956
|
|
Management fee payable
|
|
|
386,358
|
|
Professional fees payable
|
|
|
173,472
|
|
Administration fees payable
|
|
|
104,506
|
|
Interest expense on credit
facility payable
|
|
|
79,718
|
|
Directors' fees payable
|
|
|
63,750
|
|
Tax expense payable
|
|
|
12,500
|
|
Other
expenses payable
|
|
|
2,081
|
|
Total
Liabilities
|
|
|
19,918,341
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 6)
|
|
|
|
|
|
|
|
|
|
NET ASSETS applicable to
6,106,458 shares of $0.001 par value common stock outstanding
|
|
$
|
103,211,423
|
|
|
|
|
|
|
NET ASSETS consist of:
|
|
|
|
|
Paid-in capital (Note 5)
|
|
$
|
119,175,646
|
|
Aggregate
distributable earnings (losses)
|
|
|
(15,964,223
|
)
|
Total
Net Assets
|
|
$
|
103,211,423
|
|
Net asset value per share of common stock
|
|
$
|
16.90
|
|
See
accompanying notes to the financials statements
Eagle
Point Income Company Inc.
Schedule
of Investments
As
of March 31, 2021
(expressed
in U.S. dollars)
(Unaudited)
Issuer
(1)
|
|
Investment
(2) (3)
|
|
Acquisition
Date (4)
|
|
Principal
Amount
|
|
|
Cost
|
|
|
Fair
Value (5)
|
|
|
%
of Net
Assets
|
|
|
CLO Debt
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGL
CLO I Ltd.
|
|
CLO
Secured Note - Class E (7.32% due 10/20/32)
|
|
10/04/19
|
|
$
|
3,000,000
|
|
|
$
|
2,921,328
|
|
|
$
|
3,003,000
|
|
|
|
2.91%
|
|
|
Ares XLIV
CLO Ltd.
|
|
CLO Secured
Note - Class D (6.79% due 10/15/29)
|
|
01/09/20
|
|
|
1,500,000
|
|
|
|
1,496,647
|
|
|
|
1,500,000
|
|
|
|
1.45%
|
|
|
Ares XLV
CLO Ltd.
|
|
CLO Secured
Note - Class E (6.34% due 10/15/30)
|
|
05/30/19
|
|
|
800,000
|
|
|
|
787,455
|
|
|
|
774,800
|
|
|
|
0.75%
|
|
|
Barings CLO
Ltd. 2018-IV
|
|
CLO Secured
Note - Class E (6.06% due 10/15/30)
|
|
10/26/18
|
|
|
750,000
|
|
|
|
746,902
|
|
|
|
729,750
|
|
|
|
0.71%
|
|
|
Battalion
CLO XII Ltd.
|
|
CLO Secured
Note - Class E (6.28% due 05/17/31)
|
|
10/04/18
|
|
|
3,608,000
|
|
|
|
3,533,345
|
|
|
|
3,520,326
|
|
|
|
3.41%
|
|
|
Black Diamond
CLO 2016-1, Ltd.
|
|
CLO Secured
Note - Class D-R (5.82% due 04/26/31)
|
|
10/04/18
|
|
|
1,050,000
|
|
|
|
989,718
|
|
|
|
868,875
|
|
|
|
0.84%
|
|
|
Black Diamond
CLO 2017-1, Ltd.
|
|
CLO Secured
Note - Class D (6.82% due 04/24/29)
|
|
10/04/18
|
|
|
3,600,000
|
|
|
|
3,592,449
|
|
|
|
3,268,440
|
|
|
|
3.17%
|
|
|
Carlyle US
CLO 2017-1, Ltd.
|
|
CLO Secured
Note - Class D (6.22% due 04/20/31)
|
|
09/15/20
|
|
|
2,000,000
|
|
|
|
1,641,811
|
|
|
|
1,827,800
|
|
|
|
1.77%
|
|
|
Carlyle US
CLO 2018-1, Ltd.
|
|
CLO Secured
Note - Class D (5.97% due 04/20/31)
|
|
10/04/18
|
|
|
665,000
|
|
|
|
658,446
|
|
|
|
618,450
|
|
|
|
0.60%
|
|
|
Carlyle US
CLO 2018-2, Ltd.
|
|
CLO Secured
Note - Class D (5.49% due 10/15/31)
|
|
10/04/18
|
|
|
5,500,000
|
|
|
|
5,289,096
|
|
|
|
5,122,700
|
|
|
|
4.96%
|
|
|
Carlyle US
CLO 2019-1, Ltd.
|
|
CLO Secured
Note - Class D (6.92% due 04/20/31)
|
|
08/19/19
|
|
|
3,125,000
|
|
|
|
2,955,793
|
|
|
|
3,093,750
|
|
|
|
3.00%
|
|
|
CIFC Funding
2015-I, Ltd.
|
|
CLO Secured
Note - Class E-RR (6.22% due 01/22/31)
|
|
10/04/18
|
|
|
2,600,000
|
|
|
|
2,561,461
|
|
|
|
2,482,480
|
|
|
|
2.41%
|
|
|
CIFC Funding
2018-II, Ltd.
|
|
CLO Secured
Note - Class D (6.07% due 04/20/31)
|
|
10/04/18
|
|
|
1,025,000
|
|
|
|
1,006,103
|
|
|
|
989,023
|
|
|
|
0.96%
|
|
|
CIFC Funding
2018-IV, Ltd.
|
|
CLO Secured
Note - Class E (7.92% due 10/17/31)
|
|
05/22/19
|
|
|
2,000,000
|
|
|
|
1,855,868
|
|
|
|
1,853,400
|
|
|
|
1.80%
|
|
|
CIFC Funding
2019-V, Ltd.
|
|
CLO Secured
Note - Class D (7.08% due 10/15/32)
|
|
08/09/19
|
|
|
5,500,000
|
|
|
|
5,401,567
|
|
|
|
5,476,900
|
|
|
|
5.31%
|
|
|
CIFC Funding
2019-VI, Ltd.
|
|
CLO Secured
Note - Class E (7.62% due 01/16/33)
|
|
12/02/19
|
|
|
3,050,000
|
|
|
|
2,965,926
|
|
|
|
3,069,825
|
|
|
|
2.97%
|
|
|
Cook Park
CLO, Ltd.
|
|
CLO Secured
Note - Class E (5.62% due 04/17/30)
|
|
10/04/18
|
|
|
1,000,000
|
|
|
|
984,590
|
|
|
|
960,500
|
|
|
|
0.93%
|
|
|
Dryden 37
Senior Loan Fund, Ltd.
|
|
CLO Secured
Note - Class E-R (5.39% due 01/15/31)
|
|
10/04/18
|
|
|
500,000
|
|
|
|
483,966
|
|
|
|
473,500
|
|
|
|
0.46%
|
|
|
First Eagle
BSL CLO 2019-1 Ltd.
|
|
CLO Secured
Note - Class D (7.92% due 01/20/33)
|
|
12/17/19
|
|
|
5,000,000
|
|
|
|
4,787,927
|
|
|
|
4,917,000
|
|
|
|
4.76%
|
|
|
LCM XVIII,
L.P.
|
|
CLO Secured
Note - Class E-R (6.17% due 04/20/31)
|
|
10/04/18
|
|
|
600,000
|
|
|
|
598,436
|
|
|
|
534,300
|
|
|
|
0.52%
|
|
|
Madison Park
Funding XXVII, Ltd.
|
|
CLO Secured
Note - Class D (5.22% due 04/20/30)
|
|
10/04/18
|
|
|
3,050,000
|
|
|
|
2,830,879
|
|
|
|
2,828,875
|
|
|
|
2.74%
|
|
|
Madison Park
Funding XLII, Ltd.
|
|
CLO Secured
Note - Class E (6.27% due 11/21/30)
|
|
08/15/19
|
|
|
1,500,000
|
|
|
|
1,436,262
|
|
|
|
1,425,600
|
|
|
|
1.38%
|
|
|
Marathon
CLO IX, Ltd.
