The Annual Report to stockholders of Eagle Point Income Company Inc. (the
“Company”) for the year ended December 31, 2022 is filed herewith.
Eagle Point Income Company Inc.
LETTER
TO STOCKHOLDERS AND MANAGEMENT DISCUSSION OF COMPANY PERFORMANCE
Dear Fellow Stockholders:
We are pleased to provide you with the enclosed report
of Eagle Point Income Company Inc. (“we,” “us,” “our” or the “Company”) for the fiscal
year ended December 31, 2022.
The Company’s primary investment objective is
to generate high current income, with a secondary objective to generate capital appreciation. We seek to achieve these objectives by investing
primarily in junior debt tranches of collateralized loan obligations (“CLOs”) rated “BB” (e.g., BB+, BB or BB-,
or their equivalent). In addition, the Company may invest up to 35% of its total assets (at the time of investment) in CLO equity securities
and other securities and instruments that are consistent with our investment objectives.
While the CLO market continues to command attention
from investors worldwide, we believe the CLO market, and CLO junior debt in particular, remains inefficient and attractive. In less efficient
markets, specialization matters and the Company benefits from the investment experience of Eagle Point Income Management LLC (our “Adviser”),
which applies its proprietary, private equity style investment process to this fixed income market. This process seeks to maximize returns
while mitigating potential risks. We believe the scale and experience of our Adviser and its affiliates in CLO investing provides the
Company with meaningful advantages.
The rapidly rising interest rate environment in 2022
was materially positive for our portfolio of CLO junior debt securities. Indeed, during the year, the interest rates on our CLO junior
debt increased significantly, driving materially higher recurring cash flows and net investment income compared to 2021.
Our Adviser’s proactive management of the portfolio,
coupled with the rapidly rising interest rate environment, allowed us to:
|
· |
Grow net investment income (“NII”) from
$0.35 per weighted average common share1 in the first quarter to $0.52 in the fourth quarter, excluding non-recurring expenses. |
|
· |
Significantly increase recurring cash flows for the
year ended December 31, 2022 to $21.0 million, or $2.97 per weighted average common share. This exceeded our total expenses and regular
common distributions by $0.39 per weighted average common share. This compares to recurring cash flows of $13.4 million, or $2.16 million
per weighted average common share, collected during 2021. |
Past performance is not indicative
of, or a guarantee of, future performance.
Please see page 12 for endnotes.
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|
· |
Strengthen our balance sheet via our “at-the-market”
program by raising $14 million in new capital at a premium to NAV, and deploy the cash opportunistically into new CLO debt and equity
investments. |
|
· |
Increase our common distribution twice during the year
to $0.14 per share. In addition, the Company declared a further increase in our monthly common distributions to $0.16 per share beginning
in January 2023, doubling the monthly distribution versus what was paid during the first quarter of 2021. |
While CLO junior debt remains the
significant majority of the Company’s portfolio, our portfolio’s CLO equity exposure continues to help enhance the Company’s
earning ability. We believe CLOs, with their strong structural protections and self-correcting mechanisms, are well positioned to weather,
and capitalize upon, periods of market volatility. We believe the performance of our portfolio over the past couple of years has demonstrated
the resilience of the Company’s investment strategy.
For the year ended December 31,
2022, the Company had a decrease in net assets resulting from operations of $15.9 million, or $2.26 per weighted average common share
(inclusive of unrealized mark-to-market losses). This represents a GAAP ROE of -14.12% during the year.2 From December 31,
2021 through December 31, 2022, primarily due to unrealized depreciation on investments, the Company’s net asset value (“NAV”)
declined from $16.76 per common share to $12.91. The change was principally driven by price changes on many of our assets which were driven
by spread widening during the year and not due to impairment of any asset in our portfolio.
During the year, we paid $1.73
per share in cash distributions to our common stockholders. Our portfolio is designed to generate strong cash flow and the performance
of our portfolio allowed us to pay cash distributions to shareholders during the year equal to 10.91% of our average stock price.
As of January 31, 2023, management’s
unaudited estimate of the range of the Company’s NAV per common share was between $13.67 and $13.77. The midpoint of this range
represents an increase of 6.3% compared to the NAV per common share as of December 31, 2022. As of February 15, 2023, we have $25.7 million
in cash and available borrowing capacity on our balance sheet.
Past performance is not indicative
of, or a guarantee of, future performance.
Please see page 12 for endnotes.
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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, 2022, the
NAV per share of the Company’s common stock was $12.91.
The trading price of our common stock may, and often does, differ from NAV per share. The closing price per share of our common stock
was $13.87
on December 31, 2022, representing a 7.44%
premium to NAV per share as of year end.3
In connection with
our “at-the-market” offering program, the Company sold 1.0 million shares of common stock during the year for total net proceeds
to the Company of approximately $14 million. The common stock issuance resulted in NAV accretion of $0.11 per weighted average common
share.
During 2022, the
Company paid to common stockholders aggregate cash distributions totaling $1.73 per common share. This was comprised of $1.53 in monthly
distributions and a $0.20 per share special distribution on January 24, 2022. At year-end, an investor who purchased common stock as part
of our IPO in July 2019 has received total cash distributions of $5.04 per share, over 25% of the IPO price. A portion of these distributions
was comprised of a return of capital.4
For the year ended
December 31, 2022, the Company recorded NII and realized capital gains of $1.65 per weighted average common share, which exceeded regular
monthly common distributions paid in 2022. Excluding non-recurring expenses related to certain fees paid in relation to a committed equity
financing arrangement and the Federal excise tax on our spillover income, our NII and realized capital gains was $1.76 per weighted average
common share.
As of January 31,
2023, the closing price per share of common stock was $14.10,
reflecting a premium of 2.77%
compared to the midpoint of management’s unaudited and estimated NAV range of $13.67
to $13.77
as of January month-end.
We also highlight
the Company’s dividend reinvestment plan for common stockholders. This plan allows common stockholders to have their distributions
automatically reinvested into new shares of common stock. If the prevailing market price of our common stock exceeds our NAV per share,
such reinvestment is at a discount (up to five percent) to the prevailing market price. If the prevailing market price of our common stock
is less than our NAV per share, such reinvestment is at the prevailing market price, subject to the terms in the DRIP. We encourage all
common stockholders to carefully review the terms of the plan. See “Dividend Reinvestment Plan” in
the enclosed report.
Past performance is not indicative
of, or a guarantee of, future performance.
Please see page 12 for endnotes.
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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 |
$38.0
million |
5.00% |
Monthly |
October
2023 |
October
2026 |
Leverage
As of December 31,
2022, we had $9.0 million in outstanding borrowings from the Company’s $25 million revolving credit facility. This, coupled with
our Series A Term Preferred Stock, represented leverage of 32.0% of total assets.
Over the long term,
management expects the Company to operate under normal market conditions generally with leverage of between 25% and 35% of total assets
(less current liabilities). Based on applicable market conditions at any given time, or should significant opportunities present themselves,
the Company may incur leverage in excess of this amount, subject to applicable regulatory and contractual limits.
Monthly Common Distributions
The Company declared
and paid three monthly distributions of $0.12 per share of common stock from January 2022 through March 2022, six monthly distributions
of $0.125 per share of common stock from April 2022 through September 2022 and three monthly distributions of $0.14 per share of common
stock from October 2022 through December 2022. The Company paid a total of $1.53 per common share of monthly distributions during 2022.4
In addition, the Company also paid a special cash distribution of $0.20 per share in January 2022.
We intend to continue
declaring monthly distributions on shares of our common stock, although we note that the actual frequency, components and amount of such
distributions are subject to variation over time.
Past performance is not indicative
of, or a guarantee of, future performance.
Please see page 12 for endnotes.
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Portfolio
Overview
2022 Portfolio Update
For the year ended
December 31, 2022, the Company deployed $14.4 million in net capital into CLO debt and equity investments. The CLO debt that we purchased
had a weighted average yield of 10.23% at the time of purchase. The CLO equity securities that we purchased had a weighted average effective
yield (“WAEY”) of 14.58% at the time of purchase.
As of December 31,
2022, we had 62 CLO investments in our portfolio, the large majority of which are BB-rated (or the equivalent) CLO junior debt. At year-end,
the WAEY on the aggregate portfolio of CLO debt and equity investments was 12.82%, based on amortized cost. This compares to 10.77% as
of December 31, 2021.
During 2022, the
Company collected recurring cash flows of $21.0 million, or $2.97 per weighted average common share. This exceeded total expenses and
our regular common distribution by $0.39 per weighted average common share. This was a significant increase compared to our 2021 recurring
cash flows, which totaled $13.4 million, or $2.16 per weighted average common share.
Our Adviser continues
to evaluate attractive investment opportunities on our behalf both in the primary and secondary markets. Maintaining exposure to varied
CLO vintage periods remains an important part of our investment approach.
Included within
the enclosed report, you will find detailed portfolio information, including certain look-through information related to the underlying
collateral characteristics of the CLO investments that we held as of December 31, 2022.
Past performance is not indicative
of, or a guarantee of, future performance.
Please see page 12 for endnotes.
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Market Overview
Loan Market
The Credit Suisse
Leverage Loan Index5 (“CSLLI”) generated a total return of -1.06% in 2022. This represents only the third negative
year for the CSLLI in its 31 years of existence, and notably, in only one year was the annual return materially negative (2008: -28.75%).
As a testament to the robust nature of the loan asset class, there have never been two consecutive years with annual declines in the loan
market.
On a relative basis,
the floating-rate loan asset class has continued to exhibit greater resilience and outperformance versus many other risk assets. In a
persistently volatile year, the modestly negative return for loans compares favorably against the significant losses in other risk assets;
equities, high-yield and investment grade returned -18%, -11% and -16%6, respectively, during the year.
Loan price volatility
was a predominant theme in 2022, fueled by increasing inflation, looming recessionary fears and Fed-driven rate hikes. The loan market
experienced significant swings over the course of the year, in both directions, with daily gains and losses of over 20 basis points on
nearly 50 separate trading dates. The average price of the CSLLI finished the year at 91.89, almost seven points below January’s
peak, and just slightly above the low of 91.54 recorded in early July. Overall, lower-rated loans underperformed their higher quality
peers, a reversal from 2021 when investors favored riskier assets in a pursuit for yield.
At year-end, approximately
20% of the loan market was priced below 90. With a significant share of high-quality issuers trading at discounted prices, CLO collateral
managers were well positioned to improve underlying loan portfolios through relative value credit selection in the secondary market, as
well as take advantage of a high-quality primary market, at discounted prices.
In a reversal from
2021, retail loan funds experienced regular net outflows throughout the year as mutual funds and ETF investors rotated out of risk assets,
despite the strong upward movement in rates. For 2022, mutual funds and ETFs investing in U.S. leveraged loans experienced net outflows
of $13 billion, compared to net inflows of $47 billion in 2021.7 The high-yield mutual fund/ETF market, by comparison, recorded
$49 billion of net outflows in 2022 after recording $13 billion of net outflows in 2021.
