The Annual Report to stockholders of Eagle Point Income Company Inc.
(the “Company”) for the year ended December 31, 2021 is filed herewith.
LETTER TO STOCKHOLDERS
AND MANAGEMENT DISCUSSION OF COMPANY PERFORMANCE
Dear
Fellow Stockholders:
We
are pleased to provide you with the enclosed report of Eagle Point Income Company Inc. (“we,” “us,” “our”
or the “Company”) for the fiscal year ended December 31, 2021.
The
Company’s primary investment objective is to generate high current income, with a secondary objective to generate capital appreciation.
We seek to achieve these objectives by investing primarily in junior debt tranches of collateralized loan obligations (“CLOs”)
rated “BB” (e.g., BB+, BB or BB-, or their equivalent). In addition, the Company may invest up to 35% of its total assets
(at the time of investment) in CLO equity securities and other securities and instruments that are consistent with our investment objectives.
While
the CLO market continues to command attention from investors worldwide, we believe the CLO market, and CLO junior debt in particular,
remains inefficient and attractive. In less efficient markets, specialization matters and the Company benefits from the investment experience
of Eagle Point Income Management LLC (our “Adviser”), which applies its proprietary, private equity style investment process
to this fixed income market. This process seeks to maximize returns while mitigating potential risks. We believe the scale and experience
of our Adviser and its affiliates in CLO investing provides the Company with meaningful advantages.
2021
was a successful and transformative year for the Company. For the year, the Company generated a GAAP return to common equity of 7.96%4.
Shareholders benefited from three increases in our common distribution during the year. Assuming common shareholders reinvested their distributions received during the year, they enjoyed a 26.55% total return
during 20211. Additionally, the Company declared a special distribution
in December 2021. On February 14, 2022, the Company declared a further increase in our monthly common distributions beginning
in the second quarter of 2022.
During
2021, we transformed the Company’s balance sheet, refinancing our revolving credit facility (at a lower cost) and issuing a new
5-year Series A Term Preferred Stock due 2026 (the “Series A Term Preferred Stock”) at a very attractive 5% fixed coupon.
The Company has deployed much of the capital we raised into additional CLO debt and equity investments seeking to further increase net
investment income (“NII”) on a sustainable basis moving forward. While CLO junior debt remains the significant majority of
the Company’s portfolio, our Board made the decision during 2021 to increase our portfolio’s CLO equity exposure to up to
35% of total assets (measured at the time of investment), in an effort to further enhance the Company’s earning ability and benefit
from the Adviser’s expertise in CLO equity investing.
Past
performance is not indicative of, or a guarantee of, future performance.
Please see page 11 for endnotes. | 2 |
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Those
actions, along with our Adviser’s proactive management of the portfolio, helped allow the Company to generate stronger cash flows
and consistently grow NII on a quarterly basis during the year.2
For
the year ended December 31, 2021, the Company had an increase in net assets resulting from operations of $8.0 million, or $1.29 per weighted
average common share3 (inclusive of unrealized gains). This represents a return on our common equity of approximately 7.96%
for the year ended December 31, 2021.4 During the year, we paid $1.13 per share in cash distributions to our common stockholders.
From December 31, 2020 through December 31, 2021, the Company’s net asset value (“NAV”) declined slightly by 0.8% from
$16.89 per common share to $16.76. Our December 31, 2021 NAV includes the impact of declaring a special distribution on shares of our
common stock (as described below) related to the estimated amount of remaining undistributed taxable income pertaining to the 2021 tax
year. Had we not declared a special distribution, our NAV would have increased during the year.
All
of our CLO equity and debt holdings continue to pay as scheduled. Despite the significant decline in LIBOR versus late 2019, our cash
collections were ahead of pre-pandemic levels during 2021. With the Fed now signaling multiple rate increases during 2022 and the coupons
on our CLO debt securities all being floating rate, we could see additional upside to the income they currently generate during the course
of the year. For the year ended December 31, 2021, recurring cash flows were $13.4 million, or $2.16 per weighted average common share,
exceeding total expenses and our regular common distributions by $0.10 per weighted average common share.
Beginning
in January 2022, in lieu of LIBOR, substantially all U.S. CLO transactions will be issued using SOFR as their reference rates. SOFR is
another short-term rate and is generally expected to increase as the Fed raises short-term Treasury rates. Our existing CLOs, which typically
use LIBOR as their reference rate, are expected to gradually change their reference rates to SOFR once the majority of the loans in their
portfolios pay interest based off of SOFR. We do not expect the transition from LIBOR to SOFR to have a material impact on the Company.
As
of January 31, 2022, management’s unaudited estimate of the range of the Company’s NAV per common share was between $16.89
and $16.93. The midpoint of this range represents an increase of 0.9% compared to the NAV per common share as of December 31, 2021. As
of February 11, 2022, we have $7.2 million in cash and available borrowing capacity on our balance sheet. We believe our portfolio continues
to provide long-term fundamental value, and believe the rising rate envinonrment and the increased exposure to CLO equity will further
enhance the portfolio’s earning ability.
Past
performance is not indicative of, or a guarantee of, future performance.
Please see page 11 for endnotes. | 3 |
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Company
Overview
Common Stock
The
Company’s common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “EIC.” As of December
31, 2021, the NAV per share of the Company’s common stock was $16.76. The trading price of our common stock may, and often does,
differ from NAV per share.
The
closing price per share of our common stock was $17.03 on December 31, 2021, representing a 1.61% premium to NAV per share as of such
date.5
As
of February 11, 2022, the closing price per share of common stock was $17.04, a premium of 0.77% compared to the midpoint of management’s
unaudited and estimated NAV range of $16.89 to $16.93 as of January 31, 2022.
During
the year ended December 31, 2021, the Company paid to common stockholders aggregate distributions totaling $1.13 per share of common
stock. An investor who purchased common stock as part of our IPO in July 2019 has
received total cash distributions of $3.31 per share through December 31, 2021. A portion of these distributions was comprised of a
return of capital.6
For
the year ended December 31, 2021, the Company recorded NII and realized capital gains of $1.05 per weighted average common share. This
amount is net of non-recurring expenses of $0.21 per weighted average common share related to the Company’s Series A Term Preferred
Stock issued during the fourth quarter. Excluding the non-recurring expenses, the Company’s NII and realized capital gains exceeded
common distributions for 2021.