|
|
CLO Secured
Note - Class D (6.29% due 04/15/29)
|
|
10/04/18
|
|
|
4,050,000
|
|
|
|
4,002,787
|
|
|
|
3,527,955
|
|
|
|
3.42%
|
|
|
Marathon
CLO XIII, Ltd.
|
|
CLO Secured
Note - Class D (7.22% due 04/15/32)
|
|
06/04/19
|
|
|
3,500,000
|
|
|
|
3,344,456
|
|
|
|
3,109,050
|
|
|
|
3.01%
|
|
|
MidOcean
Credit CLO X
|
|
CLO Secured
Note - Class E (7.66% due 10/23/32)
|
|
01/08/20
|
|
|
5,000,000
|
|
|
|
4,985,440
|
|
|
|
4,804,000
|
|
|
|
4.65%
|
|
|
Octagon Investment
Partners 37, Ltd.
|
|
CLO Secured
Note - Class D (5.62% due 07/25/30)
|
|
10/04/18
|
|
|
1,200,000
|
|
|
|
1,177,542
|
|
|
|
1,114,080
|
|
|
|
1.08%
|
|
|
Octagon Investment
Partners 38, Ltd.
|
|
CLO Secured
Note - Class D (5.92% due 07/20/30)
|
|
10/04/18
|
|
|
3,300,000
|
|
|
|
3,238,604
|
|
|
|
3,108,930
|
|
|
|
3.01%
|
|
|
Octagon Investment
Partners 39, Ltd.
|
|
CLO Secured
Note - Class E (5.97% due 10/20/30)
|
|
10/24/18
|
|
|
1,550,000
|
|
|
|
1,491,585
|
|
|
|
1,484,900
|
|
|
|
1.44%
|
|
|
Octagon Investment
Partners 41, Ltd.
|
|
CLO Secured
Note - Class E (7.14% due 04/15/31)
|
|
07/18/19
|
|
|
5,012,500
|
|
|
|
4,963,880
|
|
|
|
5,012,500
|
|
|
|
4.86%
|
|
|
OZLM XXI, Ltd.
|
|
CLO Secured
Note - Class D (5.76% due 01/20/31)
|
|
10/04/18
|
|
|
4,150,000
|
|
|
|
4,060,102
|
|
|
|
3,672,750
|
|
|
|
3.56%
|
|
|
Palmer Square
CLO 2018-1, Ltd.
|
|
CLO Secured
Note - Class D (5.37% due 04/18/31)
|
|
05/30/19
|
|
|
1,120,000
|
|
|
|
1,030,273
|
|
|
|
1,071,840
|
|
|
|
1.04%
|
|
|
Reese Park
CLO, Ltd.
|
|
CLO Secured
Note - Class E (6.21% due 10/15/32)
|
|
12/03/20
|
|
|
2,000,000
|
|
|
|
1,963,631
|
|
|
|
2,000,000
|
|
|
|
1.94%
|
|
|
Rockford
Tower CLO 2018-2, Ltd.
|
|
CLO Secured
Note - Class E (6.22% due 10/20/31)
|
|
10/04/18
|
|
|
4,275,000
|
|
|
|
4,176,685
|
|
|
|
4,116,825
|
|
|
|
3.99%
|
|
|
Rockford
Tower CLO 2019-2, Ltd.
|
|
CLO Secured
Note - Class E (6.23% due 08/20/32)
|
|
01/13/21
|
|
|
3,000,000
|
|
|
|
2,957,240
|
|
|
|
2,922,600
|
|
|
|
2.83%
|
|
|
Rockford
Tower CLO 2020-1, Ltd.
|
|
CLO Secured
Note - Class E (7.15% due 01/20/32)
|
|
12/04/20
|
|
|
1,600,000
|
|
|
|
1,568,132
|
|
|
|
1,608,320
|
|
|
|
1.56%
|
|
|
TICP CLO
IX, Ltd.
|
|
CLO Secured
Note - Class E (5.82% due 01/20/31)
|
|
08/22/19
|
|
|
2,500,000
|
|
|
|
2,342,399
|
|
|
|
2,437,500
|
|
|
|
2.36%
|
|
|
Venture 36
CLO, Limited
|
|
CLO Secured
Note - Class E (7.14% due 04/20/32)
|
|
01/21/21
|
|
|
4,000,000
|
|
|
|
3,694,135
|
|
|
|
3,656,400
|
|
|
|
3.54%
|
|
|
Vibrant CLO
VI, Ltd.
|
|
CLO Secured
Note - Class E (5.94% due 06/20/29)
|
|
10/04/18
|
|
|
4,100,000
|
|
|
|
4,039,144
|
|
|
|
3,659,250
|
|
|
|
3.55%
|
|
|
Vibrant CLO
VIII, Ltd.
|
|
CLO Secured
Note - Class D (5.97% due 01/20/31)
|
|
10/04/18
|
|
|
1,750,000
|
|
|
|
1,702,969
|
|
|
|
1,533,700
|
|
|
|
1.49%
|
|
|
York
CLO-2 Ltd.
|
|
CLO
Secured Note - Class E-R (5.87% due 01/22/31)
|
|
05/16/19
|
|
|
1,605,000
|
|
|
|
1,519,928
|
|
|
|
1,501,478
|
|
|
|
1.45%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,784,907
|
|
|
|
99,681,372
|
|
|
|
96.58%
|
|
|
CLO Equity
(7) (8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIFC Funding
2019-VI, Ltd.
|
|
CLO Subordinated
Note (estimated yield of 17.94% due 01/16/33)
|
|
12/02/19
|
|
|
6,000,000
|
|
|
|
4,800,847
|
|
|
|
5,176,675
|
|
|
|
5.02%
|
|
|
Madison Park
Funding XXXVII, Ltd.
|
|
CLO Subordinated
Note (estimated yield of 23.02% due 07/15/49)
|
|
03/11/20
|
|
|
4,000,000
|
|
|
|
2,876,534
|
|
|
|
3,594,901
|
|
|
|
3.48%
|
|
|
Marathon
CLO XIII, Ltd.
|
|
CLO Subordinated
Note (estimated yield of 6.85% due 04/15/32)
|
|
06/04/19
|
|
|
5,300,000
|
|
|
|
4,452,564
|
|
|
|
2,800,941
|
|
|
|
2.71%
|
|
|
Octagon Investment
Partners 37, Ltd.
|
|
CLO Subordinated
Note (estimated yield of 20.51% due 07/25/30)
|
|
01/31/20
|
|
|
2,125,000
|
|
|
|
1,484,244
|
|
|
|
1,596,737
|
|
|
|
1.55%
|
|
|
Octagon Investment
Partners 43, Ltd.
|
|
CLO Income
Note (estimated yield of 15.28% due 10/25/32)
|
|
08/02/19
|
|
|
5,750,000
|
|
|
|
4,884,005
|
|
|
|
4,762,285
|
|
|
|
4.61%
|
|
|
Venture
37 CLO, Limited
|
|
CLO
Subordinated Note (estimated yield of 12.18% due 07/15/32)
|
|
05/21/19
|
|
|
5,200,000
|
|
|
|
4,254,206
|
|
|
|
3,278,345
|
|
|
|
3.18%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,752,400
|
|
|
|
21,209,884
|
|
|
|
20.55%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments, at fair value as of March 31, 2021
|
|
|
|
|
|
|
|
|
|
$
|
124,537,307
|
|
|
$
|
120,891,256
|
|
|
|
100.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
net assets above (below) fair value of investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,679,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets as of March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103,211,423
|
|
|
|
|
|
|
(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 investments are restricted
and 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 8 "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
in good faith in accordance with the Company's valuation policy and is approved by the Company's Board of Directors.
|
(6)
|
CLO debt positions reflect
the coupon rates as of March 31, 2021.
|
(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 estimated yield and investment cost may ultimately
not be realized. As of March 31, 2021, the Company's weighted average effective yield on its aggregate CLO equity positions,
based on current amortized cost, was 14.93%.
|
See
accompanying notes to the financials statements
Eagle
Point Income Company Inc.