Institutional loan
issuance totaled $225 billion in 2022, compared to a record $614 billion in 2021. Total institutional loans outstanding stood at $1.41
trillion as of December 31, 2022, up slightly from $1.35 trillion at the beginning of the year. While primary issuance remained limited
in the fourth quarter, loan refinancing activity meaningfully increased as U.S. corporates rushed to address upcoming maturities before
year-end, including large par repayments from
Past performance is not indicative
of, or a guarantee of, future performance.
Please see page 12 for endnotes.
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high-quality
issuers such as American Airlines and Axalta, each at over $1 billion. In order to extend the maturities of their loans, issuers were
willing to pay higher spreads, which will ultimately benefit the Company’s CLO equity positions. Currently, the vast majority of
the maturity wall is pushed out to 2025 and later. Only 5.8% of the loan portfolios underlying our CLO junior debt and equity positions
mature prior to 2025.
Loan defaults were muted in the fourth quarter
of 2022 as no companies defaulted. At year-end, the twelve-month trailing default rate fell to 0.72%; while above the rate of 0.29% at
the beginning of the year, it was still well below the long-term default rate of 2.7%.8 While the impact of a slowing economy
and potential recessionary headwinds, including rising borrowing costs on corporate borrowers, continue to be debated, we believe loan
defaults will remain below historical averages over the near term.
The loan prepayment rate remained in the mid-teens
through 2022, despite the ongoing volatility, and on a twelve-month trailing basis stood at 13% at the end of December. While the market
tends to be most focused on loan defaults, prepayments are a critical input to the performance of a CLO. In the worst two years on record
(2008-2009) for the loan market, prepayments still averaged 12%.
CLOs within their reinvestment period which
are receiving meaningful par prepayments are able to reinvest those proceeds into attractive loans at higher spreads and lower prices.
Par build allows CLOs to weather volatile periods, including building in additional cushion for potential future defaults. For example,
20 basis points of notional par build could offset nearly 0.50% of defaults. This ultimately creates significant value within a CLO, building
more par subordination for BBs and increasing terminal value for CLO equity.
CLO Market
Despite declining
loan issuance and widening CLO liabilities, the CLO market ended 2022 with its second highest annual new issuance on record, at a total
volume of $129 billion. This compares to last year’s record new issuance of $187.1 billion. Primary market activity peaked in the
second quarter, before issuance steadily declined quarter-over-quarter as CLO debt spreads increased and investor demand remained low
into year-end.
The CLO equity arbitrage
– the difference between the yield of the underlying loan portfolio and the CLO’s financing costs – remained generally
unattractive during the second half of the year. During the second half, some new issue CLOs settled for shorter-dated reinvestment periods
or even static structures to secure pricing. CLOs unable to achieve the standard five-year reinvestment period are much less favorable
for CLO equity investors, in our opinion, given their limited reinvestment optionality and sometimes higher-than-average debt costs. Additionally,
in the second half of 2022, most economically-driven equity investors focused on more desirable secondary market opportunities. Indeed,
very few third party equity investors were behind new CLO formation given the lower expected IRRs at pricing. In our opinion, this highlights
the
Past performance is not indicative
of, or a guarantee of, future performance.
Please see page 12 for endnotes.
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continued misalignment
of captive funds that are set up to support internal CLO programs, and often at the expense of their equity investors. Investing in the
secondary CLO equity market would have generated much higher returns, in our view.
With the rebound
in loans during the fourth quarter, the new issue CLO market remained challenged as CLO liability spreads remained largely unchanged at
calendar year wides going into year end. CLO AAA debt spreads averaged 235 basis points over SOFR in the fourth quarter, more than 100
basis points higher than levels in the fourth quarter of 2021. Liability costs were largely range-bound over the second half of the year,
and collateral manager dispersion was evident, with lower-tier CLO collateral managers paying over 14 basis points more, on average, in
AAA spreads versus their higher quality counterparts.
Importantly, there
were very few payment disruptions to CLO equity during the year, despite the persistent volatility in loan prices. CLOs saw a slight but
temporary decrease in third and fourth quarter 2022 equity distributions, attributable to the rapid increases in the benchmark interest
rate and resulting in a greater than usual disparity between 1-month and 3-month LIBOR/SOFR. Many loan borrowers took advantage of a lower
1-month rate, while CLO liabilities pay at the 3-month rate, for these two payment periods. This mismatch has meaningfully compressed
since year-end, and we believe equity distributions will increase for many CLOs over the coming quarters.
During the year,
secondary CLO market activity reached levels of over $52 billion. Investors sought value across the CLO debt stack given their protective
floating rate nature, higher yields, attractive pricing and strong liquidity versus fixed-rate corporate comparables. Within lower rated
tranches, CLO BBs reached yields of over 15%, notably above high-yield bond yields and often with greater convexity profiles. Floating
rate CLO debt has the added benefit of significantly lower historic credit expense and lower interest rate risk versus fixed-rate corporate
bonds.
In periods of market
volatility, the dispersion in CLO equity performance across CLO collateral managers often increases; 2022 was no exception. CLOs with
longer remaining reinvestment periods and thicker overcollateralization cushions (and thus with greater built-in optionality) outperformed
more seasoned CLOs coming up on the end of their reinvestment periods. During the year, CLOs with greater tail risk in their underlying
portfolios were heavily discounted amidst the loan price volatility given their limited near-term upside.
With CLO liability
spreads elevated, many CLOs had financing which is well “in the money.” As a result, reset and refinancing activity remained
muted for much of the year. In total, the U.S. CLO market recorded just $25 billion in refinancing and reset activity, nearly all of which
occurred prior to June 2022.
Early in 2023, CLO
debt spreads have tightened, with AAA spreads averaging 210 basis points over SOFR, supporting an increase in near-term new issue activity.
Past performance is not indicative
of, or a guarantee of, future performance.
Please see page 12 for endnotes.
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Additional
Information
In addition to the Company’s regulatory
requirement to file certain quarterly and annual portfolio information as described further in the enclosed report, the Company makes
certain unaudited portfolio information available each month on its website in addition to making certain other unaudited financial information
available on its website (www.eaglepointincome.com). This information includes (1) an estimated range of the Company’s NII
and realized capital gains or losses per share of common stock for each calendar quarter end, generally made available within the first
fifteen days after the applicable calendar month end, (2) an estimated range of the Company’s NAV per share of common stock
for the prior month end and certain additional portfolio-level information, generally made available within the first fifteen days after
the applicable calendar month end, and (3) during the latter part of each month, an updated estimate of the Company’s NAV per
share of common stock, if applicable, and, with respect to each calendar quarter end, an updated estimate of the Company’s NII and
realized capital gains or losses per share for the applicable quarter, if available.
Subsequent
Developments
Management’s unaudited estimate
of the range of the Company’s NAV per share of common stock was between $13.67 and $13.77 as of January 31, 2023. The midpoint
of this range represents an increase of 6.3% compared to the NAV per common share as of December 31, 2022.
On January 31, 2023, the Company
paid a monthly distribution of $0.16 per common share to stockholders of record on January 11, 2023. Additionally, and as previously
announced, the Company declared distributions of $0.16 per share of common stock payable on each of February 28, 2023 and March 31,
2023 to holders of record on February 8, 2023 and March 13, 2023, respectively.
On January 31, 2023, the Company
paid a monthly distribution of $0.104167 per share of the Company’s Series A Term Preferred Stock to holders of record on January 11,
2023. Additionally, and as previously announced, the Company declared distributions of $0.104167 per share on Series A Term Preferred
Stock, payable on each of February 28, 2023 and March 31, 2023 to holders of record on February 8, 2023 and March 13,
2023, respectively.
Pursuant to the “at-the-market”
offering and the committed equity financing arrangement, in the period from January 1, 2023 through February 15, 2023, the Company
issued 0.5 million shares of our common stock, for total net proceeds to the Company of approximately $6.8 million.
As of February 15, 2023, the Company
had $25.7 million of cash available for investment, inclusive of undrawn amounts on our revolving credit facility.
Past performance is not indicative
of, or a guarantee of, future performance.
Please see page 12 for endnotes.
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* * * * *
Management remains keenly focused on continuing to
create value for our stockholders. We appreciate the trust and confidence our fellow stockholders have placed in the Company.
Thomas Majewski
Chairman and Chief Executive Officer
This letter is intended to assist stockholders in
understanding the Company’s performance during the twelve months ended December 31, 2022. The views and opinions in this letter
were current as of February 15, 2023. Statements other than those of historical facts included herein may constitute forward-looking
statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may
differ materially from those in the forward-looking statements as a result of a number of factors. The Company undertakes no duty to update
any forward-looking statement made herein. Information contained on our website is not incorporated by reference into this stockholder
letter and you should not consider information contained on our website to be part of this stockholder letter or any other report we file
with the Securities and Exchange Commission.
Past performance is not indicative of, or a
guarantee of, future performance.
Please see page 12 for endnotes.
ABOUT OUR ADVISER
Eagle Point Income Management LLC is a specialist asset
manager focused exclusively on investing in CLO securities and related investments. As of December 31, 2022, our Adviser has approximately
$7.5 billion of assets under management (inclusive of undrawn capital commitments).9
Notes
1 |
“Weighted average common share” is calculated based on the average
daily number of shares of common stock outstanding during the period and “per common share” refers to per share of the Company’s
common stock. |
2 |
Return on our common equity reflects the Company’s cumulative monthly performance
net of applicable expenses and fees measured against beginning capital adjusted for any common equity issued during the period. |
3 |
An investment company trades at a premium when the market price at which its shares
trade is more than its net asset value per share. Alternatively, an investment company trades at a discount when the market price at which
its shares trade is less than its net asset value per share. |
4 |
To date, a portion of common stock distributions has been estimated to be a return
of capital as noted under the Tax Information section on the Company’s website. The actual components of the Company's distributions
for U.S. tax reporting purposes can only be finally determined as of the end of each fiscal year of the Company and are thereafter reported
on Form 1099-DIV. |
5 |
The CSLLI tracks the investable universe of the US dollar-denominated leveraged
loan market. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in
an index. |
6 |
Returns shown represent the total return for a given index for the year ended December 31,
2022. Equity return shown is represented by the S&P 500 which tracks the performance of US equity markets and is based on the market
capitalization of 500 large companies having common stock listed on the NYSE or NASDAQ. High yield return shown is represented by the
ICE BofA US High Yield Index which tracks the performance of high-yield securities traded in the U.S. bond market. Investment Grade return
shown is represented by the Bloomberg US Corporate Total Return Value Unhedged Index which tracks the performance and analytics of U.S.
denominated securities that are representative of the investment grade, fixed-rate, taxable corporate bond market. |
7 |
JPMorgan Chase & Co. North American Credit Research – JPM High Yield
and Leveraged Loan Research (cumulative 2022 reports). |
8 |
“Par-weighted default rate” represents the rate of obligors who fail to remain current on their
loans based on the par amount. |
9 |
Calculated in the aggregate with its affiliate Eagle Point Credit Management LLC. |
Past performance is not indicative of, or a
guarantee of, future performance.
Please see page 12 for endnotes.
Page Intentionally Left Blank
Important Information about this Report and Eagle Point Income Company Inc.