We
also want to highlight the Company’s dividend reinvestment plan for common stockholders. This plan allows common stockholders to
have their distributions automatically reinvested into new shares of common stock. If the prevailing market price of our common stock
exceeds our NAV per share, such reinvestment is at a discount (up to five percent) to the prevailing market price. If the prevailing
market price of our common stock is less than our NAV per share, such reinvestment is at the prevailing market price. We encourage all
common stockholders to carefully review the terms of the plan. See “Dividend Reinvestment Plan” in the enclosed
report.
Past performance is not indicative of,
or a guarantee of, future performance.
Please see page 11 for endnotes. | 4 |
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Other Securities
In
addition to our common stock, the Company has one other security which trades on the NYSE, summarized below:
Security | |
NYSE
Symbol | |
Par Amount
Outstanding | |
Rate | | |
Payment
Frequency | |
Callable | |
Maturity |
5.00% Series A Term Preferred Stock due 2026 | |
EICA | |
$35.0 million | |
| 5.00% | | |
Monthly | |
October 2023 | |
October 2026 |
The
Company took advantage of attractive market conditions during 2021, issuing its Series A Term Preferred Stock in October 2021 at a fixed
coupon of 5.00%, including the full exercise of the “greenshoe,” and receiving net proceeds of approximately $33.6 million
after payment of underwriting discounts, commissions, and offering expenses. The fixed rate financing provides us with added certainty
in a rising rate environment.
Leverage
As
of December 31, 2021, we had $19.6 million in outstanding borrowings from the Company’s $25 million revolving credit facility.
This, coupled with our Series A Term Preferred Stock, represents leverage of 32.0% of total assets.
Over
the long term, management expects the Company to operate under normal market conditions generally with leverage of between 25% and 35%
of total assets (less current liabilities). Based on applicable market conditions at any given time, or should significant opportunities
present themselves, the Company may incur leverage in excess of this amount, subject to applicable regulatory and contractual limits.
Monthly
Common Distributions
The
Company declared and paid three monthly distributions of $0.08 per share of common stock from January 2021 through March 2021, three
monthly distributions of $0.085 per share of common stock from April 2021 through June 2021, three monthly distributions of $0.09 per
share of common stock from July 2021 through September 2021, and three monthly distributions of $0.12 per share of common stock from
October 2021 through December 2021. The Company paid a cumulative $1.13 per share of common stock in 2021.
We
intend to continue declaring monthly distributions on shares of our common stock, although we note that the actual frequency, components
and amount of such distributions are subject to variation over time.
Past performance
is not indicative of, or a guarantee of, future performance.
Please see page 11 for endnotes. | 5 |
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Special Distributions to Common Stock
In
order to maintain our tax status as a regulated investment company (“RIC”), the Company is generally required to pay distributions
to holders of its common stock in an amount equal to substantially all of the Company’s taxable income within one year of the end
of its tax year.
For
our tax year ending December 31, 2021, we estimate taxable income will exceed the aggregate amount distributed to common stockholders
for the same time period. As a result, the Company declared a special distribution of $0.20 per common share that was paid on January
24, 2022 to stockholders of record as of December 23, 2021. The Company’s final taxable income and the actual amount required to
be distributed in respect of the tax year ended December 31, 2021 will be finally determined when the Company files its final tax returns. As of the date of
this report, the Company has incurred a 4% excise tax on the estimated amount of remaining undistributed taxable income pertaining to
the 2021 tax year, which is estimated to be $0.01 per weighted average common share and which is recorded as a liability in the Company’s
December 31, 2021 financial results.
Portfolio
Overview
2021
Portfolio Update
For
the year ended December 31, 2021, the Company generated NII and realized gains from our portfolio of $6.5 million, or approximately $1.05
per weighted average common share.
For
the year ended December 31, 2021, the Company made 32 new CLO debt and equity investments with total purchase proceeds of approximately
$87 million. The CLO debt purchased had a weighted average yield of 8.02% at the time of purchase. The CLO equity securities that we
purchased had a weighted average effective yield (“WAEY”) of 16.32% at the time of purchase.
As
of December 31, 2021, we had 61 CLO investments in our portfolio, the large majority of which are BB-rated (or the equivalent) CLO debt.
The WAEY on the aggregate portfolio of CLO debt and equity investments was 10.77%, based on amortized cost, as of such date.
For
the year ended December 31, 2021, the Company had an increase in net assets resulting from operations of $8.0 million, or $1.29 per weighted
average common share (inclusive of unrealized gains and losses). We believe the portfolio remains positioned favorably for 2022. With
the prospects of multiple interest rate increases this year, we believe our portfolio of floating rate investments has the potential
to perform very well.
Past performance
is not indicative of, or a guarantee of, future performance.
Please see page 11 for endnotes. | 6 |
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Our
Adviser continues to evaluate investment opportunities on our behalf both in the primary and secondary markets. Maintaining exposure
to varied CLO vintage periods remains an important part of our investment approach.
Included
within the enclosed report, you will find detailed portfolio information, including certain look-through information related to the underlying
collateral characteristics of the investments that we held as of December 31, 2021.
Market
Overview7
Loan Market
Senior
secured loans to larger US companies comprise the vast majority of our CLOs’ underlying portfolios. The Credit Suisse Leverage
Loan Index8 (“CSLLI”), which is a broad index followed by many tracking the corporate loan market, generated a
total return of 5.40% in 2021. 2021 marked the 28th year of positive total returns for the CSLLI in its 30 years of existence,
reflecting the strength of the underlying loans that form the raw material of CLOs.
Despite
the positive performance of the asset class, relative value trading opportunities presented themselves via bouts of volatility over the
course of the year. The percentage of loans trading above par shifted throughout the year, hitting a low of 6% during November’s
omicron-led volatility and a peak of 35% during the February 2021 loan rally. At year-end, only 15% of the loan market was priced at
par or higher, well below the pre-pandemic figure of 53% in 2019. With a large number of loans trading at a discount, many CLO collateral
managers saw sufficient opportunities to trade and rotate portfolios.
Loan
upgrades are a meaningful metric for CLO portfolios. As of December 2021, upgrades had outpaced downgrades for 14 out of the last 15
months, and the upgrade to downgrade ratio for U.S. leveraged loans during that period was 2:1. Strong corporate fundamentals including
balance sheet liquidity, positive earnings trends, de-leveraging activity and an ability to further extend debt maturities supported
the improvement in credit ratings for many U.S. companies. Approximately 60% of loan issuers that were downgraded in 2020 saw a reversal
in their rating in 2021. As a result, the concentration of lower-rated loans held by CLOs decreased significantly, leading to an improvement
in underlying portfolio quality and an increase in many CLOs’ overcollateralization ratios.