Statement
of Operations
For
the three months ended March 31, 2021
(expressed
in U.S. dollars)
(Unaudited)
INVESTMENT INCOME
|
|
|
|
Interest income
|
|
$
|
2,587,723
|
|
Total Investment Income
|
|
|
2,587,723
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
Management fee
|
|
|
386,358
|
|
Professional fees
|
|
|
164,853
|
|
Administration fees
|
|
|
132,368
|
|
Interest expense on credit facility
|
|
|
114,015
|
|
Directors' fees
|
|
|
63,750
|
|
Amortization of deferred financing costs
|
|
|
14,768
|
|
Tax expense
|
|
|
13,750
|
|
Other expenses
|
|
|
69,212
|
|
Total Expenses
|
|
|
959,074
|
|
|
|
|
|
|
NET INVESTMENT INCOME
|
|
|
1,628,649
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS)
|
|
|
|
|
Net realized gain (loss) on investments
|
|
|
299,551
|
|
Net change in unrealized appreciation (depreciation)
on investments
|
|
|
(371,365
|
)
|
NET REALIZED AND UNREALIZED GAIN (LOSS)
|
|
|
(71,814
|
)
|
|
|
|
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
|
|
$
|
1,556,835
|
|
See accompanying notes
to the financials statements
Eagle
Point Income Company Inc.
Statements
of Operations
(expressed
in U.S. dollars)
(Unaudited)
|
|
For the
|
|
|
For the
|
|
|
|
three months ended
|
|
|
three months ended
|
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
INVESTMENT INCOME
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
2,587,723
|
|
|
$
|
3,507,342
|
|
Total
Investment Income
|
|
|
2,587,723
|
|
|
|
3,507,342
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Management fee
|
|
|
386,358
|
|
|
|
368,764
|
|
Professional fees
|
|
|
164,853
|
|
|
|
109,029
|
|
Administration fees
|
|
|
132,368
|
|
|
|
112,439
|
|
Interest expense on credit
facility
|
|
|
114,015
|
|
|
|
221,027
|
|
Directors' fees
|
|
|
63,750
|
|
|
|
63,750
|
|
Amortization of deferred
financing costs
|
|
|
14,768
|
|
|
|
14,768
|
|
Tax expense (1)
|
|
|
13,750
|
|
|
|
(19,013
|
)
|
Other
expenses
|
|
|
69,212
|
|
|
|
56,974
|
|
Total
Expenses
|
|
|
959,074
|
|
|
|
927,738
|
|
|
|
|
|
|
|
|
|
|
NET INVESTMENT INCOME
|
|
|
1,628,649
|
|
|
|
2,579,604
|
|
|
|
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS)
|
|
|
|
|
|
|
|
|
Net realized gain (loss)
on investments
|
|
|
299,551
|
|
|
|
(14,953,670
|
)
|
Net
change in unrealized appreciation (depreciation) on investments
|
|
|
(371,365
|
)
|
|
|
(47,540,311
|
)
|
NET REALIZED AND UNREALIZED
GAIN (LOSS)
|
|
|
(71,814
|
)
|
|
|
(62,493,981
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING FROM OPERATIONS
|
|
$
|
1,556,835
|
|
|
$
|
(59,914,377
|
)
|
(1) Tax
expense for the three months ended March 31, 2020 consists of $15,000 of estimated Delaware franchise tax for the 2020 tax year
and an offsetting credit of $34,013 for the Delaware franchise tax related to the 2019 tax year.
See accompanying notes
to the financials statements
Eagle
Point Income Company Inc.
Statements
of Changes in Net Assets
(expressed
in U.S. dollars, except share amounts)
(Unaudited)
|
|
For the three
|
|
|
For the
|
|
|
|
months ended
|
|
|
year ended
|
|
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Net increase (decrease) in net assets resulting
from operations:
|
|
|
|
|
|
|
|
|
Net investment
income
|
|
$
|
1,628,649
|
|
|
$
|
7,718,632
|
|
Net realized gain (loss)
on investments
|
|
|
299,551
|
|
|
|
(14,526,733
|
)
|
Net
change in unrealized appreciation (depreciation) on investments
|
|
|
(371,365
|
)
|
|
|
1,760,424
|
|
Total net increase (decrease)
in net assets resulting from operations
|
|
|
1,556,835
|
|
|
|
(5,047,677
|
)
|
|
|
|
|
|
|
|
|
|
Common stock distributions paid to stockholders:
|
|
|
|
|
|
|
|
|
Total earnings distributed
|
|
|
(1,465,548
|
)
|
|
|
(7,997,030
|
)
|
Common
stock distributions from tax return of capital
|
|
|
-
|
|
|
|
(1,106,093
|
)
|
Total common stock distributions
paid to stockholders
|
|
|
(1,465,548
|
)
|
|
|
(9,103,123
|
)
|
|
|
|
|
|
|
|
|
|
Capital share transactions:
|
|
|
|
|
|
|
|
|
Issuance of shares of common stock pursuant to the
Company's "at the market" program, net of
commissions and offering expenses
|
|
|
-
|
|
|
|
862,553
|
|
Total capital share transactions
|
|
|
-
|
|
|
|
862,553
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in net assets
|
|
|
91,287
|
|
|
|
(13,288,247
|
)
|
Net assets at beginning of
period
|
|
|
103,120,136
|
|
|
|
116,408,383
|
|
Net assets at end of period
|
|
$
|
103,211,423
|
|
|
$
|
103,120,136
|
|
|
|
|
|
|
|
|
|
|
Capital share activity:
|
|
|
|
|
|
|
|
|
Shares
of common stock issued pursuant to the Company's "at the market" program
|
|
|
-
|
|
|
|
88,185
|
|
Total increase (decrease)
in capital share activity
|
|
|
-
|
|
|
|
88,185
|
|
See
accompanying notes to the financials statements
Eagle
Point Income Company Inc.
Statement
of Cash Flows
For
the three months ended March 31, 2021
(expressed
in U.S. dollars)
(Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
Net
increase (decrease) in net assets resulting from operations
|
|
$
|
1,556,835
|
|
|
|
|
|
|
Adjustments
to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
|
|
|
|
|
Purchases
of investments
|
|
|
(13,361,111
|
)
|
Proceeds
from sales of investments and repayments of principal (1)
|
|
|
8,835,267
|
|
Payment-in-kind
interest
|
|
|
74,415
|
|
Net
realized (gain) loss on investments
|
|
|
(299,551
|
)
|
Net
change in unrealized (appreciation) depreciation on investments
|
|
|
371,365
|
|
Net
amortization (accretion) of premiums or discounts on CLO debt securities
|
|
|
(84,724
|
)
|
Amortization
of deferred financing costs
|
|
|
14,768
|
|
Changes
in assets and liabilities:
|
|
|
|
|
Interest
receivable
|
|
|
(21,516
|
)
|
Prepaid
expenses
|
|
|
29,689
|
|
Management
fee payable
|
|
|
43,967
|
|
Professional
fees payable
|
|
|
30,000
|
|
Administration
fees payable
|
|
|
2,203
|
|
Directors'
fees payable
|
|
|
(63,750
|
)
|
Interest
expense on credit facility payable
|
|
|
8,247
|
|
Tax
expense payable
|
|
|
(4,220
|
)
|
Other
assets
|
|
|
6,447
|
|
Net
cash provided by (used in) operating activities
|
|
|
(2,861,670
|
)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
Borrowings
under credit facility
|
|
|
9,720,000
|
|
Repayments
under credit facility
|
|
|
(5,410,000
|
)
|
Common
stock distributions paid to stockholders
|
|
|
(1,465,548
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
2,844,452
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
(17,218
|
)
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD
|
|
|
36,704
|
|
|
|
|
|
|
CASH,
END OF PERIOD
|
|
$
|
19,486
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
Cash
paid for franchise taxes
|
|
$
|
17,970
|
|
(1) Proceeds
from sales or maturity of investments includes $375,359 of return of capital on portfolio investments from recurring cash flows.