This report is transmitted to the stockholders of Eagle
Point Income Company Inc. (“we”, “us”, “our” or the “Company”) and is furnished pursuant
to certain regulatory requirements. This report and the information and views herein do not constitute investment advice, or a recommendation
or an offer to enter into any transaction with the Company or any of its affiliates. This report is provided for informational purposes
only, does not constitute an offer to sell securities of the Company and is not a prospectus. From time to time, the Company may have
a registration statement relating to one or more of its securities on file with the US Securities and Exchange Commission (“SEC”).
Any registration statement that has not yet been declared effective by the SEC, and any prospectus relating thereto, is not complete and
may be changed. Any securities that are the subject of such a registration statement may not be sold until the registration statement
filed with the SEC is effective.
The information and its contents are the property of
Eagle Point Income Management LLC (the “Adviser”) and/or the Company. Any unauthorized dissemination, copying or use of this
presentation is strictly prohibited and may be in violation of law. This presentation is being provided for informational purposes only.
Investors should read the Company’s prospectus
and SEC filings (which are publicly available on the EDGAR Database on the SEC website at http://www.sec.gov)
carefully and consider their investment goals, time horizons and risk tolerance before investing in the Company. Investors should consider
the Company’s investment objectives, risks, charges and expenses carefully before investing in securities of the Company. There
is no guarantee that any of the goals, targets or objectives described in this report will be achieved.
An investment in the Company is not appropriate for
all investors. The investment program of the Company is speculative, entails substantial risk and includes investment techniques not employed
by traditional mutual funds. An investment in the Company is not intended to be a complete investment program. Shares of closed-end investment
companies, such as the Company, frequently trade at a discount from their net asset value (“NAV”), which may increase investors’
risk of loss. Past performance is not indicative of, or a guarantee of, future performance. The performance and certain other portfolio
information quoted herein represents information as of December 31, 2022. Nothing herein should be relied upon as a representation as
to the future performance or portfolio holdings of the Company. Investment return and principal value of an investment will fluctuate,
and shares, when sold, may be worth more or less than their original cost. The Company’s performance is subject to change since
the end of the period noted in this report and may be lower or higher than the performance data shown herein.
Neither the Adviser nor the Company provide legal,
accounting or tax advice. Any statement regarding such matters is explanatory and may not be relied upon as definitive advice. Investors
should consult with their legal, accounting and tax advisors regarding any potential investment. The information presented herein is as
of the dates noted herein and is derived from financial and other information of the Company, and, in certain cases, from third party
sources and reports (including reports of third party custodians, CLO managers and trustees) that have not been independently verified
by the Company. As noted herein, certain of this information is estimated and unaudited, and therefore subject to change. We do not represent
that such information is accurate or complete, and it should not be relied upon as such.
Eagle Point Income Company Inc.
The following information in this annual report is
a summary of certain changes during the fiscal year ended December 31, 2022. This information may not reflect all of the changes that
have occurred since you purchased shares of our common stock.
During the applicable period, there have been: (i)
no material changes to the Company’s investment objectives and policies that have not been approved by shareholders, (ii) no material
changes to the Company’s principal risks, (iii) no changes to the persons primarily responsible for day-to-day management of the
Company; and (iv) no changes to the Company’s charter or bylaws that would delay or prevent a change of control of the Company.
Investment Objectives and Strategies
We are an externally managed, diversified closed-end
management investment company that has registered as an investment company under the Investment Company Act of 1940, as amended (the “1940
Act”). We have elected to be treated, and intend to qualify annually, as a regulated investment company, or “RIC,” under
Subchapter M of the Internal Revenue Code of 1986, as amended, or the “Code,” beginning with our tax year ended December 31,
2018. We were formed on September 28, 2018
as EP Income Company LLC, a Delaware limited liability
company, and converted into a Delaware corporation on October 16, 2018.
Our primary investment objective is to generate high
current income, with a secondary objective to generate capital appreciation. We seek to achieve our investment objectives by investing
primarily in junior debt tranches of CLOs, that are collateralized by a portfolio consisting primarily of below investment grade U.S.
senior secured loans with a large number of distinct underlying borrowers across various industry sectors. We focus on CLO debt tranches
rated “BB” (e.g., BB+, BB or BB-, or their equivalent) by Moody’s Investors Service, Inc., or “Moody’s,”
Standard & Poor’s, or “S&P,” or Fitch Ratings, Inc., or “Fitch,” and/or other applicable nationally
recognized statistical rating organizations. We may also invest in other junior debt tranches of CLOs, senior debt tranches of CLOs and
other related securities and instruments. In addition, we may invest up to 35% of our total assets (at the time of investment) in CLO
equity securities and related securities and instruments. We expect our investments in CLO equity securities to primarily reflect minority
ownership positions. We may also invest in other securities and instruments that the Adviser believes are consistent with our investment
objectives such as securities issued by other securitization vehicles (such as collateralized bond obligations or “CBOs”).
The amount that we will invest in other securities and instruments, which may include investments in debt and other securities issued
by CLOs collateralized by non-U.S. loans, and securities of other collective investment vehicles, will vary from time to time and, as
such, may constitute a material part of our portfolio on any given date, all as based on the Adviser’s assessment of prevailing
market conditions. The CLO securities in which we primarily seek to invest are rated below investment grade or, in the case of CLO equity
securities, are unrated and are considered speculative with respect to timely payment of interest and repayment of principal. Below investment
grade and unrated securities are also sometimes referred to as “junk” securities.
These investment objectives are not fundamental policies
of ours and may be changed by our board of directors without prior approval of our stockholders.
Investment Restrictions
Our investment objectives and our investment policies
and strategies, except for the eight investment restrictions designated as fundamental policies under this caption, are not fundamental
and may be changed by the board of directors without stockholder approval.
The following eight investment restrictions are designated
as fundamental policies and, as such, cannot be changed without the approval of the holders of a majority of our outstanding voting securities:
|
1. |
We may not borrow money, except as permitted by (i) the 1940 Act, or interpretations or modifications by the
SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff
or other authority with appropriate jurisdiction; |
|
2. |
We may not engage in the business of underwriting securities issued by others, except to the extent that we
may be deemed to be an underwriter in connection with the disposition of portfolio securities; |
|
3. |
We may not purchase or sell physical commodities or contracts for the purchase or sale of physical commodities.
Physical commodities do not include futures contracts with respect to securities, securities indices, currency or other financial instruments; |
|
4. |
We may not purchase or sell real estate, which term does not include securities of companies which deal in
real estate or mortgages or investments secured by real estate or interests therein, except that we reserve freedom of action to hold
and to sell real estate acquired as a result of our ownership of securities; |
|
5. |
We may not make loans, except to the extent permitted by (i) the 1940 Act, or interpretations or modifications
by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC,
SEC staff or other authority with appropriate jurisdiction. For purposes of this investment restriction, the purchase of debt obligations
(including acquisitions of loans, loan participations or other forms of debt instruments) shall not constitute loans by us; |
|
6. |
We may not issue senior securities, except to the extent permitted by (i) the 1940 Act, or interpretations
or modifications by the SEC, the SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission
from the SEC, SEC staff or other authority with appropriate jurisdiction; |
|
7. |
We may not invest in any security if as a result of such investment, 25% or more of the value of our total
assets, taken at market value at the time of each investment, are in the securities of issuers in any particular industry or group of |
|
|
industries except (a) securities issued or guaranteed by the U.S. government
and its agencies and instrumentalities or tax-exempt securities of state and municipal governments or their political subdivisions (however,
not including private purpose industrial development bonds issued on behalf of non-government issuers), or (b) as otherwise provided by
the 1940 Act, as amended from time to time, and as modified or supplemented from time to time by (i) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, and (ii) any exemption or other relief applicable to us from the provisions
of the 1940 Act, as amended from time to time. For purposes of this restriction, in the case of investments in loan participations between
us and a bank or other lending institution participating out the loan, we will treat both the lending bank or other lending institution
and the borrower as “issuers.” For purposes of this restriction, an investment in a CLO, collateralized bond obligation, collateralized
debt obligation or a swap or other derivative will be considered to be an investment in the industry or group of industries (if any) of
the underlying or reference security, instrument or asset; and |
|
8. |
We may not engage in short sales, purchases on margin, or the writing of put or call options, except as permitted
by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction or (ii)
exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction. |
The latter part of certain of our fundamental investment
restrictions (i.e., the references to “except to the extent permitted by (i) the 1940 Act, or interpretations or modifications
by the SEC, the SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC,
SEC staff or other authority with appropriate jurisdiction”) provides us with flexibility to change our limitations in connection
with changes in applicable law, rules, regulations or exemptive relief. The language used in these restrictions provides the necessary
flexibility to allow our board of directors to respond efficiently to these kinds of developments without the delay and expense of a stockholder
meeting.
Whenever an investment policy or investment restriction
set forth in this report or in our prospectus states a maximum percentage of assets that may be invested in any security or other asset,
or describes a policy regarding quality standards, such percentage limitation or standard shall be determined immediately after and as
a result of our acquisition of such security or asset. Accordingly, any later increase or decrease resulting from a change in values,
assets or other circumstances or any subsequent rating change made by a rating agency (or as determined by the Adviser if the security
is not rated by a rating agency) will not compel us to dispose of such security or other asset. Notwithstanding the foregoing, we must
always be in compliance with the borrowing policies set forth above.
Use of Leverage and Leverage Risks
The use of leverage, whether directly through borrowing
under a revolving credit facility with BNP Paribas (the “Credit Facility”) or the issuance of the Series A Term Preferred
Stock, or indirectly through investments such as CLO junior debt and equity securities that inherently involve leverage, may magnify our
risk of loss. CLO junior debt and equity securities are very highly leveraged (with CLO equity securities typically being leveraged ten
times), and therefore the CLO securities in which we invest are subject to a higher degree of loss since the use of leverage magnifies
losses.
We have incurred leverage by issuing preferred stock
and incurring indebtedness for borrowed money. We may incur additional leverage, directly or indirectly, through one or more special purpose
vehicles, indebtedness for borrowed money, as well as leverage in the form of derivative transactions, additional shares of preferred
stock, debt securities and other structures and instruments, in significant amounts and on terms that the Adviser and our board of directors
deem appropriate, subject to applicable limitations under the 1940 Act. Such leverage may be used for the acquisition and financing of
our investments, to pay fees and expenses and for other purposes. Such leverage may be secured and/or unsecured. The more leverage we
employ, the more likely a substantial change will occur in our NAV. Accordingly, any event that adversely affects the value of an investment
would be magnified to the extent leverage is utilized. The cumulative effect of the use of leverage with respect to any investments in
a market that moves adversely to such investments could result in a substantial loss that would be greater than if our investments were
not leveraged.
The
following table is intended to illustrate the effect of the use of direct leverage on returns from an investment in our common stock assuming
various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower
than those appearing in the table below.