Retail
loan funds experienced regular net inflows throughout the year, a reversal from prior years of consistent net outflows. For 2021, mutual
funds and ETFs investing in U.S. leveraged loans experienced net inflows of $47 billion, a stark contrast to net outflows of $27 billion
in 2020.9 Demand for these funds from non-institutional investors was net positive for 48 out of 52 weeks during the year.
The high-yield mutual fund/ETF market, by comparison, recorded $13 billion of net outflows in 2021. With anticipated interest rate hikes
likely for this year, the narrative of
Past performance
is not indicative of, or a guarantee of, future performance.
Please see page 11 for endnotes. | 7 |
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investors
moving from fixed to floating rate instruments is expected to make loans an attractive asset class.
Historically
low yields and an anticipated rising rate environment fueled a surge in investor demand for floating rate debt. Institutional loan issuance
exceeded prior annual records to finish 2021 at $613 billion. Total institutional loans outstanding stood at $1.35 trillion as of December
31, 2021.
The
par-weighted default rate for U.S. leveraged loans has fallen for 14 consecutive months into October, and finished the year at 0.29%,
narrowly missing the all-time historical low of 0.15% for the asset class. This compares to 3.83% in 2020 and the long-term default rate
of 2.8%.10 For eight consecutive months, the combined default activity across loan and bond markets averages less than two
corporate actions each month. Looking into 2022, loan default expectations remain muted. J.P. Morgan recently released loan default forecasts
of 0.75% for 2022 and 1.25% for 2023.
We
remain aware of greater leverage used by many borrowers in the loan the market (and in our underlying portfolios). Currently, however,
the vast majority of the maturity wall is pushed out to 2025 and later. Only 12.0% of the loans in the portfolios of our underlying CLO
junior debt and equity positions mature prior to 2025.
CLO Market
New
issuance in the CLO market remained a headline for much of 2021, with quarterly primary CLO volumes surpassing their prior records over
consecutive quarters throughout 2021. Driven by a heavy and persistent appetite for floating rate instruments paired with attractive
new issue arbitrage levels, total new CLO issuance in 2021 totaled $187 billion, doubling the total from 2020 of $94 billion and easily
surpassing the previous record of $129 billion set back in 2018.
Despite
the strong supply, the CLO equity arbitrage remained balanced throughout the year, as most CLOs were driven by economic third party equity
investors rather than return-agnostic captive funds. Favorable market conditions, plentiful loan supply and an expansion of investors
interested in CLO debt supported an increase in the number of CLO collateral managers that priced multiple new CLOs during the year,
as well as several new issuers in the market.
We
view the growth of players in the CLO market as a net positive. Indeed, given the breadth and depth of our experience as CLO investors,
part of our playbook is identifying talented collateral managers and specific drivers of performance within the asset class. CLOs are
nuanced structures and the ability to navigate the many provisions and tests within a CLO requires a unique combination of credit expertise,
relative trading ability and portfolio management. We believe we are partnered with CLO collateral managers that are the best at what
they do.
Past performance
is not indicative of, or a guarantee of, future performance.
Please see page 11 for endnotes. | 8 |
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During
the year, demand for CLO debt kept spreads at relatively low levels. Average U.S. CLO AAA debt spreads remained inside 120 basis points
over LIBOR throughout the year. Similar tightening occurred at all points in the CLO debt stack. Absent a handful of spikes of short-term
volatility, average AAA debt costs ranged from 115 basis points over LIBOR in the first quarter to a peak of 118 basis points in the
third quarter. These tights compare to a pre-pandemic level of 134 basis points over LIBOR at the end of 2019.
Reset
and refinancing transactions reached new highs in 2021. A backlog of eligible and “in-the-money” CLOs, principally those
priced with higher debt costs in 2017 and 2019 as well as short-dated 2020 CLOs, encouraged managers to take advantage of the attractive
economics to lock in lower go-forward debt costs. Full year 2021 reset volume of $138 billion surpassed the all time high of $122 billion
set in 2018, while refinancing volume of $113 billion also topped the previous high of $102 billion set in 2017. Looking into 2022, we
expect reset and refinancing activity to remain strong but moderate on a relative basis. While we expect debt spreads to be attractive
over the near term, the remaining number of CLOs presently eligible to be reset or refinanced is smaller compared to 2021.
As
we look forward into 2022, our Adviser expects approximately $160 billion of primary CLO issuance, along with approximately $125 billion
of resets and $110 billion of refinancing transactions.
Additional
Information
In
addition to the Company’s regulatory requirement to file certain quarterly and annual portfolio information as described further
in the enclosed report, the Company makes certain unaudited portfolio information available each month on its website in addition to
making certain other unaudited financial information available on its website (www.eaglepointincome.com). This information includes (1)
an estimated range of the Company’s NII and realized capital gains or losses per share of common stock for each calendar quarter
end, generally made available within the first fifteen days after the applicable calendar month end, (2) an estimated range of the Company’s
NAV per share of common stock for the prior month end and certain additional portfolio-level information, generally made available within
the first fifteen days after the applicable calendar month end, and (3) during the latter part of each month, an updated estimate of
the Company’s NAV per share of common stock, if applicable, and, with respect to each calendar quarter end, an updated estimate
of the Company’s NII and realized capital gains or losses per share for the applicable quarter, if available.
Subsequent
Developments
Management’s
unaudited estimate of the range of the Company’s NAV per share of common stock was between $16.89 and $16.93 as of January 31,
2022. The midpoint of this range represents an increase of 0.9% compared to the NAV
per common share as of December 31, 2021.
Past performance
is not indicative of, or a guarantee of, future performance.
Please see page 11 for endnotes. | 9 |
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On
January 24, 2022, the Company paid a special distribution of $0.20 per common share to stockholders of record on December 23, 2021.
On
January 31, 2022, the Company paid a monthly distribution of $0.12 per common share to stockholders of record on January 11, 2022. Additionally,
and as previously announced, the Company declared distributions of $0.12 per share of common stock payable on each of February 28, 2022
and March 31, 2022, to holders of record on February 8, 2022 and March 11, 2022, respectively. The Company subsequently declared distributions
of $0.125 per share of common stock payable on April 29, 2022, May 31, 2022 and June 30, 2022 to holders of record on April 11, 2022,
May 11, 2022 and June 10, 2022, respectively.