See
accompanying notes to the financials statements
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
Eagle Point Income
Company Inc. (the “Company”) is an externally managed, non-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
also invest in other junior debt tranches of CLOs, senior debt tranches of CLOs and other related securities and instruments. In addition,
the Company may invest up to 20% of its total assets (at the time of investment) in unrated CLO equity securities and related securities
and instruments. The Company’s common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “EIC”.
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.
See Note 5 “Common
Stock” for further discussion relating to the Conversion and IPO.
On October 3, 2018,
the Company entered into a custody agreement with Wells Fargo Bank, National Association (“Wells Fargo”), pursuant to which
the Company’s portfolio of securities are held by Wells Fargo.
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”).
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
|
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. In the absence of readily determinable
fair values, fair value of the Company’s investments is determined in accordance with the Company’s valuation policy. 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). The Company’s fair valuation process is reviewed and
approved by the Board.
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 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
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
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 Company’s valuation policy and accepted by the Board.
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 Board 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, 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.
The Company engages a third-party
independent valuation firm as an input to the Company’s valuation of the fair value of its investments in CLO equity. The valuation
firm’s advice is only one factor considered in the valuation of such investments, and the Board does not solely rely on such advice
in determining the fair value of the Company’s investments in accordance with the 1940 Act.
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 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 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 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 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.
Interest Expense
Interest expense includes the
amounts due under the Credit Facility (as defined in Note 8 “Revolving Credit Facility”) in relation to the outstanding borrowings
and unused commitment fees. Interest expense is recorded as an expense on the Statement of Operations. Please refer to Note 8 “Revolving
Credit Facility” for further discussion on the interest expense.
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
Securities Transactions
The Company records the
purchases and sales of securities on 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. No cash equivalent balances were held as of March 31, 2021.
Expense Recognition
Expenses are recorded on the accrual basis of accounting.
Prepaid Expenses
Prepaid expenses consist primarily
of insurance premiums, shelf registration expenses and at-the-market (“ATM”) program expenses. Insurance premiums are amortized
over the term of the current policy. Prepaid shelf registration expenses and ATM program expenses represent fees and expenses incurred
in connection with maintaining the Company’s current shelf registration and ATM program. Such costs are allocated to paid-in-capital
for each transaction pro-rata based on gross proceeds relative to the total potential offering amount.
Any unallocated prepaid
expense balance associated with the shelf registration and the ATM program 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 Credit Facility. Deferred financing costs are capitalized and amortized over
the term of the Credit Facility, and are reflected in borrowings under the credit facility on the Statement of Asset and Liabilities.
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.
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.
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
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
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.
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
As of March 31, 2021, the federal income
tax cost and net unrealized depreciation on securities were as follows:
Cost for federal income tax purposes
|
|
$
|
123,183,477
|
|
|
|
|
|
|
Gross unrealized appreciation
|
|
$
|
2,705,877
|
|
Gross unrealized depreciation
|
|
|
(4,998,097
|
)
|
Net unrealized depreciation
|
|
$
|
(2,292,220
|
)
|
For the three months
ended March 31, 2021, the Company incurred $12,500 in Delaware franchise tax expense related to the 2021 tax year end, and $1,250 related
to Delaware franchise tax expense related to the 2020 tax year end.
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 may differ from U.S. GAAP. Distributions to common stockholders are comprised of net investment income,
realized gains or losses and return of capital for either U.S. federal income tax or U.S. GAAP purposes and are intended to be paid monthly.
Distributions payable to common stockholders are recorded as a liability on ex-dividend date and, unless a common stockholder opts out
of the Company’s dividend reinvestment plan (the “DRIP”), 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).
For the three months
ended March 31, 2021, the Company declared and paid monthly common distributions on common stock of $1,465,548 or $0.24 per share.
The characterization
of distributions paid to 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.
Fair Value Measurement
The following tables
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 March 31, 2021:
Fair Value Measurement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO Debt
|
|
$
|
-
|
|
|
$
|
99,681,372
|
|
|
$
|
-
|
|
|
$
|
99,681,372
|
|
CLO Equity
|
|
|
-
|
|
|
|
-
|
|
|
|
21,209,884
|
|
|
|
21,209,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, at Fair Value
|
|
$
|
-
|
|
|
$
|
99,681,372
|
|
|
$
|
21,209,884
|
|
|
$
|
120,891,256
|
|
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
The changes in investments classified as Level III
are as follows for the three months ended March 31, 2021:
Change in Investments Classified as Level
III
|
|
CLO
Equity
|
|
Beginning Balance
at January 1, 2021
|
|
$
|
22,048,903
|
|
Purchases of investments
|
|
|
-
|
|
Proceeds from
sales or maturity of investments (1)
|
|
|
(375,359
|
)
|
Net
realized gains (losses) and net change in unrealized appreciation (depreciation)
|
|
|
(463,661
|
)
|
Balance
as of March 31, 2021 (2)
|
|
$
|
21,209,884
|
|
Change
in unrealized appreciation (depreciation) on investments still held as of March 31, 2021
|
|
$
|
(463,661
|
)
|
(1) Proceeds
from sales or maturity of investments represent the return of capital on portfolio investments from recurring cash flows.
(2) There
were no transfers into or out of Level III during the period.
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 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 judgement 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 March 31, 2021.
In addition to the techniques and inputs noted in the table below, the Adviser may use other valuation techniques and methodologies when
determining the Company’s fair value measurements as provided for in the 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 March 31, 2021. Unobservable inputs and assumptions are periodically reviewed and updated as necessary to
reflect current market conditions.
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
|
|
Quantitative
Information about Level III Fair Value Measurements
|
|
|
|
|
Fair
Value as of
|
|
|
Valuation
|
|
|
|
|
Assets
|
|
March
31, 2021
|
|
|
Techniques/Methodologies
|
|
Unobservable
Inputs
|
|
Range
/ Weighted Average (1)
|
CLO
Equity
|
|
$
|
21,209,884
|
|
|
Discounted
Cash Flows
|
|
Annual
Default Rate (2)
|
|
0.00%
- 2.77%
|
|
|
|
|
|
|
|
|
Annual
Prepayment Rate (3)
|
|
25% / 25%
|
|
|
|
|
|
|
|
|
Reinvestment
Spread
|
|
3.46% - 3.81%
/ 3.58%
|
|
|
|
|
|
|
|
|
Reinvestment
Price
|
|
99.50% / 99.50%
|
|
|
|
|
|
|
|
|
Recovery
Rate
|
|
69.45% - 69.99%
/ 69.87%
|
|
|
|
|
|
|
|
|
Expected
Yield
|
|
12.83% - 20.56%
/ 15.09%
|
(1)
Weighted average calculations are based on the fair value of investments.
(2)
A weighted average is not presented as the input in the discounted cash flow model varies over the life of an investment.
(3)
0% is assumed for defaulted and non-performing assets.
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.
Investment Risk Factors and Concentration of Investments
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.
Global Economic Risks
Terrorist acts, acts of war, natural
disasters, outbreaks or pandemics may disrupt the Company’s operations, as well as the operations of the businesses in which it
invests. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic
instability. For example, many countries have experienced outbreaks of infectious illnesses in recent decades, including swine flu, avian
influenza, SARS and COVID-19. In December 2019, an initial outbreak of COVID-19 was reported in Hubei, China. Since then, a large and
growing number of cases have been confirmed around the world, which has resulted in numerous deaths and the imposition of both local and
more widespread “work from home” and other quarantine measures, border closures and other travel restrictions, causing social
unrest and commercial disruption on a global scale. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.