Assumed
Return on Our Portfolio (Net of Expenses) |
-10% |
-5% |
0% |
5% |
10% |
Corresponding return to common stockholder(1) |
-19.00% |
-11.12% |
-3.25% |
4.63% |
12.51% |
|
(1) |
Assumes (i) $171.3 million in pro forma total assets
as of December 31, 2022 (adjusted to reflect (i) the issuance in the Company’s “at-the-market” offering and committed
equity financing of 489,198 shares of our common stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company
of approximately $6.8 million; (ii) the hypothetical borrowings of the full $25,000,000 available under the BNP Credit Facility) (ii)
$108.7 million in pro forma net assets as of December 31, 2022 (adjusted to reflect the issuances and borrowings described above); and
(iii) an annualized average interest rate on our indebtedness and preferred equity, as of December 31, 2022, of 5.60%. |
Based on our assumed leverage described above, our
investment portfolio would have been required to experience an annual return of at least 2.1% to cover annual interest payments on our
outstanding indebtedness and preferred equity.
Principal Risk Factors
For a description of the principal risk factors associated
with an investment in the Company, please refer to Note 3 to the Financial Statements, “Investments – Investment Risk Factors”).
Additional Information
The Company makes certain unaudited portfolio information
available each month on its website in addition to making certain other unaudited financial information available on its website (www.eaglepointincome.com).
This information includes (1) an estimated range of the Company’s net investment income (“NII”) and realized capital
gains or losses per weighted average share of common stock for each calendar quarter end, generally made available within the first fifteen
days after the applicable calendar month end, (2) an estimated range of the Company’s NAV per share of common stock for the prior
month end and certain additional portfolio-level information, generally made available within the first fifteen days after the applicable
calendar month end, and (3) during the latter part of each month, an updated estimate of NAV, if applicable, and, with respect to each
calendar quarter end, an updated estimate of the Company’s NII and realized capital gains or losses for the applicable quarter,
if available.
Information contained on our website is not incorporated
by reference into this Annual Report and you should not consider information contained on our website to be part of this Annual Report
or any other report we file with the SEC.
Forward-Looking Statements
This report may contain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts included
in this report may constitute forward-looking statements and are not guarantees of future performance or results and involve a number
of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number
of factors, including those described in the Company’s filings with the SEC. The Company undertakes no duty to update any forward-looking
statement made herein. All forward-looking statements speak only as of the date of this report.
Notes
1 |
Based on the market price. Prices for October 16, 2018 (inception date) and December
31, 2018 represet the Net Asset Value (“NAV”) per share. |
2 |
The performance of an index is not an exact representation of any particular investment,
as you cannot invest directly in an index. The indices shown herein have not been selected to represent a benchmark for a strategy’s
performance, but are instead disclosed to allow for comparison of the Company’s returns to that of known, recognized and/or similar
indices. The Credit Suisse Leveraged Loan Index tracks the investable universe of the US-denominated leveraged loan market. The BofA ICE
US High Yield Index tracks the performance of high-yield securities traded in the U.S. bond market. The S&P BDC Index is intended
to measure the performance of all Business Development Companies (BDCs) that are listed on the NYSE or NASDAQ and satisfy market capitalization
and other eligibility requirements. Although EIC is not a BDC, BDCs generally invest in high yielding credit investments, as does EIC.
In addition, similar to EIC, BDCs generally elect to be classified as a regulated investment company under the U.S. Internal Revenue Code
of 1986, as amended, which generally requires an investment company to distribute its taxable income to shareholders. |
3 |
The summary of portfolio investments shown is based on the estimated fair value
of the underlying positions as of December 31, 2022. Cash and borrowing capacity represents cash net of pending trade settlements and
includes available capacity on the Company’s credit facility as of December 31, 2022. Borrowings under the credit facility are subject
to applicable regulatory and contractual limits. |
4 |
The information presented herein is on a look-through basis to the collateralized
loan obligation, or “CLO,” and other related investments held by the Company as of December 31, 2022 (except as otherwise
noted) and reflects the aggregate underlying exposure of the Company based on the portfolios of those investments. The data is estimated
and unaudited and is derived from CLO trustee reports received by the Company relating to December 2022 and from custody statements and/or
other information received from CLO collateral managers and other third party sources. Information relating to the market price of underlying
collateral is as of month end; however, with respect to other information shown, depending on when such information was received, the
data may reflect a lag in the information reported. As such, while this information was obtained from third party data sources, December
2022 trustee reports and similar reports, other than market price, it does not reflect actual underlying portfolio characteristics as
of December 31, 2022 and this data may not be representative of current or future holdings. The Weighted Average Remaining Reinvestment
Period information is based on the fair value of CLO equity and debt investments held by the Company at the end of the reporting period. |
5 |
Data represents aggregate indirect exposure. We obtain exposure in underlying senior
secured loans indirectly through our CLO and related investments. |
6 |
The weighted average OC cushion senior to the security is calculated using the
BBB OC cushion for all BB-rated CLO debt securities in the portfolio and the BB OC cushion for all other securities in the portfolio,
in each case as held on December 31, 2022. |
7 |
Credit ratings shown are based on those assigned by Standard & Poor’s
Rating Group, or “S&P,” or, for comparison and informational purposes, if S&P does not assign a rating to a particular
obligor, the weighted average rating shown reflects the S&P equivalent rating of a rating agency that rated the obligor provided that
such other rating is available with respect to a CLO or related investment held by us. In the event multiple ratings are available, the
lowest S&P rating, or if there is no S&P rating, the lowest equivalent rating, is used. The ratings of specific borrowings by
an obligor may differ from the rating assigned to the obligor and may differ among rating agencies. For certain obligors, no rating is
available in the reports received by the Company. Such obligors are not shown in the graphs and, accordingly, the sum of the percentages
in the graphs may not equal 100%. Ratings below BBB- are below investment grade. Further information regarding S&P’s rating
methodology and definitions may be found on its website (www.standardandpoors.com). |
8 |
Industry categories are based on the S&P industry categorization of each obligor
as reported in CLO trustee reports to the extent so reported. Certain CLO trustee reports do not report the industry category of all of
the underlying obligors and where such information is not reported, it is not included in the summary look-through industry information
shown. As such, the Company’s exposure to a particular industry may be higher than that shown if industry categories were available
for all underlying obligors. In addition, certain underlying obligors may be re-classified from time to time based on developments in
their respective businesses and/or market practices. Accordingly, certain underlying borrowers that are currently, or were previously,
summarized as a single borrower in a particular industry may in current or future periods be reflected as multiple borrowers or in a different
industry, as applicable. |
9 |
Certain CLO trustee reports do not provide the industry classification for certain
underlying obligors. These obligors are not summarized in the look-through industry data shown; if they were reflected, they would represent
7.6%. |
Please see footnote disclosures on page 18.
Performance Data1,2
The following graph shows
the market price performance of a $10,000 investment in the Company’s common shares for the period from October 16, 2018 (inception)
through December 31, 2022. The performance calculation assumes the purchase of Company shares at net asset value for the beginning of
the period (prior to the Company’s public listing) and the sale of Company shares at the market price at the end of the period.
Ending value for each year are as of December 31 of the applicable year. As the Company’s IPO occurred in July 2019, the value used
for the Company’s performance as of December 31, 2018 reflects the Company’s then-current net asset value per share. For comparative
purposes, the performance of a relevant third-party securities market index, the S&P BDC Index, is shown. Distributions are assumed,
for purposes of this calculation, to be reinvested at prices obtained under the Company’s dividend reinvestment plan. The performance
does not reflect brokerage commissions in connection with the purchase or sale of Company shares, which if included would lower the performance
shown. Returns do not reflect the deduction of taxes that a shareholder would pay on Company distributions or the sale of Company shares.
Past performance is not
indicative of, or a guarantee of, future performance. Future results may vary and may be higher or lower than the data shown.
Value
of $10,000 Invested |
![tm237094d3_ncsrimg007.jpg](https://content.edgar-online.com/edgar_conv_img/2023/02/24/0001104659-23-024865_tm237094d3_ncsrimg007.jpg)
|
Annualized
Total Return |
Cumulative |
|
1
year |
Since
Inception |
Since Inception |
EIC |
-8.67% |
-0.83% |
3.47% |
S&P
BDC Index |
-9.39% |
6.55% |
30.61% |
Please see footnote disclosures on page 18.
Summary of Certain Unaudited Portfolio Characteristics
The information presented below is on a look–through
basis to the collateralized loan obligation, or “CLO”, and other related investments held by the Company as of December 31,
2022 (except as otherwise noted) and reflects the aggregate underlying exposure of the Company based on the portfolios of those investments.
The data is estimated and unaudited and is derived from CLO trustee reports received by the Company relating to December 2022 and
from custody statements and/or other information received from CLO collateral managers, or other third party sources.
Summary
of Portfolio Investments (as of 12/31/2022)3 |
![tm237094d3_ncsrsp4rimg001.jpg](https://content.edgar-online.com/edgar_conv_img/2023/02/24/0001104659-23-024865_tm237094d3_ncsrsp4rimg001.jpg)
Cash and Borrowing Capacity: $16.0 million1 |
Summary
of Underlying Portfolio Characteristics (as of 12/31/2022)4 |
Number of Unique Underlying Loan Obligors |
1,455 |
Largest Exposure to an Individual Obligor |
0.93% |
Average Individual Loan Obligor Exposure |
0.07% |
Top 10 Loan Obligors Exposure |
6.16% |
Currency: USD Exposure |
100.00% |
Indirect Exposure to Senior Secured Loans3 |
97.66% |
Weighted Average OC Cushion Senior to the Security4 |
5.22% |
Weighted Average Market Value of Loan Collateral |
92.06% |
Weighted Average Stated Loan Spread |
3.62% |
Weighted Average Loan Rating5 |
B+/B |
Weighted Average Loan Maturity |
4.5 years |
Weighted Average Remaining CLO Reinvestment Period |
1.5 years |
Please see footnote disclosures on page 18.
Top
10 Underlying Obligors4 |
Obligor |
%
of Total |
Cablevision |
0.9% |
Asurion |
0.8% |
Mcafee |
0.7% |
Numericable |
0.6% |
Transdigm |
0.6% |
Medline Industries |
0.6% |
Athenahealth |
0.5% |
Blackstone Mortgage Trust |
0.5% |
Howden |
0.5% |
United Airlines |
0.4% |
Total |
6.2% |
Top 10 Industries
of Underlying Obligors4,8,9 |
Industry |
%
of Total |
Technology |
10.4% |
Health Care |
9.6% |
Publishing |
6.4% |
Financial Intermediaries |
5.8% |
Telecommunications |
4.7% |
Diversified/Conglomerate
Service |
4.5% |
Lodging &
Casinos |
4.5% |
Building &
Development |
4.4% |
Commercial Services &
Supplies |
3.5% |
Technology:
Hardware & Equipment |
3.1% |
Total |
57.0% |
Rating Distribution of
Underlying Obligors4,7 |
![tm237094d3_ncsrsp4rimg002.jpg](https://content.edgar-online.com/edgar_conv_img/2023/02/24/0001104659-23-024865_tm237094d3_ncsrsp4rimg002.jpg)
Maturity Distribution
of Underlying Obligors4 |
![tm237094d3_ncsrsp4rimg003.jpg](https://content.edgar-online.com/edgar_conv_img/2023/02/24/0001104659-23-024865_tm237094d3_ncsrsp4rimg003.jpg)
Please see footnote disclosures on
page 18.