On
January 31, 2022, the Company paid a monthly distribution of $0.104167 per share of the Company’s Series A Term Preferred Stock
to holders of record on January 11, 2022. Additionally, and as previously announced, the Company declared distributions of $0.104167
per share on Series A Term Preferred Stock, payable on each of February 28, 2022, March 31, 2022, April 29, 2022, May 31, 2022 and June
30, 2022 to holders of record on February 8, 2022, March 11, 2022, April 11, 2022, May 11, 2022 and June 10, 2022, respectively.
As
of February 11, 2022, the Company had $7.2 million of cash available for investment, inclusive of the undrawn commitment in the revolving
credit facility.
*
* * * *
Management
remains keenly focused on continuing to create value for our stockholders. We appreciate the trust and confidence our fellow stockholders
have placed in the Company.
Thomas
Majewski
Chairman and Chief
Executive Officer
This
letter is intended to assist stockholders in understanding the Company’s performance during the twelve months ended December 31,
2021. The views and opinions in this letter were current as of February 11, 2022. Statements other than those of historical facts included
herein may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks
and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors.
The Company undertakes no duty to update any forward-looking statement made herein. Information contained on our website is not incorporated
by reference into this stockholder letter and you should not consider information contained on our website to be part of this stockholder
letter or any other report we file with the Securities and Exchange Commission.
Past
performance is not indicative of, or a guarantee of, future performance.
Please see page 11 for endnotes. | 10 |
ABOUT
OUR ADVISER
Eagle
Point Income Management LLC is a specialist asset manager focused exclusively on investing in CLO securities and other income-oriented
credit. As of December 31, 2021, our Adviser had approximately $6.9 billion of assets under management (inclusive of undrawn capital
commitments).11
Notes
1 | Total
return 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. Total return does not reflect any sales load. |
2 | Excluding
non-recurring expenses of $0.21 per weighted average common share related to the Company’s
Series A Term Preferred Stock issued during the fourth quarter. |
3 | “Weighted
average common share” is calculated based on the average daily number of shares of
common stock outstanding during the period and “per common share” refers to per
share of the Company’s common stock. |
4 | Return
on our common equity reflects the Company’s cumulative monthly performance net of applicable
expenses and fees measured against beginning capital adjusted for any common equity issued
during the period. |
5 | An
investment company trades at a premium when the market price at which its shares trade is
more than its net asset value per share. Alternatively, an investment company trades at a
discount when the market price at which its shares trade is less than its net asset value
per share. |
6 | To
date, a portion of common stock distributions has been estimated to be a return of capital
as noted under the Tax Information section on the Company’s website. The actual components
of the Company's distributions for U.S. tax reporting purposes can only be finally determined
as of the end of each fiscal year of the Company and are thereafter reported on Form 1099-DIV. A distribution comprised in whole or in part
by a return of capital does not necessarily reflect the Company’s investment performance
and should not be confused with “yield” or “income.” Future distributions
may consist of a return of capital. Not a guarantee of future distributions or yield. |
7 | JPMorgan
Chase & Co.; S&P Capital IQ; S&P LCD; Credit Suisse. |
8 | The
CSLLI tracks the investable universe of the US dollar-denominated leveraged loan market.
The performance of an index is not an exact representation of any particular investment,
as you cannot invest directly in an index. |
9 | JPMorgan
Chase & Co. North American Credit Research – JPM High Yield and Leveraged Loan
Research (cumulative 2021 reports). |
10 | “Par-weighted
default rate” represents the rate of obligors who fail to remain current on their loans
based on the par amount. |
11 | Calculated
in the aggregate with its affiliate Eagle Point Credit Management LLC. |
Past
performance is not indicative of, or a guarantee of, future performance.
Please see page 11 for endnotes. | 11 |
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Important
Information about this Report and Eagle Point Income Company
Inc.
This
report is transmitted to the stockholders of Eagle Point Income Company Inc. (“we”, “us”, “our” or
the “Company”) and is furnished pursuant to certain regulatory requirements. This report and the information and views herein
do not constitute investment advice, or a recommendation or an offer to enter into any transaction with the Company or any of its affiliates.
This report is provided for informational purposes only, does not constitute an offer to sell securities of the Company and is not a
prospectus. From time to time, the Company may have a registration statement relating to one or more of its securities on file with the
US Securities and Exchange Commission (“SEC”). Any registration statement that has not yet been declared effective by the
SEC, and any prospectus relating thereto, is not complete and may be changed. Any securities that are the subject of such a registration
statement may not be sold until the registration statement filed with the SEC is effective.
The
information and its contents are the property of Eagle Point Income Management LLC (the “Adviser”) and/or the Company. Any
unauthorized dissemination, copying or use of this presentation is strictly prohibited and may be in violation of law. This presentation
is being provided for informational purposes only.
Investors
should read the Company’s prospectus and SEC filings (which are publicly available on the EDGAR Database on the SEC website at
http://www.sec.gov) carefully and consider their investment goals, time horizons and risk tolerance before investing in the Company.
Investors should consider the Company’s investment objectives and policies, risks, charges and expenses carefully before investing
in securities of the Company. There is no guarantee that any of the goals, targets or objectives described in this report will be achieved.
An
investment in the Company is not appropriate for all investors. The investment program of the Company is speculative, entails substantial
risk and includes investment techniques not employed by traditional mutual funds. An investment in the Company is not intended to be
a complete investment program. Shares of closed-end investment companies, such as the Company, frequently trade at a discount from their
net asset value (“NAV”), which may increase investors’ risk of loss. Past performance is not indicative of, or a guarantee
of, future performance. The performance and certain other portfolio information quoted herein represents information as of December 31,
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.
Eagle Point Income Company Inc.
The
following information in this annual report is a summary of certain changes during the fiscal year ended December 31, 2021. This information
may not reflect all of the changes that have occurred since you purchased shares of our common stock.