Global economies and financial
markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact
issuers in a different country, region or financial market. The ongoing COVID-19 pandemic has magnified these risks and has had, and will
continue to have, a material adverse impact on local economies in the affected jurisdictions and also on the global economy, as cross
border commercial activity and market sentiment are increasingly impacted by the outbreak and government and other measures seeking to
contain its spread. The effects of the COVID-19 pandemic have contributed to increased volatility in global financial markets and likely
will affect countries, regions, companies, industries and market sectors more dramatically than others. The COVID-19 pandemic has had,
and any other outbreak of an infectious disease or serious environmental or public health concern could have, a significant negative impact
on economic and market conditions, could exacerbate pre-existing political, social and economic risks in certain countries or regions
and could trigger a prolonged period of global economic slowdown, which may impact the Company and its underlying investments. It is not
known how long the impact of the COVID-19 pandemic will, or future impacts
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
of other significant events would,
last or the severity thereof. Federal, state and local governments, as well as foreign governments, have taken aggressive steps to address
problems being experienced by the markets and by businesses and the economy in general; however, there can be no assurance that these
measures will be adequate.
To the extent the Company’s
underlying investments are overweight in certain countries, regions, companies, industries or market sectors, such positions will increase
the risk of loss from adverse developments affecting those countries, regions, companies, industries or sectors. The COVID-19 pandemic
and related government-imposed restrictions have imposed severe financial harm on certain industries to which the Company is exposed indirectly
through its CLOs investments’ underlying loan assets. For example, the airline and hotel industries have experienced sharp declines
in revenue due to restrictions on travel, hospitals and other healthcare companies have experienced financial losses as a result of increased
expenses and declining revenue as patients choose to delay elective or routine procedures, and many casino operators have been forced
to limit operations due to the imposition of mandatory business closures and to address social distancing guidelines.
Following the onset of the pandemic,
certain CLOs held by the Company experienced increased defaults by underlying borrowers. Obligor defaults and rating agency downgrades
caused, and may in the future cause, payments that would have otherwise been made to the CLO equity or CLO debt securities that the Company
held to instead be diverted to buy additional loans within a given CLO or paid to senior CLO debt holders as an early amortization payment.
In addition, defaults and downgrades of underlying obligors caused, and may in the future cause, a decline in the value of CLO securities
generally. If CLO cash flows or income decrease as a result of the pandemic, the portion of the Company’s distribution comprised
of a return of capital could increase or distributions could be reduced.
Concentration Risk
The Company is classified as “non-diversified”
under the 1940 Act. As a result, the Company can invest a greater portion of its assets in obligations of a single issuer than a “diversified”
fund. The Company may therefore be more susceptible than a diversified fund to being adversely affected by any single corporate, economic,
political or regulatory occurrence.
Liquidity Risk
The securities issued by CLOs
generally offer less liquidity than below investment grade or high-yield corporate debt, and are subject to certain transfer restrictions
imposed on certain financial instruments and other eligibility requirements on prospective transferees. Other investments the Company
may purchase through privately negotiated transactions may also be illiquid or subject to legal restrictions on their transfer. As a result
of this illiquidity, the Company’s ability to sell certain investments quickly, or at all, in response to changes in economic and
other conditions and to receive a fair price when selling such investments may be limited, which could prevent the Company from making
sales to mitigate losses on such investments.
Risks of Investing in CLOs
The Company’s investments
consist primarily of CLO securities and the Company may invest in other related structured finance securities. CLOs and structured finance
securities are generally backed by an asset or a pool of assets (typically senior secured loans and other credit-related assets in the
case of a CLO) which serve as collateral. The Company and other investors in CLOs and related structured finance securities ultimately
bear the credit risk of the underlying collateral. If there are defaults or the relevant collateral otherwise underperforms, scheduled
payments to senior tranches of such securities take precedence over those of junior tranches, and scheduled payments to junior tranches
have a priority in the right of payment to subordinated/equity tranches. Therefore, CLO and other structured finance securities may present
risks similar to those of the other types of debt obligations and, in fact, such risks may be of greater significance in the case of CLO
and other structured finance securities. In addition to the general risks associated with investing in debt securities, CLO securities
carry additional risks, including, but not limited to: (1) the possibility that distributions from collateral assets will not be adequate
to make interest or other payments; (2) the quality of the collateral may decline in value or default; (3) the fact that investments in
CLO junior debt and equity tranches will likely be subordinate in right of payment to other senior classes of CLO debt; and (4) the complex
structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected
investment results.
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
Interest Rate Risk
The fair value of certain investments
held by the Company may be significantly affected by changes in interest rates. Although senior secured loans are generally floating rate
instruments, the Company’s investments in senior secured loans through junior debt and equity tranches of CLOs are sensitive to
interest rate levels and volatility. Although CLOs are generally structured to mitigate the risk of interest rate mismatch, there may
be some difference between the timing of interest rate resets on the assets and liabilities of a CLO. Such a mismatch could have a negative
effect on the amount of funds distributed to CLO equity investors. In addition, in the event of a significant rising interest rate environment
and/or economic downturn, loan defaults may increase and result in credit losses which may adversely affect the Company’s cash flow,
fair value of its assets and operating results. In the event that the Company’s interest expense were to increase relative to income,
or sufficient financing became unavailable, return on investments and cash available for distribution to stockholders or to make other
payments on the Company’s securities would be reduced.
LIBOR Risk
The CLO equity and debt securities
in which the Company invests earn interest at, and CLOs in which it invests typically obtain financing at, a floating rate based on LIBOR.
On July 27, 2017, the Chief Executive
of the Financial Conduct Authority (“FCA”), the United Kingdom's financial regulatory body and regulator of LIBOR, announced
that after 2021 it will cease its active encouragement of banks to provide the quotations needed to sustain LIBOR due to the absence of
an active market for interbank unsecured lending and other reasons. On March 5, 2021, the FCA announced that all LIBOR settings will either
cease to be provided by any administrator, or no longer be representative (i) immediately after December 31, 2021 for all GBP, EUR, CHF
and JPY LIBOR settings and one-week and two-month US dollar LIBOR settings, and (ii) immediately after June 30, 2023 for the remaining
US dollar LIBOR settings, including three-month US dollar LIBOR. 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 GBP LIBOR and measures the overnight interest rate paid by banks for unsecured transactions in the sterling market), although
other replacement rates could be adopted by market participants.
Loans held by
CLO issuers and other issuers in which the Company may invest may reference LIBOR, and the termination of LIBOR presents risks to
such issuers and, indirectly, the Company. As LIBOR is currently being reformed, investors should be aware that: (a) any changes to
LIBOR could affect the level of the published rate, including to cause it to be lower and/or more volatile than it would otherwise
be; (b) if the applicable rate of interest on any CLO security is calculated with reference to a tenor which is discontinued, such
rate of interest will then be determined by the provisions of the affected CLO security, which may include determination by the
relevant calculation agent in its discretion; (c) the administrator of LIBOR will not have any involvement in the CLOs or loans and
may take any actions in respect of LIBOR without regard to the effect of such actions on the CLOs or loans; and (d) any uncertainty
in the value of LIBOR or, the development of a widespread market view that LIBOR has been manipulated or any uncertainty in the
prominence of LIBOR as a benchmark interest rate due to the recent regulatory reform may adversely affect the liquidity of the
securities in the secondary market and their market value. Any of the above or any other significant change to the setting of LIBOR
could have a material adverse effect on the value of, and the amount payable under, (i) any underlying assets of a CLO which pay
interest linked to a LIBOR rate and (ii) the CLO securities in which the Company invests.