Fees
and Expenses (unaudited)
The following table is intended to assist you in understanding
the costs and expenses that an investor in shares of the Company’s common stock will bear directly or indirectly. The expenses shown
in the table under “Annual Expenses” are estimated based on historical fees and expenses incurred by the Company, as appropriate.
In addition, such amounts are based on the Company’s pro forma assets as of December 31, 2022, which have been adjusted to
reflect (i) the issuance in the Company’s “at-the-market” offering and committed equity financing of 489,198 shares
of our common stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately $6.8
million; (ii) the hypothetical borrowings of the full $25,000,000 available under the BNP Credit Facility, which would mean that
the Company’s adjusted total assets are assumed to equal approximately $171.3 million. As of December 31, 2022, and pro forma
for the issuances and assumed borrowings described above (excluding any regular monthly distributions paid after December 31, 2022),
the Company’s leverage represented approximately 37.1% of the Company’s total assets (less current liabilities). Such expenses,
and actual leverage incurred by the Company, may vary in the future. Whenever this report (or other Company disclosures, including the
Company’s prospectus) contain a reference to fees or expenses paid by the Company, the Company’s common stockholders will
indirectly bear such fees or expenses.
Stockholder
Transaction Expenses (as
a percentage of the offering price): |
|
|
Sales load |
|
—%(1) |
Offering expenses
borne by the Company |
|
—%(2) |
Dividend reinvestment
plan expenses |
|
Up
to $15(3) |
Total stockholder
transaction expenses |
|
—% |
Annual
Expenses (as
a percentage of net assets attributable to common stock): |
|
|
Management fee |
|
1.95%(4) |
Interest payments
on borrowed funds |
|
3.25%(5) |
Other expenses |
|
1.99%(6) |
Total annual
expenses |
|
7.19% |
|
(1) |
In the event that the Company sells its securities publicly through underwriters
or agents, the related prospectus supplement will disclose the applicable sales load. |
|
(2) |
In the event that the Company sells its securities publicly through underwriters
or agents, the related prospectus supplement will disclose the estimated amount of total offering expenses (which may include offering
expenses borne by third parties on the Company’s behalf), the offering price and the offering expenses borne by the Company as a
percentage of the offering price. |
|
(3) |
The expenses associated with the dividend reinvestment plan are included in “Other
expenses.” If a participant elects by written notice to the plan administrator prior to termination of his or her account to have
the plan administrator sell part or all of the shares held by the plan administrator in the participant’s account and remit the
proceeds to the participant, the plan administrator is authorized to deduct a $15.00 transaction fee plus a $0.07 per share brokerage
commission from the proceeds. See the section “Dividend Reinvestment Plan,” below. |
|
(4) |
The Company has agreed to pay the Adviser as compensation under the Investment
Advisory Agreement a management fee at an annual rate of 1.25% which is calculated monthly based the Company’s Managed Assets at
the end of each calendar month and payable quarterly in arrears. “Managed Assets” means the Company’s total assets (including
assets attributable to the use of leverage) minus the sum of accrued liabilities (other than liabilities incurred for the purpose of creating
leverage). Because Managed Assets include the Company’s use of leverage, they will typically be greater than the Company’s
net assets. The management fee referenced in the table above is based on Managed Assets as of December 31, 2022 and assumes the pro
forma effect of (i) the issuance in the Company’s “at-the-market” offering and committed equity financing of 489,198
shares of our common stock from January 1, 2023 through February 15, 2023, yielding net proceeds to the Company of approximately
$6.8 million; (ii) the hypothetical borrowings of the full $25,000,000 available under the BNP Credit Facility, which would mean
that the Company’s adjusted total assets are assumed to equal approximately $171.3 million. These management fees are indirectly
borne by holders of the Company’s common stock and are not borne by the holders of preferred stock, if any, or the holders of any
other securities that the Company may issue. See “The Adviser and the Administrator — Investment Advisory
Agreement — Management” in the Company’s prospectus for additional information regarding the calculation
of the management fee. |
|
(5) |
“Interest payments on borrowed funds” represents the Company’s
annualized interest expense and includes dividends payable on the Series A Term Preferred Stock, outstanding on December 31,
2022, and includes the pro forma effect of the assumed borrowings under the BNP Credit Facility described above, which, in the aggregate,
have a weighted average interest rate of 5.60% per annum. The Company may issue additional shares of preferred stock. In the event that
the Company were to issue additional shares of preferred |
|
|
stock, the Company’s borrowing costs, and correspondingly its total annual
expenses, including, in the case of such preferred stock, the base management fee as a percentage of the Company’s managed assets
attributable to common stock, would increase. |
|
(6) |
“Other
expenses” includes the Company’s overhead expenses, including payments under the Administration Agreement based on the Company’s
allocable portion of overhead and other expenses incurred by Eagle Point Administration LLC (“Eagle Point Administration”),
the administrator to the Company and an affiliate of the Adviser, and payment of fees in connection with outsourced administrative functions,
and are based on the actual amounts for the 2022 fiscal year. See “Related Party Transactions — Administrator”
in the Notes to the Financial Statements. “Other expenses” also includes the ongoing administrative expenses to the independent
accountants and legal counsel of the Company, compensation of independent directors, and cost and expenses relating to rating agencies. |
Example
The following example is furnished in response to the
requirements of the SEC and illustrates the various costs and expenses that you would pay, directly or indirectly, on a $1,000 investment
in shares of the Company’s common stock for the time periods indicated, assuming (1) total annual expenses of 7.19% of net
assets attributable to the Company’s common stock and (2) a 5% annual return*:
|
|
1 year |
|
3 years |
|
5 years |
|
10 years |
|
You would pay the following
expenses on a $1,000 investment, assuming a 5% annual return |
|
$ 72 |
|
$ 211 |
|
$ 344 |
|
$ 652 |
|
* The example should not be considered a representation
of future returns or expenses, and actual returns and expenses may be greater or less than those shown. The example assumes
that the estimated “other expenses” set forth in the Annual Expenses table are accurate, and that all dividends and distributions
are reinvested at NAV. The Company’s actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
Financial Statements
for the Year Ended
December 31, 2022 (Audited)
Eagle
Point Income Company Inc.
Statement
of Assets and Liabilities
As
of December 31, 2022
(expressed
in U.S. dollars)
ASSETS |
|
|
|
Investments, at fair value
(cost $176,427,338) |
$ |
143,380,206 |
|
Interest receivable |
|
4,565,131 |
|
Prepaid expenses |
|
580,675 |
|
Cash and cash equivalents |
|
37,059 |
|
Receivable for shares of common
stock issued pursuant to the Company's dividend reinvestment plan |
|
10,452 |
|
Total Assets |
|
148,573,523 |
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
5.00% Series A Term Preferred
Stock due 2026, at fair value under the fair value option (1,521,649 shares outstanding) (Note 6) |
|
36,184,813 |
|
Unamortized share issuance
premium associated with 5.00% Series A Term Preferred Stock due 2026 |
|
10,290 |
|
5.00% Series A Term Preferred
Stock due 2026, at fair value, plus associated unamortized share issuance premium |
|
36,195,103 |
|
|
|
|
|
Borrowings under credit facility
(less unamortized deferred financing costs of $5,063 (Note 9)) |
|
9,024,937 |
|
Management fees payable |
|
456,445 |
|
Professional fees payable |
|
280,202 |
|
Tax expense payable |
|
262,644 |
|
Interest expense payable |
|
143,386 |
|
Administration fees payable |
|
137,383 |
|
Directors' fees payable |
|
127,500 |
|
Other expenses payable |
|
2,083 |
|
Total Liabilities |
|
46,629,683 |
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 7) |
|
|
|
|
|
|
|
NET ASSETS applicable to 7,896,757 shares of
$0.001 par value common stock outstanding |
$ |
101,943,840 |
|
|
|
|
|
NET ASSETS consist of: |
|
|
|
Paid-in capital (Note 5) |
$ |
146,040,654 |
|
Aggregate
distributable earnings (losses) |
|
(42,271,550) |
|
Accumulated
other comprehensive income (loss) |
|
(1,825,264) |
|
Total Net Assets |
$ |
101,943,840 |
|
Net asset value per share of common stock |
$ |
12.91 |
|
See
accompanying notes to the financial statements
Eagle
Point Income Company Inc.