During
the applicable period, there have been: (i) no material changes to the Company’s investment objectives and policies that
have not been approved by shareholders, (ii) no material changes to the Company’s principal risks, (iii) no changes to the persons
primarily responsible for day-to-day management of the Company; and (iv) no changes to the Company’s charter or bylaws that would
delay or prevent a change of control of the Company, except as follows:
| · | At
its meeting held on August 10, 2021, the Company’s Board of Directors approved an increase
in the maximum percentage of the Company’s total assets that may be invested in CLO
equity securities from 25% to 35% (measured at the time of investment). The Board had previously
approved an increase in the Company’s maximum CLO equity allocation from 20% to 25%
at at the Board’s May 13, 2021 meeting. |
Investment
Objectives and Strategies
We
are an externally managed, non-diversified closed-end management investment company that has registered as an investment company under
the Investment Company Act of 1940, as amended (the “1940 Act”). We have elected to be treated, and intend to qualify annually,
as a regulated investment company, or “RIC,” under Subchapter M of the
Internal Revenue Code of 1986, as amended, or the “Code,” beginning with our tax year ended December 31, 2018. We were formed
on September 28, 2018 as EP Income Company LLC, a Delaware limited liability company, and converted into a Delaware corporation on October
16, 2018.
Our
primary investment objective is to generate high current income, with a secondary objective to generate capital appreciation. We seek
to achieve our investment objectives by investing primarily in junior debt tranches of CLOs, that are collateralized by a portfolio consisting
primarily of below investment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry
sectors. We focus on CLO debt tranches rated “BB” (e.g., BB+, BB or BB-, or their equivalent) by Moody’s, S&P,
or Fitch, and/or other applicable nationally recognized statistical rating organizations. We may also invest in other junior debt tranches
of CLOs, senior debt tranches of CLOs and other related securities and instruments. In addition, we may invest up to 35% of our total
assets (at the time of investment) in CLO equity securities. We expect our investments in CLO equity securities to primarily reflect
minority ownership positions. We may also invest in other securities and instruments that the Adviser believes are consistent with our
investment objectives such as securities issued by other securitization vehicles (such as collateralized bond obligations or “CBOs”).
The amount that we will invest in other securities and instruments, which may include investments in debt and other securities issued
by CLOs collateralized by non-U.S. loans or securities of other collective investment vehicles, will vary from time to time and, as such,
may constitute a material part of our portfolio on any given date, all as based on the Adviser’s assessment of prevailing market
conditions. The CLO securities in which we primarily seek to invest are rated below investment grade or, in the case of CLO equity securities,
are unrated and are considered speculative with respect to timely payment of interest and repayment of principal. Below investment grade
and unrated securities are also sometimes referred to as “junk” securities.
These
investment objectives are not fundamental policies of ours and may be changed by our board of directors without prior approval of our
stockholders.
Investment
Restrictions
Our
investment objectives and our investment policies and strategies, except for the eight investment restrictions designated as fundamental
policies under this caption, are not fundamental and may be changed by the board of directors without stockholder approval.
The
following eight investment restrictions are designated as fundamental policies and, as such, cannot be changed without the approval of
the holders of a majority of our outstanding voting securities:
| 1. | We
may not borrow money, except as permitted by (i) the 1940 Act, or interpretations or modifications
by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive
or other relief or permission from the SEC, SEC staff or other authority with appropriate
jurisdiction; |
| 2. | We
may not engage in the business of underwriting securities issued by others, except to the
extent that we may be deemed to be an underwriter in connection with the disposition of portfolio
securities; |
| 3. | We
may not purchase or sell physical commodities or contracts for the purchase or sale of physical
commodities. Physical commodities do not include futures contracts with respect to securities,
securities indices, currency or other financial instruments; |
| 4. | We
may not purchase or sell real estate, which term does not include securities of companies
which deal in real estate or mortgages or investments secured by real estate or interests
therein, except that we reserve freedom of action to hold and to sell real estate acquired
as a result of our ownership of securities; |
| 5. | We
may not make loans, except to the extent permitted by (i) the 1940 Act, or interpretations
or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction,
or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority
with appropriate jurisdiction. For purposes of this investment restriction, the purchase
of debt obligations (including acquisitions of loans, loan participations or other forms
of debt instruments) shall not constitute loans by us; |
| 6. | We
may not issue senior securities, except to the extent permitted by (i) the 1940 Act, or interpretations
or modifications by the SEC, the SEC staff or other authority with appropriate jurisdiction,
or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority
with appropriate jurisdiction; |
Please see footnote disclosures on page 20. | 14 |
| 7. | We
may not invest in any security if as a result of such investment, 25% or more of the value
of our total assets, taken at market value at the time of each investment, are in the securities
of issuers in any particular industry or group of industries except (a) securities issued
or guaranteed by the U.S. government and its agencies and instrumentalities or tax-exempt
securities of state and municipal governments or their political subdivisions (however, not
including private purpose industrial development bonds issued on behalf of non-government
issuers), or (b) as otherwise provided by the 1940 Act, as amended from time to time, and
as modified or supplemented from time to time by (i) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, and (ii) any exemption or other
relief applicable to us from the provisions of the 1940 Act, as amended from time to time.
For purposes of this restriction, in the case of investments in loan participations between
us and a bank or other lending institution participating out the loan, we will treat both
the lending bank or other lending institution and the borrower as “issuers.”
For purposes of this restriction, an investment in a CLO, collateralized bond obligation,
collateralized debt obligation or a swap or other derivative will be considered to be an
investment in the industry or group of industries (if any) of the underlying or reference
security, instrument or asset; and |
| 8. | We
may not engage in short sales, purchases on margin, or the writing of put or call options,
except as permitted by (i) the 1940 Act, or interpretations or modifications by the SEC,
SEC staff or other authority with appropriate jurisdiction or (ii) exemptive or other relief
or permission from the SEC, SEC staff or other authority with appropriate jurisdiction. |
The
latter part of certain of our fundamental investment restrictions (i.e., the references to “except to the extent permitted
by (i) the 1940 Act, or interpretations or modifications by the SEC, the SEC staff or other authority with appropriate jurisdiction,
or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction”) provides
us with flexibility to change our limitations in connection with changes in applicable law, rules, regulations or exemptive relief. The
language used in these restrictions provides the necessary flexibility to allow our board of directors to respond efficiently to these
kinds of developments without the delay and expense of a stockholder meeting.