If LIBOR is eliminated as a benchmark
rate, it is uncertain whether broad replacement conventions in the CLO markets will develop and, if conventions develop, what those conventions
will be and whether they will create adverse consequences for the issuer or the holders of CLO securities. If no replacement conventions
develop, it is uncertain what effect broadly divergent interest rate calculation methodologies in the markets will have on the price and
liquidity of CLO securities and the ability of the collateral manager to effectively mitigate interest rate risks. While the issuers and
the trustee of a CLO may enter into a reference rate amendment or the collateral manager may designate a designated reference rate, in
each case, subject to the conditions described in a CLO indenture, there can be no assurance that a change to any alternative benchmark
rate (a) will be adopted, (b) will effectively mitigate interest rate risks or result in an equivalent methodology for determining the
interest rates on the floating rate
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
instrument, (c) will be adopted
prior to any date on which the issuer suffers adverse consequences from the elimination or modification or potential elimination or modification
of LIBOR or (d) will not have a material adverse effect on the holders of the CLO securities.
In addition, the effect of a phase
out of LIBOR on U.S. senior secured loans, the underlying assets of CLOs, is currently unclear. To the extent that any replacement rate
utilized for senior secured loans differs from that utilized for a CLO that holds those loans, the CLO would experience an interest rate
mismatch between its assets and liabilities, which could have an adverse impact on the Company’s net investment income and portfolio
returns.
Low Interest Rate Environment
As of the date of the financial
statements, interest rates in the United States are near historic lows due to the U.S. Federal Reserve’s lowering of certain interest
rates as part of its efforts to ease the economic effects of the COVID-19 pandemic. With the historically low interest rates, there is
a risk that interest rates will rise once the COVID-19 pandemic abates. The senior secured loans underlying the CLOs in which the Company
invests typically have floating interest rates. A rising interest rate environment may increase loan defaults, resulting in losses for
the CLOs in which the Company invests. In addition, increasing interest rates may lead to higher prepayment rates, as corporate borrowers
look to avoid escalating interest payments or refinance floating rate loans. Further, a general rise in interest rates will increase the
financing costs of the CLOs. However, since many of the senior secured loans within these CLOs have LIBOR floors, if LIBOR is below the
applicable LIBOR floor (which can typically range from 0.00% to 1.00% depending on the loan), there may not be corresponding increases
in investment income, which could result in the CLO not having adequate cash to make interest or other payments on the securities which
the Company holds.
Leverage Risk
The Company has incurred leverage
through the Credit Facility, and the Company may incur additional leverage, directly or indirectly, through one or more special purpose
vehicles, including indebtedness for borrowed money and leverage in the form of derivative transactions, repurchase agreement transactions,
short sale transactions, shares of preferred stock and other structures and instruments, in significant amounts and on terms the Adviser
and the Board deem appropriate, subject to applicable limitations under the 1940 Act. Such leverage may be used for the acquisition and
financing of the Company’s investments, to pay fees and expenses and for other purposes. Any such leverage does not include embedded
or inherent leverage in CLO structures in which the Company invests or in derivative instruments in which the Company may invest. Accordingly,
there is effectively a layering of leverage in the Company’s overall structure. The more leverage is employed, the more likely a
substantial change will occur in the Company’s net asset value (“NAV”). For instance, any decrease in the Company’s
income would cause net income to decline more sharply than it would have had the Company not borrowed. In addition, any event adversely
affecting the value of an investment would be magnified to the extent leverage is utilized.
Highly Subordinated and Leveraged Securities Risk
The Company’s portfolio
includes junior debt and equity investments in CLOs, which involve a number of significant risks. CLO junior debt and equity securities
are typically very highly leveraged (with CLO equity securities typically being leveraged nine to thirteen times), and therefore the junior
debt and equity tranches in which the Company invests are subject to a higher degree of risk of total loss. In particular, investors in
CLO securities indirectly bear risks of the collateral held by such CLOs. The Company generally has the right to receive payments only
from the CLOs, and generally does not have direct rights against the underlying borrowers or the entity that sponsored the CLO.
Credit Risk
If a CLO in which the Company
invests, an underlying asset of any such CLO or 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 either or both the Company’s income and NAV may be adversely impacted. Non-payment would result in a reduction of the Company’s
income, a reduction in the value of the applicable CLO security or other credit investment experiencing non-payment and, potentially,
a decrease in the Company’s NAV. To the extent the credit rating assigned to a security in the Company’s portfolio is downgraded,
the market price and liquidity of such security may be adversely affected. In addition, if a CLO in
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
which the Company
invests triggers an event of default as a result of failing to make payments when due or for other reasons, the CLO would be subject to
the possibility of liquidation, which could result in full loss of value to the CLO junior debt and equity investors. CLO equity tranches
are the most likely tranche to suffer a loss of all of their value in those circumstances.
Low Or Unrated Securities Risks
The Company invests
primarily in securities that are rated below investment grade or, in the case of CLO equity securities, are not rated by a national securities
rating service. The primary assets underlying the CLO security investments are senior secured loans, although these transactions may allow
for limited exposure to other asset classes including unsecured loans, high yield bonds, emerging market loans or bonds and structured
finance securities with underlying exposure to collateralized loan obligation and other collateralized debt obligation tranches, residential
mortgage backed securities, commercial mortgage backed securities, trust preferred securities and other types of securitizations. CLOs
generally invest in lower-rated debt securities that are typically rated below Baa/BBB by Moody’s, S&P or Fitch. In addition,
the Company may obtain direct exposure to such financial assets/instruments. Securities that are not rated or are rated lower than Baa
by Moody’s or lower than BBB by S&P or Fitch are sometimes referred to as “high yield” or “junk.” High-yield
debt securities have greater credit and liquidity risk than investment grade obligations. High-yield debt securities are generally unsecured
and may be subordinated to certain other obligations of the issuer thereof. The lower rating of high-yield debt securities and below investment
grade loans reflects a greater possibility that adverse changes in the financial condition of an issuer or in general economic conditions
or both may impair the ability of the issuer thereof to make payments of principal or interest.
|
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 three months ended March 31, 2021, the Company was charged a management fee of $386,358, all of which
was payable as of March 31, 2021.
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 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
Eagle Point Income
Company Inc.
Notes
to the Financial Statements
March 31, 2021
(Unaudited)
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 three months ended March 31, 2021, the Company was charged a total of $132,368 in administration fees consisting of $104,506 and $27,862,
relating to services provided by the Administrator and SS&C, respectively, which are included in the Statement of Operations, and
of which $104,506 was payable as of March 31, 2021 and reflected on the Statement of Assets and Liabilities.
Affiliated Ownership
As of March 31, 2021,
the Adviser and its affiliates and senior investment team held an aggregate of 0.80% of the Company’s common stock. In addition,
an affiliate of Enstar holds an indirect non-controlling ownership interest in the Adviser. As of March 31, 2021, subsidiaries of Enstar,
including Cavello Bay, held an aggregate of 61.6% of the Company’s common stock.
On October 16, 2018,
the Company converted from a Delaware limited liability company into a Delaware corporation. At the time of the Conversion, the Members
of EP Income Company LLC became stockholders of Eagle Point Income Company Inc. and were issued an aggregate of 3,769,596 shares of common
stock, par value of $0.001 per share.
In May 2019, the Company
issued 886,563 shares of common stock pursuant to a private placement at an average net price per share to the Company of $20.11, which
represented the applicable NAV per share of common stock. Of such average net price per share of common stock, $19.10 per share was paid
by investors participating in the private placement and $1.01 per share was contributed to the Company by an affiliate of the Adviser.
As a result, the Company received total net proceeds of $17,832,932 in connection with the private placement, $897,481 of which was contributed
by an affiliate of the Adviser.
On
July 23, 2019, the Company priced its IPO and sold an additional 1,200,000 shares of common stock at a public offering price of $19.89
per share, resulting in gross proceeds to the Company of $23,868,000. In addition, the underwriters partially exercised the overallotment
option granted to them in connection with the IPO and purchased 162,114 shares, resulting in additional gross proceeds of $3,224,447.