Schedule
of Investments
As
of December 31, 2022
(expressed
in U.S. dollars)
Issuer
(1) |
|
Investment
Description (2)
(3) |
|
Acquisition
Date (4) |
|
Principal Amount |
|
Cost |
|
Fair
Value (5) |
|
%
of Net Assets |
Investments,
at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO Debt
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ares
XLV CLO Ltd. |
|
Secured Note - Class E,
10.18%, (3M LIBOR + 6.10%, 10/15/2030) |
|
05/30/2019 |
|
$ |
800,000 |
|
$ |
789,475 |
|
$ |
663,200 |
|
0.65% |
Barings
CLO Ltd. 2018-IV |
|
Secured Note - Class E,
9.90%, (3M LIBOR + 5.82%, 10/15/2030) |
|
10/26/2018 |
|
|
840,000 |
|
|
836,088 |
|
|
712,404 |
|
0.70% |
Battalion
CLO XII Ltd. |
|
Secured Note - Class E,
10.74%, (3M LIBOR + 6.09%, 05/17/2031) |
|
10/04/2018 |
|
|
5,060,000 |
|
|
4,904,691 |
|
|
3,972,100 |
|
3.90% |
Battalion
CLO XXI Ltd. |
|
Secured Note - Class E,
10.54%, (3M LIBOR + 6.46%, 07/15/2034) |
|
06/08/2022 |
|
|
5,000,000 |
|
|
4,662,419 |
|
|
4,100,000 |
|
4.02% |
Black
Diamond CLO 2016-1, Ltd. |
|
Secured Note - Class D-R,
9.93%, (3M LIBOR + 5.60%, 04/26/2031) |
|
10/04/2018 |
|
|
1,050,000 |
|
|
999,198 |
|
|
808,290 |
|
0.79% |
Black
Diamond CLO 2017-1, Ltd. |
|
Secured Note - Class D,
10.92%, (3M LIBOR + 6.60%, 04/24/2029) |
|
10/04/2018 |
|
|
3,600,000 |
|
|
3,593,656 |
|
|
3,168,000 |
|
3.11% |
Carlyle
US CLO 2017-1, Ltd. |
|
Secured Note - Class D,
10.24%, (3M LIBOR + 6.00%, 04/20/2031) |
|
09/15/2020 |
|
|
2,000,000 |
|
|
1,695,852 |
|
|
1,579,600 |
|
1.55% |
Carlyle
US CLO 2018-1, Ltd. |
|
Secured Note - Class D,
9.99%, (3M LIBOR + 5.75%, 04/20/2031) |
|
10/04/2018 |
|
|
665,000 |
|
|
659,535 |
|
|
519,166 |
|
0.51% |
Carlyle
US CLO 2018-2, Ltd. |
|
Secured Note - Class D,
9.33%, (3M LIBOR + 5.25%, 10/15/2031) |
|
10/04/2018 |
|
|
5,500,000 |
|
|
5,323,135 |
|
|
4,335,100 |
|
4.25% |
Carlyle
US CLO 2019-1, Ltd. |
|
Secured Note - Class D,
10.94%, (3M LIBOR + 6.70%, 04/20/2031) |
|
08/19/2019 |
|
|
3,125,000 |
|
|
2,976,754 |
|
|
2,675,938 |
|
2.62% |
CIFC
Funding 2015-I, Ltd. |
|
Secured Note - Class E-RR,
10.32%, (3M LIBOR + 6.00%, 01/22/2031) |
|
10/04/2018 |
|
|
2,600,000 |
|
|
2,567,635 |
|
|
2,106,780 |
|
2.07% |
CIFC
Funding 2018-II, Ltd. |
|
Secured Note - Class D,
10.09%, (3M LIBOR + 5.85%, 04/20/2031) |
|
10/04/2018 |
|
|
1,225,000 |
|
|
1,193,529 |
|
|
1,083,635 |
|
1.06% |
CIFC
Funding 2018-IV, Ltd. |
|
Secured Note - Class E,
11.78%, (3M LIBOR + 7.70%, 10/17/2031) |
|
05/22/2019 |
|
|
2,000,000 |
|
|
1,875,296 |
|
|
1,570,800 |
|
1.54% |
Cook
Park CLO, Ltd. |
|
Secured Note - Class E,
9.48%, (3M LIBOR + 5.40%, 04/17/2030) |
|
10/04/2018 |
|
|
1,250,000 |
|
|
1,198,440 |
|
|
987,625 |
|
0.97% |
Dryden
37 Senior Loan Fund, Ltd. |
|
Secured Note - Class E-R,
9.23%, (3M LIBOR + 5.15%, 01/15/2031) |
|
10/04/2018 |
|
|
500,000 |
|
|
486,387 |
|
|
382,500 |
|
0.38% |
First
Eagle BSL CLO 2019-1 Ltd. |
|
Secured Note - Class D,
11.94%, (3M LIBOR + 7.70%, 01/20/2033) |
|
12/17/2019 |
|
|
5,000,000 |
|
|
4,814,158 |
|
|
4,343,000 |
|
4.26% |
Generate
CLO-2 Ltd. |
|
Secured Note - Class E-R,
9.97%, (3M LIBOR + 5.65%, 01/22/2031) |
|
05/16/2019 |
|
|
1,605,000 |
|
|
1,533,499 |
|
|
1,383,189 |
|
1.36% |
KKR
CLO 22 Ltd. |
|
Secured Note - Class E,
10.24%, (3M LIBOR + 6.00%, 07/20/2031) |
|
10/27/2021 |
|
|
3,000,000 |
|
|
2,957,325 |
|
|
2,504,100 |
|
2.46% |
KKR
CLO 29 Ltd. |
|
Secured Note - Class F,
NM, (3M LIBOR + 9.00%, 01/15/2032) |
|
12/14/2021 |
|
|
589,812 |
|
|
- |
|
|
- |
|
0.00% |
LCM
XVIII, L.P. |
|
Secured Note - Class E-R,
10.19%, (3M LIBOR + 5.95%, 04/20/2031) |
|
10/04/2018 |
|
|
600,000 |
|
|
598,672 |
|
|
451,980 |
|
0.44% |
Madison
Park Funding XXVII, Ltd. |
|
Secured Note - Class D,
9.24%, (3M LIBOR + 5.00%, 04/20/2030) |
|
10/04/2018 |
|
|
3,050,000 |
|
|
2,866,711 |
|
|
2,646,485 |
|
2.60% |
Madison
Park Funding XLII, Ltd. |
|
Secured Note - Class E,
10.37%, (3M LIBOR + 6.05%, 11/21/2030) |
|
08/15/2019 |
|
|
1,500,000 |
|
|
1,446,458 |
|
|
1,331,700 |
|
1.31% |
Madison
Park Funding LI, Ltd. |
|
Secured Note - Class E,
10.50%, (3M LIBOR + 6.27%, 07/19/2034) |
|
10/28/2021 |
|
|
4,000,000 |
|
|
3,994,059 |
|
|
3,541,600 |
|
3.47% |
Marathon
CLO IX, Ltd. |
|
Secured Note - Class D,
10.13%, (3M LIBOR + 6.05%, 04/15/2029) |
|
10/04/2018 |
|
|
4,050,000 |
|
|
4,010,801 |
|
|
2,870,640 |
|
2.82% |
Marathon
CLO XIII, Ltd. |
|
Secured Note - Class D,
11.06%, (3M LIBOR + 6.98%, 04/15/2032) |
|
06/04/2019 |
|
|
3,500,000 |
|
|
3,363,885 |
|
|
2,564,450 |
|
2.52% |
Octagon
Investment Partners 37, Ltd. |
|
Secured Note - Class D,
9.76%, (3M LIBOR + 5.40%, 07/25/2030) |
|
10/04/2018 |
|
|
2,200,000 |
|
|
2,087,834 |
|
|
1,821,160 |
|
1.79% |
Octagon
Investment Partners 38, Ltd. |
|
Secured Note - Class D,
9.94%, (3M LIBOR + 5.70%, 07/20/2030) |
|
10/04/2018 |
|
|
3,725,000 |
|
|
3,658,215 |
|
|
3,133,098 |
|
3.07% |
Octagon
Investment Partners 39, Ltd. |
|
Secured Note - Class E,
9.99%, (3M LIBOR + 5.75%, 10/20/2030) |
|
10/24/2018 |
|
|
1,550,000 |
|
|
1,500,052 |
|
|
1,317,190 |
|
1.29% |
Octagon
Investment Partners 41, Ltd. |
|
Secured Note - Class E-R,
11.21%, (3M LIBOR + 7.13%, 10/15/2033) |
|
09/24/2021 |
|
|
2,500,000 |
|
|
2,488,807 |
|
|
2,158,500 |
|
2.12% |
OZLM
XXI, Ltd. |
|
Secured Note - Class D,
9.78%, (3M LIBOR + 5.54%, 01/20/2031) |
|
10/04/2018 |
|
|
4,150,000 |
|
|
4,074,731 |
|
|
3,336,600 |
|
3.27% |
Palmer
Square CLO 2018-1, Ltd. |
|
Secured Note - Class D,
9.34%, (3M LIBOR + 5.15%, 04/18/2031) |
|
05/30/2019 |
|
|
1,120,000 |
|
|
1,045,530 |
|
|
976,864 |
|
0.96% |
Pikes
Peak CLO 1 |
|
Secured Note - Class E,
10.37%, (3M LIBOR + 6.05%, 07/24/2031) |
|
10/28/2021 |
|
|
3,000,000 |
|
|
2,943,636 |
|
|
2,417,700 |
|
2.37% |
Rockford
Tower CLO 2018-1, Ltd. |
|
Secured Note - Class E,
10.53%, (3M LIBOR + 5.85%, 05/20/2031) |
|
09/30/2021 |
|
|
2,250,000 |
|
|
2,191,204 |
|
|
1,676,925 |
|
1.64% |
Rockford
Tower CLO 2018-2, Ltd. |
|
Secured Note - Class E,
10.24%, (3M LIBOR + 6.00%, 10/20/2031) |
|
10/04/2018 |
|
|
4,275,000 |
|
|
4,190,602 |
|
|
3,219,503 |
|
3.16% |
Rockford
Tower CLO 2019-2, Ltd. |
|
Secured Note - Class E,
10.73%, (3M LIBOR + 6.05%, 08/20/2032) |
|
01/13/2021 |
|
|
3,000,000 |
|
|
2,963,644 |
|
|
2,518,200 |
|
2.47% |
Rockford
Tower CLO 2020-1, Ltd. |
|
Secured Note - Class E,
11.14%, (3M LIBOR + 6.90%, 01/20/2032) |
|
12/04/2020 |
|
|
1,600,000 |
|
|
1,573,204 |
|
|
1,432,480 |
|
1.41% |
RR
4 Ltd |
|
Secured Note - Class D,
9.93%, (3M LIBOR + 5.85%, 04/15/2030) |
|
10/28/2021 |
|
|
4,000,000 |
|
|
3,956,321 |
|
|
3,396,800 |
|
3.33% |
TCI-Symphony
CLO 2016-1 Ltd. |
|
Secured Note - Class E-R2,
10.69%, (3M LIBOR + 6.75%, 10/13/2032) |
|
01/13/2022 |
|
|
3,000,000 |
|
|
3,000,000 |
|
|
2,547,000 |
|
2.50% |
TICP
CLO IX, Ltd. |
|
Secured Note - Class E,
9.84%, (3M LIBOR + 5.60%, 01/20/2031) |
|
08/22/2019 |
|
|
2,500,000 |
|
|
2,367,603 |
|
|
2,224,500 |
|
2.18% |
TICP
CLO XI, Ltd. |
|
Secured Note - Class E,
10.24%, (3M LIBOR + 6.00%, 10/20/2031) |
|
10/29/2021 |
|
|
5,050,000 |
|
|
5,016,610 |
|
|
4,570,250 |
|
4.48% |
Venture
36 CLO, Limited |
|
Secured Note - Class E,
11.16%, (3M LIBOR + 6.92%, 04/20/2032) |
|
01/21/2021 |
|
|
4,800,000 |
|
|
4,495,160 |
|
|
3,372,000 |
|
3.31% |
Venture
43 CLO, Limited |
|
Secured Note - Class E,
11.23%, (3M LIBOR + 7.15%, 04/15/2034) |
|
11/02/2021 |
|
|
2,500,000 |
|
|
2,441,050 |
|
|
2,085,000 |
|
2.05% |
Vibrant
CLO VI, Ltd. |
|
Secured Note - Class E,
10.50%, (3M LIBOR + 5.75%, 06/20/2029) |
|
10/04/2018 |
|
|
1,400,000 |
|
|
1,383,996 |
|
|
1,066,800 |
|
1.05% |
Vibrant
CLO VIII, Ltd. |
|
Secured Note - Class D,
9.99%, (3M LIBOR + 5.75%, 01/20/2031) |
|
10/04/2018 |
|
|
1,750,000 |
|
|
1,709,875 |
|
|
1,270,675 |
|
1.25% |
Wellfleet
CLO 2018-1, Ltd. |
|
Secured Note - Class E,
9.58%, (3M LIBOR + 5.50%, 07/17/2031) |
|
10/27/2021 |
|
|
4,025,000 |
|
|
3,875,444 |
|
|
3,020,763 |
|
2.96% |
Wind
River 2014-1 CLO Ltd. |
|
Secured Note - Class E-R,
10.49%, (3M LIBOR + 6.30%, 07/18/2031) |
|
08/16/2021 |
|
|
2,550,000 |
|
|
2,380,833 |
|
|
1,860,225 |
|
1.82% |
Wind
River 2021-3 CLO Ltd. |
|
Secured Note - Class E,
10.84%, (3M LIBOR + 6.60%, 07/20/2033) |
|
10/28/2021 |
|
|
3,000,000 |
|
|
2,974,998 |
|
|
2,542,800 |
|
2.49% |
|
|
|
|
|
|
|
|
|
|
121,667,007 |
|
|
102,267,315 |
|
100.33% |
CLO Equity
(7) (8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ares
XLIV CLO Ltd. |
|
Subordinated Note, (effective
yield 17.02%, 04/15/2034) |
|
06/08/2021 |
|
|
8,000,000 |
|
|
3,373,333 |
|
|
2,606,286 |
|
2.56% |
Ares
LVIII CLO Ltd. |
|
Subordinated Note, (effective
yield 20.69%, 01/15/2035) |
|
06/17/2021 |
|
|
4,000,000 |
|
|
2,666,623 |
|
|
2,335,416 |
|
2.29% |
Bardin
Hill CLO 2021-2 Ltd. |
|
Subordinated Note, (effective
yield 22.62%, 10/25/2034) (9) |
|
09/24/2021 |
|
|
4,000,000 |
|
|
2,847,445 |
|
|
2,180,042 |
|
2.14% |
Barings
CLO Ltd. 2021-I |
|
Subordinated Note, (effective
yield 16.57%, 04/25/2034) |
|
11/03/2021 |
|
|
4,000,000 |
|
|
3,345,851 |
|
|
2,824,510 |
|
2.77% |
Barings
CLO Ltd. 2021-III |
|
Subordinated Note, (effective
yield 18.66%, 01/18/2035) |
|
11/17/2021 |
|
|
5,000,000 |
|
|
3,974,791 |
|
|
3,215,918 |
|
3.15% |
Carlyle
US CLO 2021-2, Ltd. |
|
Subordinated Note, (effective
yield 15.33%, 04/20/2034) |
|
10/28/2021 |
|
|
3,000,000 |
|
|
2,614,654 |
|
|
2,025,379 |
|
1.99% |
Carlyle
US CLO 2021-5, Ltd. |
|
Subordinated Note, (effective
yield 15.90%, 07/20/2034) |
|
11/02/2021 |
|
|
5,000,000 |
|
|
4,179,218 |
|
|
3,276,571 |
|
3.21% |
CIFC
Funding 2019-VI, Ltd. |
|
Subordinated Note, (effective
yield 17.54%, 01/16/2033) |
|
12/02/2019 |
|
|
6,000,000 |
|
|
4,428,597 |