Whenever
an investment policy or investment restriction set forth in this report or in our prospectus states a maximum percentage of assets that
may be invested in any security or other asset, or describes a policy regarding quality standards, such percentage limitation or standard
shall be determined immediately after and as a result of our acquisition of such security or asset. Accordingly, any later increase or
decrease resulting from a change in values, assets or other circumstances or any subsequent rating change made by a rating agency (or
as determined by the Adviser if the security is not rated by a rating agency) will not compel us to dispose of such security or other
asset. Notwithstanding the foregoing, we must always be in compliance with the borrowing policies set forth above.
Risk
Factors
The
value of our assets, as well as the market price of our securities, will fluctuate. Our investments should be considered risky, and you
may lose all or part of your investment in us. Investors should consider their financial situation and needs, other investments, investment
goals, investment experience, time horizons, liquidity needs and risk tolerance before investing in our securities. An investment in
our securities may be speculative in that it involves a high degree of risk and should not be considered a complete investment program.
We are designed primarily as a long-term investment vehicle, and our securities are not an appropriate investment for a short-term trading
strategy. We can offer no assurance that returns, if any, on our investments will be commensurate with the risk of investment in us,
nor can we provide any assurance that enough appropriate investments that meet our investment criteria will be available.
The
following is a summary of certain principal risks of an investment in us. See the section “Risk Factors” in our prospectus
for a more complete discussion of the risks of investing in our securities, including certain risks not summarized below.
Key
Personnel Risk. We are dependent upon the key personnel of the Adviser and certain
of our Adviser’s affiliates for our future success.
Conflicts
of Interest Risk. Our executive officers and directors, and the Adviser and certain of its affiliates and their officers and employees,
including the senior investment team, have several conflicts of interest as a result of the other activities in which they engage.
Interest
Rate Risk. The price of certain of our investments may be significantly affected
by changes in interest rates. Interest rates in the United States are near historic lows, which increases our exposure to risks associated
with rising interest rates.
Please see footnote disclosures on page 20. | 15 |
Prepayment
Risk. The assets underlying the CLO securities in which we invest are subject to prepayment by the underlying corporate borrowers.
In addition, the CLO securities and related investments in which we invest are subject to prepayment risk. If we or a CLO collateral
manager are unable to reinvest prepaid amounts in a new investment with an expected rate of return at least equal to that of the investment
repaid, our investment performance will be adversely impacted.
LIBOR
Risk. The CLO equity and debt securities in which we invest earn interest at, and CLOs in which we invest typically obtain financing
at, a floating rate based on LIBOR. After the global financial crisis, regulators globally determined that existing interest rate benchmarks
should be reformed based on concerns that LIBOR was susceptible to manipulation. In a speech on July 27, 2017, the then-Chief Executive
of the Financial Conduct Authority of the UK (the “FCA”) announced the FCA’s intention to cease sustaining LIBOR. On
March 5, 2021, the FCA announced that all LIBOR settings would 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.
At this time, it is not possible to predict the effect of the establishment of SOFR, SONIA or any other replacement rates or any other
reforms to LIBOR. In addition, the effect of a phase out of LIBOR on U.S. senior secured loans, the underlying assets of the CLOs in
which we invest, is currently unclear. In addition, based on supervisory guidance from regulators, many banks were expected to cease
issuance of new LIBOR-based instruments by January 1, 2022. To the extent that any LIBOR replacement rate utilized for senior secured
loans differs from that utilized for debt of a CLO that holds those loans (including instances where the replacement rate is utilized
for such loans prior to it being utilized by the CLO), for the duration of such mismatch, the CLO would experience an interest rate mismatch
between its assets and liabilities, which would be expected to have an adverse impact on the cash flows distributed to CLO equity investors
as well as our net investment income and portfolio returns until such mismatch is corrected or minimized, which would be expected to
occur when both the underlying senior secured loans and the CLO debt securities utilize the same LIBOR replacement rate. As of the date
hereof, certain senior secured loans have already transitioned to utilizing SOFR based interest rates and newly issued CLO debt securities
have begun to transition to such replacement rate..
Liquidity
Risk. Generally, there is no public market for the CLO investments we target. As
such, we may not be able to sell such investments quickly, or at all. If we are able to sell such investments, the prices we receive
may not reflect our assessment of their fair value or the amount paid for such investments by us.
Management
Fee Risk. Our management fee structure may incentivize the Adviser to use leverage in a manner that adversely impacts our performance.
Subordinated
Securities. CLO junior debt and equity securities that we may acquire are subordinated to more senior tranches of CLO debt. CLO junior
debt and equity securities are subject to increased risks of default relative to the holders of superior priority interests in the same
CLO. Though not exclusively, we will typically be in a subordinated position with respect to realized losses on the underlying assets
held by the CLOs in which we are invested.
High-Yield
Investment Risk. The CLO junior debt and equity securities that we acquire are typically rated below investment grade or, in the
case of equity securities, unrated and are therefore considered “higher-yield” or “junk” securities and are considered
speculative with respect to timely payment of interest and repayment of principal. The senior secured loans and other credit-related
assets underlying CLOs are also typically higher-yield investments. Investing in CLO junior debt and equity securities and other high-yield
investments involves greater credit and liquidity risk than investment grade obligations, which may adversely impact our performance.
Risks
of Investing in CLOs and Other Structured Debt Securities. CLOs and other structured finance securities are generally backed by a
pool of credit-related assets that serve as collateral. Accordingly, CLO and structured finance securities present risks similar to those
of other types of credit investments, including default (credit), interest rate and prepayment risks. In addition, CLOs and other structured
finance securities are often governed by a complex series of legal documents and contracts, which increases the risk of dispute over
the interpretation and enforceability of such documents relative to other
Please see footnote disclosures on page 20. | 16 |
types
of investments. There is also a risk that the trustee of a CLO does not properly carry out its duties to the CLO, potentially resulting
in loss to the CLO. CLOs are also inherently leveraged vehicles and are subject to leverage risk.
Leverage
Risk. The use of leverage, whether directly or indirectly through borrowing from
the credit facility with Société Générale (the “Credit Facility”) or investments such as CLO
junior debt and equity securities that inherently involve leverage, may magnify our risk of loss. CLO junior debt and equity securities
are very highly leveraged (with CLO equity securities typically being leveraged approximately ten times), and therefore the CLO securities
in which we invest are subject to a higher degree of loss since the use of leverage magnifies losses.