The Adviser and its affiliates paid the full amount of the sales load of $1.3 million or approximately $1.00 per share of common stock
issued in the offering (excluding shares sold to the Company’s board of directors, the Adviser, its affiliates, and employees of
the Adviser and its affiliates). As the sales load was paid solely by the Adviser and its affiliates, the sales load did not reduce the
NAV per share of the Company’s common stock. The Company reimbursed $750,000 or $0.1246 per share of common stock to the Adviser
and its affiliates in offering costs incurred prior to or in connection with the IPO. This cost was borne by all common stockholders as
a charge to paid-in capital. The Company utilized the net proceeds from the IPO to acquire investments in accordance with the Company’s
investment objectives and strategies and for general working capital purposes.
On July 24, 2019,
the Company’s shares began trading on the NYSE under the symbol “EIC”.
On November 22, 2019
the Company launched an ATM offering to sell up to $14,500,000 aggregate amount of its common stock, pursuant to a prospectus supplement
filed with the SEC on November 22, 2019 and additional supplements thereafter. The offering expired on May 29, 2020.
On May 29, 2020, the
Company filed a new shelf registration statement with 150,000,000 shares of common stock authorized, of which 6,100,248 shares were issued
and outstanding at the time of filing.
On June 1, 2020 the Company launched a
new ATM offering to sell up to $7,500,000 aggregate amount of its
Eagle Point
Income Company Inc.
Notes to the Financial Statements
March 31, 2021
(Unaudited)
common stock, pursuant to a prospectus
supplement filed with the SEC on June 1, 2020 and additional supplements thereafter.
As of March 31, 2021, there were 150,000,000
shares of common stock authorized, of which 6,106,458 shares were issued and outstanding.
|
6.
|
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 March 31, 2021,
the Company had no unfunded commitments.
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.
|
8.
|
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.
Consistent with the
ability to utilize leverage, on September 27, 2019, the Company entered into a senior secured revolving credit facility (the “Credit
Facility”) with Société Générale. Pursuant to the terms of the Credit Facility, the Company can borrow
up to an aggregate principal balance of $30,000,000 (the “Commitment Amount”). Such borrowings under the Credit Facility bear
interest at 3 month LIBOR plus a spread. The Company is required to pay a commitment fee of 0.25% on the unused amount, which is subject
to change based on the terms of the Credit Facility.
For the three months
ended March 31, 2021, the Company had an average outstanding borrowing and average interest rate of $18,260,056 and 1.86%, respectively.
The interest expense for the three months ended March 31, 2021 on the Credit Facility was $114,015, inclusive of the commitment fee, and
is recorded on the Statement of Operations. As of March 31, 2021, the current outstanding borrowing amount was $19,125,000, which is presented
net of unamortized deferred financing costs of $29,044 on the Statement of Assets and Liabilities.
The Credit Facility
will mature on the earlier of (i) the termination of the Commitment, as defined by the terms of the Credit Facility or (ii) the scheduled
maturity date of September 27, 2021.
See Note 9 “Asset
Coverage” for further discussion on the Company’s calculation of asset coverage with respect to the Credit Facility.
Eagle Point
Income Company Inc.
Notes to the Financial Statements
March 31, 2021
(Unaudited)
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 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 consolidated
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 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 consolidated 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
Credit Facility require the Company to cure any breach of the applicable asset coverage if the Company fails to maintain the applicable
asset coverage.
As of March 31,
2021, the Company’s asset coverage of senior securities representing indebtedness was 640%, which is above the minimum requirement
of 300%. Asset coverage is calculated in accordance with Section 18(h) of the 1940 act, as generally described above.
All references
in the Company’s prospectus to the interpretations and guidance of the SEC and its staff regarding asset segregation and cover practices
and to the SEC’s proposed rulemaking related to the use of derivatives and certain other transactions by registered investment companies,
including under the headings “Risk Factors—Risks Relating to Our Business and Structure—We are subject to the risk of
legislative and regulatory changes impacting our business or the markets in which we invest—Derivative Investments,” “Regulation
as a Closed-End Management Investment Company—General—Asset Segregation and Coverage” and “Additional Investments
and Techniques— Short Sales,” are supplemented and replaced with the following.
In October 2020,
the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain
other transactions by registered investment companies. Rule 18f-4 in effect rescinds and withdraws the guidance of the SEC and its staff
regarding asset segregation and cover practices with respect to such transactions.
Rule 18f-4 permits
the Company to enter into derivatives and other transactions that create future payment or delivery obligations, including short sales,
notwithstanding the senior security provisions of the 1940 Act if the Company complies with certain value-at-risk (“VaR”)
leverage limits and derivatives risk management program and board oversight and reporting requirements or complies with a “limited
derivatives users” exception. The Company has elected to rely on the limited derivatives users exception. The Company may change
this election and comply with the other provisions of Rule 18f-4 related to derivatives transactions at any time and without notice. To
satisfy the limited derivatives users exception, the Company has adopted and implemented written policies and procedures reasonably designed
to manage the Company’s derivatives risk and limit its derivatives exposure in accordance with Rule 18f-4. Rule 18f-4 also permits
the Company to enter into reverse repurchase agreements or similar financing transactions notwithstanding the senior security provisions
of the 1940 Act if the Company aggregates the amount of indebtedness associated with its reverse repurchase agreements or similar financing
transactions with the aggregate amount of any other senior securities representing indebtedness when calculating the Company’s asset
coverage ratios as discussed above or treats all such transactions as derivatives transactions for all purposes under Rule 18f-4.
In connection with the Company’s
election to rely on Rule 18f-4, the Company will no longer consider the guidance
Eagle Point
Income Company Inc.
Notes to the Financial Statements
March 31, 2021
(Unaudited)
of the SEC and its staff regarding asset
segregation and cover practices in determining how the Company will comply with Section 18 with respect to the Company’s use of
derivatives and the other transactions that Rule 18f-4 addresses.
|
10.
|
RECENT ACCOUNTING AND TAX PRONOUNCEMENTS
|
In October 2020,
FASB issued Accounting Standards Update No. 2020-08 (“ASU 2020-08”), Receivables — Nonrefundable Fees and Other Costs
(Codification Improvements Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. ASU 2020-08 is an update
of Accounting Standards Update No. 2017-08, which amends the amortization period of certain purchased callable debt securities held at
a premium. ASU 2020-08 updates the amortization period for callable debt securities to be amortized to the next call date. For purposes
of this update, the next call date is the first date when a call option at a specified price becomes exercisable. Once that date has passed,
the next call date is when the next call option at a specified price becomes exercisable, if applicable. The amendments are effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company has fully adopted the
provisions of ASU 2020-08, which did not have a significant impact on the financial statements and related disclosures of the Company.
On April 30, 2021
the Company paid an aggregate distribution of $519,049 or $0.085 per share to holders of record on April 12, 2021. The Company previously
declared two separate distributions of $0.085 per share on its common stock. The distributions are payable on each of May 28, 2021 and
June 30, 2021 to holders of record as of May 10, 2021 and June 10, 2021, respectively.
On May 13, 2021
the Company declared three separate distributions of $0.09 per share on its common stock. The distributions are payable on each of July
30, 2021, August 31, 2021 and September 30, 2021 to holders of record as of July 12, 2021, August 11, 2021 and September 10, 2021, respectively.
As of May 17, 2021,
the aggregate outstanding principal amount borrowed by the Company from the Credit Facility was $17,055,000.
Management’s
unaudited estimate of the range of the Company’s NAV per common share as of April 30, 2021 was $17.36 to $17.40.
On May 13, 2021
the Company’s Board of Directors approved an increase in the percentage of the Company’s total assets which may be invested
in CLO equity securities. Effective immediately, the Company may invest up to 25% of total assets (at the time of investment) in unrated
CLO equity securities and related securities and instruments.
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.
Eagle Point Income Company Inc.