|
|
3,283,396 |
|
3.22% |
KKR
CLO 29 Ltd. |
|
Subordinated Note, (effective
yield 17.12%, 01/15/2032) |
|
12/14/2021 |
|
|
5,500,000 |
|
|
4,457,607 |
|
|
3,410,101 |
|
3.35% |
Madison
Park Funding XXXVII, Ltd. |
|
Subordinated Note, (effective
yield 33.87%, 07/15/2049) |
|
03/11/2020 |
|
|
4,000,000 |
|
|
2,466,933 |
|
|
2,754,007 |
|
2.70% |
Marathon
CLO XIII, Ltd. |
|
Subordinated Note, (effective
yield 18.76%, 04/15/2032) |
|
06/04/2019 |
|
|
5,300,000 |
|
|
3,724,444 |
|
|
2,459,404 |
|
2.41% |
Octagon
Investment Partners 37, Ltd. |
|
Subordinated Note, (effective
yield 10.92%, 07/25/2030) |
|
01/31/2020 |
|
|
6,000,000 |
|
|
3,725,300 |
|
|
2,268,619 |
|
2.23% |
Octagon
Investment Partners 43, Ltd. |
|
Income Note, (effective
yield 11.83%, 10/25/2032) |
|
08/02/2019 |
|
|
5,750,000 |
|
|
4,447,702 |
|
|
2,717,101 |
|
2.67% |
Point
Au Roche Park CLO, Ltd. |
|
Subordinated Note, (effective
yield 16.12%, 07/20/2034) |
|
02/15/2022 |
|
|
5,945,000 |
|
|
4,792,598 |
|
|
3,716,152 |
|
3.65% |
Venture
37 CLO, Limited |
|
Subordinated Note, (effective
yield 12.30%, 07/15/2032) |
|
05/21/2019 |
|
|
5,200,000 |
|
|
3,715,235 |
|
|
2,039,989 |
|
2.00% |
|
|
|
|
|
|
|
|
|
|
54,760,331 |
|
|
41,112,891 |
|
40.34% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments at fair value as of December 31, 2022 |
|
|
|
|
|
|
$ |
176,427,338 |
|
$ |
143,380,206 |
|
140.67% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, at
fair value (10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.00%
Series A Term Preferred Stock due 2026 |
|
Preferred Stock |
|
|
|
$ |
(38,041,225) |
|
$ |
(38,030,935) |
|
$ |
(36,184,813) |
|
-35.49% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets above (below) fair value of investments and liabilities at fair value |
|
|
|
|
|
|
|
|
|
(5,251,553) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets as of December 31, 2022 |
|
|
|
|
|
|
|
|
$ |
101,943,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The Company is
not affiliated with, nor does it "control" (as such term is defined in the Investment Company Act of 1940 (the "1940 Act")), any of the
issuers listed. In general, under the 1940 Act, the Company would be presumed to "control" an issuer if we owned 25% or more of its voting
securities. |
(2) |
All securities are exempt
from registration under the securities act of 1933, are deemed to be "restricted" securities and are categorized as structured finance
securities. |
(3) |
Pursuant to the terms of the
credit facility agreement, a security interest in favor of the lender has been granted with respect to all investments. See Note 9 "Revolving
Credit Facility" for further discussion. |
(4) |
Acquisition date represents
the initial purchase date or the date when the investment was contributed to the Company. See Note 1 "Organization" for further discussion. |
(5) |
Fair value is determined by
the Adviser in accordance with written valuation policies and procedures, subject to oversight by the Company’s Board of Directors,
in accordance with Rule 2a-5 under the 1940 Act. |
(6) |
CLO debt positions reflect
the coupon rates as of December 31, 2022. |
(7) |
The fair value of CLO equity
investments were determined using significant, unobservable inputs. See Note 3 "Investments" for further discussion. |
(8) |
CLO income and subordinated
notes are considered CLO equity positions. CLO equity positions are entitled to recurring distributions which are generally
equal to the remaining cash flow of payments made by underlying assets less contractual payments to debt holders and CLO expenses. The
effective yield is estimated based upon the current projection of the amount and timing of these recurring distributions in addition to
the estimated amount of terminal principal payment. It is the Company's policy to update the effective yield for each CLO equity
position held within the Company’s portfolio at the initiation of each investment and each subsequent quarter thereafter. The
effective yield and investment cost may ultimately not be realized. As of December 31, 2022, the Company's weighted average effective
yield on its aggregate CLO equity positions, based on current amortized cost, was 17.11%. |
(9) |
Fair value includes the Company's
interest in fee rebates on CLO subordinated notes. |
(10) |
The
Company has accounted for its 5.00% Series A Term Preferred Stock utilizing the fair value option election under ASC Topic 825. Accordingly,
the Series A Term Preferred Stock is carried at its fair value. See Note 2 "Summary of Significant Accounting Policies" for further
discussion. |
See accompanying notes to the
financial statements
Eagle
Point Income Company Inc.
Statement
of Operations
For
the year ended December 31, 2022
(expressed
in U.S. dollars)
INVESTMENT
INCOME |
|
|
|
|
Interest income |
|
$ |
18,946,505 |
|
Other income |
|
|
53,469 |
|
Total Investment Income |
|
|
18,999,974 |
|
|
|
|
|
|
EXPENSES |
|
|
|
|
Interest expense |
|
|
2,526,752 |
|
Management fees |
|
|
1,965,881 |
|
Professional fees |
|
|
621,289 |
|
Administration fees |
|
|
550,842 |
|
Commitment fees |
|
|
500,000 |
|
Tax expense |
|
|
337,472 |
|
Directors' fees |
|
|
255,000 |
|
Amortization of deferred financing
costs |
|
|
87,905 |
|
Commission expense |
|
|
61,255 |
|
Other expenses |
|
|
503,432 |
|
Total Expenses |
|
|
7,409,828 |
|
|
|
|
|
|
NET INVESTMENT INCOME |
|
|
11,590,146 |
|
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS) |
|
|
|
|
Net realized gain (loss) on
investments |
|
|
38,548 |
|
Net change in unrealized appreciation
(depreciation) on investments |
|
|
(31,296,039) |
|
Net change in unrealized (appreciation)
depreciation on liabilities at fair value under the fair value option |
|
|
3,721,302 |
|
NET REALIZED AND UNREALIZED GAIN (LOSS) |
|
|
(27,536,189) |
|
|
|
|
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
|
$ |
(15,946,043) |
|
See accompanying notes to the
financial statements
Eagle
Point Income Company Inc.
Statement
of Comprehensive Income
For
the year ended December 31, 2022
(expressed
in U.S. dollars)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
|
$ |
(15,946,043) |
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS) (1) |
|
|
|
Change in unrealized (appreciation) depreciation
on liabilities at fair value under the fair value option |
|
|
(1,038,890) |
Total Other Comprehensive Income (Loss) |
|
|
(1,038,890) |
|
|
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM COMPREHENSIVE
INCOME |
|
$ |
(16,984,933) |
|
(1) |
See Note 2 "Summary of Significant Accounting Policies- Other Financial Assets
and Financial Liabilities at Fair Value" for further discussion relating to other comprehensive income. |
See accompanying notes to the
financial statements
Eagle
Point Income Company Inc.
Statements
of Changes in Net Assets
(expressed
in U.S. dollars, except share amounts)
|
|
For the |
|
|
For the |
|
|
|
year ended |
|
|
year ended |
|
|
|
December 31,
2022 |
|
|
December 31,
2021 |
|
Net increase (decrease) in net assets resulting from operations: |
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
11,590,146 |
|
|
$ |
6,100,347 |
|
Net realized gain (loss) on investments |
|
|
38,548 |
|
|
|
423,464 |
|
Net change in unrealized appreciation
(depreciation) on investments |
|
|
(31,296,039) |
|
|
|
1,523,590 |
|
Net change in unrealized
(appreciation) depreciation on liabilities at fair value under the fair value option |
|
|
3,721,302 |
|
|
|
(39,626) |
|
Total net increase (decrease) in net assets resulting from operations |
|
|
(15,946,043) |
|
|
|
8,007,775 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Net change in unrealized
(appreciation) depreciation on liabilities at fair value under the fair value option |
|
|
(1,038,890) |
|
|
|
(786,374) |
|
Total other comprehensive income (loss) |
|
|
(1,038,890) |
|
|
|
(786,374) |
|
|
|
|
|
|
|
|
|
|
Common stock distributions: |
|
|
|
|
|
|
|
|
Common stock distributions from net
investment income |
|
|
(10,788,143) |
|
|
|
(8,414,218) |
|
Common stock distributions from tax
return of capital |
|
|
- |
|
|
|
- |
|
Total common stock distributions |
|
|
(10,788,143) |
|
|
|
(8,414,218) |
|
|
|
|
|
|
|
|
|
|
Capital share transactions: |
|
|
|
|
|
|
|
|
Issuance of shares of
common stock upon the Company's follow-on offering, net of underwriting discounts, commissions and offering expenses |
|
|
- |
|
|
|
11,247,376 |
|
Issuance of shares of
common stock pursuant to the Company's "at the market" program, net of commissions and offering expenses |
|
|
14,243,028 |
|
|
|
2,115,159 |
|
Issuance of shares of
common stock pursuant to the Company's dividend reinvestment plan |
|
|
124,721 |
|
|
|
59,313 |
|
Total capital share transactions |
|
|
14,367,749 |
|
|
|
13,421,848 |
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in net assets |
|
|
(13,405,327) |
|
|
|
12,229,031 |
|
Net assets at beginning of period |
|
|
115,349,167 |
|
|
|
103,120,136 |
|
Net assets at end of period |
|
$ |
101,943,840 |
|
|
$ |
115,349,167 |
|
|
|
|
|
|
|
|
|
|
Capital share activity: |
|
|
|
|
|
|
|
|
Shares of common stock issued pursuant
to overnight offering |
|
|
- |
|
|
|
648,000 |
|
Shares of common stock issued pursuant
to the Company's "at the market" program |
|
|
1,006,487 |
|
|
|
124,007 |
|
Shares of common stock
issued pursuant to the Company's dividend reinvestment plan |
|
|
8,306 |
|
|
|
3,499 |
|
Total increase (decrease) in capital
share activity |
|
|
1,014,793 |
|
|
|
775,506 |
|
See accompanying notes to the
financial statements
Eagle
Point Income Company Inc.