We
have incurred leverage through the use of borrowings and the issuance of our preferred stock. We may incur additional leverage, directly
or indirectly, through one or more special purpose vehicles, indebtedness for borrowed money, as well as leverage in the form of derivative
transactions, shares of additional preferred stock, debt securities and other structures and instruments, in significant amounts and
on terms that the Adviser and our board of directors deem appropriate, subject to applicable limitations under the 1940 Act. Such leverage
may be used for the acquisition and financing of our investments, to pay fees and expenses and for other purposes. Such leverage may
be secured and/or unsecured. The more leverage we employ, the more likely a substantial change will occur in our NAV. Accordingly, any
event that adversely affects the value of an investment would be magnified to the extent leverage is utilized. The cumulative effect
of the use of leverage with respect to any investments in a market that moves adversely to such investments could result in a substantial
loss that would be greater than if our investments were not leveraged.
The
following table is intended to illustrate the effect of the use of direct leverage on returns from an investment in our common stock
assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher
or lower than those appearing in the table below.
Assumed Return on Our Portfolio (Net of Expenses) | |
-10% | | |
-5% | | |
0% | | |
5% | | |
10% | |
Corresponding return to common stockholder(1) | |
| -17.63 | % | |
| -9.83 | % | |
| -2.03 | % | |
| 5.77 | % | |
| 13.57 | % |
| (1) | Assumes
(i) $180.9 million in pro forma total assets as of December 31, 2021 (adjusted to reflect
(a) the issuance in the Company’s “at-the-market” offering of 38,773 shares
of our common stock and 121,649 shares of our Series A Term Preferred Stock from January
1, 2022 through February 11, 2022, yielding net proceeds to the Company of approximately
$3.7 million; and (b) the hypothetical borrowings of the full $25,000,000 available under
the BNP Credit Facility); (ii) $116.0 million in pro forma net assets as of December 31,
2021 (adjusted to reflect the issuances and borrowings described above); and (iii) an annualized
average interest rate on our indebtedness and preferred equity, as of December 31, 2021 (adjusted
to reflect the issuances and borrowings described above), of 3.73%. |
Based
on our assumed leverage described above, our investment portfolio would have been required to experience an annual return of at least
1.30% to cover annual interest payments on our outstanding indebtedness.
Credit
Risk. If (1) a CLO in which we invest, (2) an underlying asset of any such CLO or (3) any other type of credit investment in our
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, our income, NAV and/or market price would be adversely impacted.
Fair
Valuation of Our Portfolio Investments. Generally there is no public market for the CLO investments we target. As a result, we value
these securities at least quarterly, or more frequently as may be required from time to time, at fair value. Our determinations of the
fair value of our investments have a material impact on our net earnings through the recording of unrealized appreciation or depreciation
of investments and may cause our NAV on a given date to understate or overstate, possibly materially, the value that we ultimately realize
on one or more of our investments.
Limited
Investment Opportunities Risk. The market for CLO securities is more limited than the market for other credit related investments.
We can offer no assurances that sufficient investment opportunities for our capital will be available.
Non-Diversification
Risk. We are a non-diversified investment company under the 1940 Act and expect to hold a narrower range of investments than a diversified
fund under the 1940 Act.
Market
Risk. Political, regulatory, economic and social developments, and developments that impact specific economic sectors, industries
or segments of the market, can affect the value of our investments. A disruption or downturn in the capital markets and the credit markets
could impair our ability to raise capital, reduce the availability of suitable investment
Please see footnote disclosures on page 20. | 17 |
opportunities
for us, or adversely and materially affect the value of our investments, any of which would negatively affect our business. These risks
may be magnified if certain events or developments adversely interrupt the global supply chain, and could affect companies worldwide.
Currency
Risk. Although we primarily make investments denominated in U.S. dollars, we may make investments denominated in other currencies.
Our investments denominated in currencies other than U.S. dollars will be subject to the risk that the value of such currency will decrease
in relation to the U.S. dollar.
Hedging
Risk. Hedging transactions seeking to reduce risks may result in poorer overall performance than if we had not engaged in such hedging
transactions, and they may also not properly hedge our risks.
Reinvestment
Risk. CLOs will typically generate cash from asset repayments and sales that may be reinvested in substitute assets, subject to compliance
with applicable investment tests. If the CLO collateral manager causes the CLO to purchase substitute assets at a lower yield than those
initially acquired (for example, during periods of loan compression or as may be required to satisfy a CLO’s covenants) or sale
proceeds are maintained temporarily in cash, it would reduce the excess interest-related cash flow, thereby having a negative effect
on the fair value of our assets and the market value of our securities. In addition, the reinvestment period for a CLO may terminate
early, which would cause the holders of the CLO’s securities to receive principal payments earlier than anticipated. There can
be no assurance that we will be able to reinvest such amounts in an alternative investment that provides a comparable return relative
to the credit risk assumed.
Refinancing
Risk. If we incur debt financing and subsequently refinance such debt, the replacement debt may be at a higher cost and on less
favorable terms and conditions. If we fail to extend, refinance or replace such debt financings prior to their maturity on commercially
reasonable terms, our liquidity will be lower than it would have been with the benefit of such financings, which would limit our ability
to grow, and holders of our common stock would not benefit from the potential for increased returns on equity that incurring leverage
creates.
Tax
Risk. If we fail to qualify for tax treatment as a RIC under Subchapter M of the
Code for any reason, or become subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets,
the amount of income available for distributions, and the amount of such distributions, to our common stockholders and for payments to
the holders of our other obligations.
Derivatives
Risk. Derivative instruments in which we may invest may be volatile and involve various risks different from, and in certain cases
greater than, the risks presented by other instruments. The primary risks related to derivative transactions include counterparty, correlation,
liquidity, leverage, volatility, and OTC trading risks. In addition, a small investment in derivatives could have a large potential impact
on our performance, effecting a form of investment leverage on our portfolio. In certain types of derivative transactions, we could lose
the entire amount of our investment; in other types of derivative transactions the potential loss is theoretically unlimited.
Counterparty
Risk. We may be exposed to counterparty risk, which could make it difficult for us or the CLOs in which we invest to collect on obligations,
thereby resulting in potentially significant losses.
Global
Economy Risk. 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.
COVID-19
Pandemic Risk. The COVID-19 pandemic has created economic and financial disruptions and contributed to increased volatility in global
financial markets. The pandemic has affected certain countries, regions, companies, industries and market sectors more dramatically than
others and will likely continue to do so. It is not known how long the impact of the COVID-19 pandemic will 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.