Financial
Highlights
(Unaudited)
|
|
For the three
|
|
|
|
|
|
|
|
|
For the period
from
|
|
|
|
months ended
|
|
|
For the year ended
|
|
|
For the year ended
|
|
|
October 16,
2018
|
|
Per
Share Data
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
to
December 31, 2018
|
|
Net
asset value, beginning of period
|
|
$
|
16.89
|
|
|
$
|
19.34
|
|
|
$
|
18.28
|
|
|
$
|
20.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income, before fee waivers and expenses reimbursed (1)
|
|
|
0.27
|
|
|
|
1.27
|
|
|
|
1.15
|
|
|
|
0.10
|
|
Management
fee voluntarily waived by the Adviser (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
0.08
|
|
|
|
0.05
|
|
Expenses
reimbursed by the Adviser (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
0.06
|
|
|
|
0.20
|
|
Administration
fee voluntarily waived by the Administrator (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
0.03
|
|
|
|
-
|
|
Net
investment income
|
|
|
0.27
|
|
|
|
1.27
|
|
|
|
1.32
|
|
|
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss) and
change in unrealized appreciation (depreciation) on investments (1) (2)
|
|
|
(0.02
|
)
|
|
|
(2.21
|
)
|
|
|
0.70
|
|
|
|
(1.72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) and net increase (decrease) in net assets resulting from operations
|
|
|
0.25
|
|
|
|
(0.94
|
)
|
|
|
2.02
|
|
|
|
(1.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock distributions from net investment income (3)
|
|
|
(0.24
|
)
|
|
|
(1.32
|
)
|
|
|
(0.69
|
)
|
|
|
(0.35
|
)
|
Common
stock distributions from net realized gains on investments (3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
stock distributions from tax return of capital (3)
|
|
|
-
|
|
|
|
(0.18
|
)
|
|
|
-
|
|
|
|
-
|
|
Total
common stock distributions declared to stockholders (3)
|
|
|
(0.24
|
)
|
|
|
(1.50
|
)
|
|
|
(0.69
|
)
|
|
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock distributions based on weighted average shares impact
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.15
|
)
|
|
|
-
|
|
Total
common stock distributions
|
|
|
(0.24
|
)
|
|
|
(1.50
|
)
|
|
|
(0.84
|
)
|
|
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of shares issued (4)
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.19
|
)
|
|
|
|
|
Effect of underwriting discounts,
commissions and offering expenses associated with shares issued (4)
|
|
|
-
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Effect
of offering expenses associated with shares issued (5)
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.12
|
)
|
|
|
|
|
Effect
of paid-in capital contribution (6)
|
|
|
-
|
|
|
|
-
|
|
|
|
0.19
|
|
|
|
|
|
Net
effect of shares issued
|
|
|
-
|
|
|
|
(0.01
|
)
|
|
|
(0.12
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value at end of period
|
|
$
|
16.90
|
|
|
$
|
16.89
|
|
|
$
|
19.34
|
|
|
$
|
18.28
|
|
Per
share market value at beginning of period (7)
|
|
$
|
14.41
|
|
|
$
|
18.76
|
|
|
$
|
19.89
|
|
|
|
N/A
|
|
Per
share market value at end of period
|
|
$
|
15.24
|
|
|
$
|
14.41
|
|
|
$
|
18.76
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
return, based on market value (8)
|
|
|
7.45%
|
|
|
|
(14.07%
|
)
|
|
|
(2.27%
|
)
|
|
|
N/A
|
|
Total
return, based on net asset value (9)
|
|
|
1.48%
|
|
|
|
(4.91%
|
)
|
|
|
9.56%
|
|
|
|
(6.85%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of common stock outstanding at end of period
|
|
|
6,106,458
|
|
|
|
6,106,458
|
|
|
|
6,018,273
|
|
|
|
3,769,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
and Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value at end of period
|
|
$
|
103,211,423
|
|
|
$
|
103,120,136
|
|
|
$
|
116,408,383
|
|
|
$
|
68,923,362
|
|
Ratio
of net investment income to average net assets (10) (12)
|
|
|
6.24%
|
|
|
|
8.65%
|
|
|
|
6.67%
|
|
|
|
8.54%
|
|
Ratio of expenses, before fee
waivers and expenses reimbursed, to average net assets (10) (11) (12)
|
|
|
3.68%
|
|
|
|
3.99%
|
|
|
|
2.75%
|
|
|
|
3.12%
|
|
Ratio of expenses, after fee
waivers and expenses reimbursed, to average net assets (10) (11) (12)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1.89%
|
|
|
|
0.00%
|
|
Portfolio
turnover rate (13)
|
|
|
7.28%
|
|
|
|
29.14%
|
|
|
|
11.42%
|
|
|
|
2.35%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
amount outstanding at end of period
|
|
$
|
19,125,000
|
|
|
$
|
14,815,000
|
|
|
$
|
13,743,000
|
|
|
$
|
-
|
|
Asset
coverage per $1,000 at end of period (14)
|
|
$
|
6,396.68
|
|
|
$
|
7,960.52
|
|
|
$
|
9,470.38
|
|
|
$
|
-
|
|
Eagle Point
Income Company Inc.
Financial
Highlights
(Unaudited)
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)
|
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
the 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.
|
|
(3)
|
The
information provided is based on estimates available at each respective period. The final
tax characteristics of the Company’s earnings cannot be determined until tax returns
are filed after the end of the fiscal year and may vary from these estimates.
|
|
(4)
|
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 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.
|
|
(5)
|
Represents
the effect per share of offering expenses incurred prior to or in connection with the Company’s
IPO. Please refer to Note 5 “Common Stock” for further discussion relating to
the Company’s reimbursement of offering expenses.
|
|
(6)
|
Represents
the effect of the paid-in capital contribution made by an affiliate of the Adviser pursuant
to a private placement in May 2019. Please refer to Note 5 “Common Stock”
for further discussion relating to the contribution made by an affiliate of the Adviser.
|
|
(7)
|
Represents
the IPO price as of July 23, 2019 for the year ended December 31, 2019.
|
|
(8)
|
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. Total return for the period
ended March 31, 2021 is not annualized.
|
|
(9)
|
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.
|
|
(10)
|
Ratios
for the three months ended March 31, 2021 and 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.
|
|
(11)
|
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.
|
|
(12)
|
Ratios
for the three months ended March 31, 2021, the year ended December 31, 2020 and
for the year ended December 31, 2019 include interest expense on the credit facility
of 0.44%, 0.60% and 0.04% of average net assets, respectively. Ratios for the year ended
December 31, 2019 include excise tax expense of 0.10% of average net assets.
|
|
(13)
|
The
portfolio turnover rate is calculated as the lesser of total investment purchases executed
during the period or the total of investment sales executed during the period and repayments
of principal, divided by the average fair value of the investments for the same period. The
portfolio rate for the three months ended March 31, 2021 is not annualized.
|
|
(14)
|
The
asset coverage per unit figure is the ratio of the Company’s total assets, less all
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.
|
Eagle Point
Income Company Inc.
Financial
Highlights
(Unaudited)
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.
Eagle Point
Income Company Inc.
Supplemental
Information
(Unaudited)
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.
|
|
|
|
Total Principal Amount
|
|
|
Asset Coverage per $ 1,000 of
|
|
Fiscal Period Ended
|
|
Title of Security
|
|
Outstanding
|
|
|
Principal
Amount (1)
|
|
March 31, 2021
|
|
Credit Facility (Société Générale)
|
|
$
|
19,125,000
|
|
|
$
|
6,396.68
|
|
December 31, 2020
|
|
Credit Facility (Société Générale)
|
|
$
|
14,815,000
|
|
|
$
|
7,960.52
|
|
December 31, 2019
|
|
Credit Facility (Société Générale)
|
|
$
|
13,743,000
|
|
|
$
|
9,470.38
|
|
|
(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
(i.e., total borrowings under 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 of indebtedness.
|
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