Additional
Information
The
Company makes certain unaudited portfolio information available each month on its website in addition to making certain other unaudited
financial information available on its website (www.eaglepointincome.com). This information includes (1) an estimated range of the Company’s
net investment income (“NII”) and realized capital gains or losses per weighted average share of common stock for each calendar
quarter end, generally made available within the first fifteen days after the applicable
Please see footnote disclosures on page 20. | 18 |
calendar
month end, (2) an estimated range of the Company’s NAV per share of common stock for the prior month end and certain additional
portfolio-level information, generally made available within the first fifteen days after the applicable calendar month end, and (3)
during the latter part of each month, an updated estimate of NAV, if applicable, and, with respect to each calendar quarter end, an updated
estimate of the Company’s NII and realized capital gains or losses for the applicable quarter, if available.
Information
contained on our website is not incorporated by reference into this Annual Report and you should not consider information contained on
our website to be part of this Annual Report or any other report we file with the SEC.
Forward-Looking Statements
This
report may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Statements other than statements of historical facts included in this report may constitute forward-looking statements and are not guarantees
of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in
the forward-looking statements as a result of a number of factors, including those described in the Company’s filings with the
SEC. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as
of the date of this report.
Please see footnote disclosures on page 20. | 19 |
Notes
1 | Based
on the market price. Prices for October 16, 2018 (inception date) and December 31, 2018 represet
the Net Asset Value (“NAV”) per share. |
2 | The
performance of an index is not an exact representation of any particular investment, as you
cannot invest directly in an index. The index shown herein has not been selected to represent
a benchmark for a strategy’s performance, but is instead disclosed to allow for comparison
of the Company’s returns to that of known, recognized and/or similar indices. The S&P
BDC Index is intended to measure the performance of all Business Development Companies (BDCs)
that are listed on the NYSE or NASDAQ and satisfy market capitalization and other eligibility
requirements. Although EIC is not a BDC, BDCs generally invest in high yielding credit investments,
as does EIC. In addition, similar to EIC, BDCs generally elect to be classified as a regulated
investment company under the U.S. Internal Revenue Code of 1986, as amended, which generally
requires an investment company to distribute its taxable income to shareholders. |
3 | The
summary of portfolio investments shown is based on the estimated fair value of the underlying
positions as of December 31, 2021. Cash and borrowing capacity represents cash net of pending
trade settlements and includes available capacity on the Company’s credit facility
as of December 31, 2021. Borrowings under the credit facility are subject to applicable regulatory
and contractual limits. |
4 | The
information presented herein is on a look-through basis to the collateralized loan obligation,
or “CLO,” and other related investments held by the Company as of December 31,
2021 (except as otherwise noted) and reflects the aggregate underlying exposure of the Company
based on the portfolios of those investments. The data is estimated and unaudited and is
derived from CLO trustee reports received by the Company relating to December 2021 and from
custody statements and/or other information received from CLO collateral managers and other
third party sources. Information relating to the market price of underlying collateral is
as of month end; however, with respect to other information shown, depending on when such
information was received, the data may reflect a lag in the information reported. As such,
while this information was obtained from third party data sources, December 2021 trustee
reports and similar reports, other than market price, it does not reflect actual underlying
portfolio characteristics as of December 31, 2021 and this data may not be representative
of current or future holdings. The Weighted Average Remaining Reinvestment Period information
is based on the fair value of CLO equity and debt investments held by the Company at the
end of the reporting period. |
5 | Data
represents aggregate indirect exposure. We obtain exposure in underlying senior secured loans
indirectly through our CLO and related investments. |
6 | The
weighted average OC cushion senior to the security is calculated using the BBB OC cushion
for all BB-rated CLO debt securities in the portfolio and the BB OC cushion for all other
securities in the portfolio, in each case as held on December 31, 2021. |
7 | Credit
ratings shown are based on those assigned by Standard & Poor’s Rating Group, or
“S&P,” or, for comparison and informational purposes, if S&P does not
assign a rating to a particular obligor, the weighted average rating shown reflects the S&P
equivalent rating of a rating agency that rated the obligor provided that such other rating
is available with respect to a CLO or related investment held by us. In the event multiple
ratings are available, the lowest S&P rating, or if there is no S&P rating, the lowest
equivalent rating, is used. The ratings of specific borrowings by an obligor may differ from
the rating assigned to the obligor and may differ among rating agencies. For certain obligors,
no rating is available in the reports received by the Company. Such obligors are not shown
in the graphs and, accordingly, the sum of the percentages in the graphs may not equal 100%.
Ratings below BBB- are below investment grade. Further information regarding S&P’s
rating methodology and definitions may be found on its website (www.standardandpoors.com).
|
8 | Industry
categories are based on the S&P industry categorization of each obligor as reported in
CLO trustee reports to the extent so reported. Certain CLO trustee reports do not report
the industry category of all of the underlying obligors and where such information is not
reported, it is not included in the summary look-through industry information shown. As such,
the Company’s exposure to a particular industry may be higher than that shown if industry
categories were available for all underlying obligors. In addition, certain underlying obligors
may be re-classified from time to time based on developments in their respective businesses
and/or market practices. Accordingly, certain underlying borrowers that are currently, or
were previously, summarized as a single borrower in a particular industry may in current
or future periods be reflected as multiple borrowers or in a different industry, as applicable. |
9 | Certain
CLO trustee reports do not provide the industry classification for certain underlying obligors.
These obligors are not summarized in the look-through industry data shown; if they were reflected,
they would represent 9.4%. |
Please see footnote disclosures on page 20. | 20 |
Performance
Data1,2
The
following graph shows the market price performance of a $10,000 investment in the Company’s common shares for the period from October
16, 2018 (inception) through December 31, 2021. The performance calculation assumes the purchase of Company shares at net asset value
for the beginning of the period (prior to the Compay’s public listing) and the sale of Company shares at the market price at the
end of the period. Ending values for each year are as of December 31 of the applicable year. As the Company’s IPO ocurred in July
2019, the value used for the Company’s performance as of December 31, 2018 reflects the Company’s then-current net asset
value per share. For comparative purposes, the performance of a relevant third-party securities market index, the S&P BDC Index,
is shown. Distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Company’s
dividend reinvestment plan. Returns do not reflect the deduction of taxes that a shareholder would pay on Company distributions or the
sale of Company shares.
Past
performance is not indicative of, or a guarantee of, future performance. Future results may vary and may be higher or lower than the
data shown.