Statement
of Cash Flows
For
the year ended December 31, 2022
(expressed
in U.S. dollars)
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
Net
increase (decrease) in net assets resulting from operations |
|
$ |
(15,946,043 |
) |
|
|
|
|
|
Adjustments
to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: |
|
|
|
|
Purchases of investments |
|
|
(14,409,899 |
) |
Proceeds from sales of investments
and repayments of principal (1) |
|
|
9,880,792 |
|
Net realized (gain) loss on
investments |
|
|
(38,548 |
) |
Net change in unrealized (appreciation)
depreciation on investments |
|
|
31,296,039 |
|
Net change in unrealized appreciation
(depreciation) on liabilities at fair value under the fair value option |
|
|
(3,721,302 |
) |
Amortization (accretion) of
premium or discount on 5.00% Series A Term Preferred stock due 2026 |
|
|
(11,211 |
) |
Net amortization (accretion)
of premiums or discounts on CLO debt securities |
|
|
(334,409 |
) |
Amortization of deferred financing
costs |
|
|
87,905 |
|
Changes in assets and liabilities: |
|
|
|
|
Interest
receivable |
|
|
(1,634,504 |
) |
Prepaid expenses |
|
|
(324,047 |
) |
Management
fees payable |
|
|
(47,259 |
) |
Professional
fees payable |
|
|
82,396 |
|
Administration
fees payable |
|
|
42,026 |
|
Interest
expense payable |
|
|
89,429 |
|
Tax expense
payable |
|
|
168,262 |
|
Other expenses
payable |
|
|
(98,334 |
) |
Net cash
provided by (used in) operating activities |
|
|
5,081,293 |
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
Borrowings
under credit facility |
|
|
16,745,000 |
|
Repayments
under credit facility |
|
|
(27,265,000 |
) |
Common stock
distributions paid to stockholders, net of change in common stock distribution payable |
|
|
(12,157,088 |
) |
Issuance
of shares of common stock pursuant to the Company's "at the market" program, net of commissions and offering expenses |
|
|
14,235,130 |
|
Issuance
of shares of common stock pursuant to the Company's dividend reinvestment plan |
|
|
122,935 |
|
Issuance
of shares of 5.00% Series A Term Preferred Stock due 2026 pursuant to the Company's "at the market" program |
|
|
3,041,225 |
|
Share issuance
premium associated with 5.00% Series A Term Preferred Stock due 2026 |
|
|
21,804 |
|
Net cash
provided by (used in) financing activities |
|
|
(5,255,994 |
) |
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
|
(174,701 |
) |
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
211,759 |
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
37,059 |
|
|
|
|
|
|
Supplemental
disclosures: |
|
|
|
|
Cash paid
for franchise taxes |
|
$ |
64,210 |
|
Cash paid
for excise taxes |
|
$ |
105,000 |
|
Cash paid
for interest expense on 5.00% Series A Term Preferred Stock Due 2026 |
|
$ |
1,889,396 |
|
Cash paid
for interest expense on credit facility |
|
$ |
559,138 |
|
(1)
Proceeds from sales or maturity of investments includes $3,883,229 of return of capital on portfolio investments from recurring
cash flows.
See accompanying notes to the
financial statements
Eagle
Point Income Company Inc.
Notes
to the Financial Statements
December
31, 2022
Eagle Point Income Company Inc. (the “Company”)
is an externally managed, diversified closed-end management investment company registered under the Investment Company Act of 1940, as
amended (the “1940 Act”). The Company’s primary investment objective is to generate high current income, with a secondary
objective to generate capital appreciation. The Company seeks to achieve its investment objectives by investing primarily in junior debt
tranches of collateralized loan obligations, or “CLOs,” that are collateralized by a portfolio consisting primarily of below
investment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry sectors. The Company
focuses on CLO debt tranches rated “BB” (e.g., BB+, BB or BB-, or their equivalent) by Moody’s Investors Service, Inc.,
or “Moody’s,” Standard & Poor’s, or “S&P,” or Fitch Ratings, Inc., or “Fitch,”
and/or other applicable nationally recognized statistical rating organizations. The Company may invest up to 35% of its total assets (at
the time of investment) in unrated CLO equity securities and related securities and instruments. The Company may also invest in other
junior debt tranches of CLOs, senior debt tranches of CLOs, loan accumulation facilities (“LAF”) and other related securities
and instruments. The Company’s common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “EIC”.
As of December 31, 2022, the Company had
one wholly-owned subsidiary: Eagle Point Income Company Sub II (Cayman) Ltd. (the “Subsidiary”), a Cayman Islands exempted
company. As of December 31, 2022, the Subsidiary does not represent any portion of the Company’s net assets.
The Company was initially formed on September
28, 2018 as EP Income Company LLC, a Delaware limited liability company. The Company commenced operations on October 4, 2018, the date
Eagle Point Income Management LLC (the “Adviser”) contributed $100,000 in exchange for 100 units of the Company and Cavello
Bay Reinsurance Limited (“Cavello Bay” and collectively with the Adviser, the “Members”) contributed to the Company,
at fair value, the entire portfolio of BB-rated CLO debt it held in a separately managed account managed by an affiliate of the Adviser,
totaling $75,051,650, inclusive of accrued interest of $1,371,697, in exchange for 75,051.65 units of the Company. Cavello Bay is a subsidiary
of Enstar Group Limited, or “Enstar.”
On October 16, 2018, the Company converted
from a Delaware limited liability company into a Delaware corporation (the “Conversion”). At the time of the Conversion, the
Members became stockholders of Eagle Point Income Company Inc. In connection with the Conversion, the Members converted 75,151.65 units
of the Delaware limited liability company into shares of common stock in the Delaware corporation at $20 per share, resulting in 3,769,596
shares and an effective conversion rate of approximately 50.15985069 per unit.
On July 23, 2019, the Company priced its
initial public offering (the “IPO”) and sold an additional 1,200,000 shares of its common stock at a public offering price
of $19.89 per share. On July 24, 2019, the Company’s shares began trading on the NYSE. On August 2, 2019, the Company sold an additional
162,114 shares pursuant to the exercise by the underwriters of the over-allotment option granted to them in connection with the IPO at
a public offering price of $19.89 per share.
Wells Fargo Bank, N.A. serves as the Company’s
custodian.
The Company intends to operate so as to
qualify to be taxed as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code of 1986, as
amended (the “Code”), for federal income tax purposes.
The Adviser is the investment adviser of
the Company and manages the investments of the Company subject to the supervision of the Company’s Board of Directors (the “Board”).
The Adviser is registered as an investment adviser with the U.S. Securities and Exchange Commission (the “SEC”) under the
Investment Advisers Act of 1940, as amended. Eagle Point Administration LLC, an affiliate of the Adviser, is the administrator of the
Company (the “Administrator”).
Eagle
Point Income Company Inc.
Notes
to the Financial Statements
December
31, 2022
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Accounting
The Company is considered an investment
company under accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company follows
the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 946 Financial Services – Investment Companies. Items included
in the financial statements are measured and presented in United States dollars.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions which affect the reported amounts included in the financial
statements and accompanying notes as of the reporting date. Actual results may differ from those estimates.
Valuation of Investments
The most significant estimate inherent in
the preparation of the financial statements is the valuation of investments. Pursuant to Rule 2a-5 under the 1940 Act, the Board has elected
to designate the Adviser as "valuation designee" to perform fair value determinations in respect of the Company's portfolio investments
that do not have readily available market quotations. In the absence of readily available market quotations, as defined by Rule 2a-5 under
the 1940 Act, the Adviser determines the fair value of the Company’s investments in accordance with its valuation policy, subject
to Board oversight. Due to the uncertainty of valuation, this estimate may differ significantly from the value that would have been used
had a ready market for the investments existed, and the differences could be material.
There is no single method for determining
fair value in good faith. As a result, determining fair value requires judgment be applied to the specific facts and circumstances of
each portfolio investment while employing a consistently applied valuation process for the types of investments held by the Company.
The Company accounts for its investments
in accordance with U.S. GAAP, and fair values its investment portfolio in accordance with the provisions of the FASB ASC Topic 820, Fair
Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and requires enhanced
disclosures about fair value measurements. Investments are reflected in the financial statements at fair value. Fair value is the estimated
amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants
at the measurement date (i.e., the exit price). In accordance with Rule 2a-5 under the 1940 Act adopted by the SEC in December 2020, the
Board has designated the Adviser to perform the determination of fair value of the Company’s investment portfolio, subject to Board
oversight and certain other conditions.
The fair value hierarchy prioritizes and
ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a
number of factors, including the type of investment, the characteristics specific to the investment and the state of the marketplace (including
the existence and transparency of transactions between market participants). Investments with readily available actively quoted prices,
or for which fair value can be measured from actively quoted prices in an orderly market, will generally have a higher degree of market
price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair
value are classified and disclosed in one of the following categories based on inputs:
|
· |
Level I – Observable, quoted prices for identical investments
in active markets as of the reporting date. |
|
· |
Level II – Quoted prices for similar investments in active
markets or quoted prices for identical investments in markets that are not active as of the reporting date. |
|
· |
Level III – Pricing inputs are unobservable for the investment
and little, if any, active market exists as of the reporting date. Fair value inputs require significant judgment or estimation from the
Adviser. |
In certain cases, inputs used to measure
fair value may fall into different levels of the fair value hierarchy. In such
Eagle
Point Income Company Inc.
Notes
to the Financial Statements
December
31, 2022
cases, the determination of which category
within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input significant to that fair
value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment
and consideration of factors specific to the investment.
Investments for which observable, quoted
prices in active markets do not exist are reported at fair value based on Level III inputs. The amount determined to be fair value may
incorporate the Adviser’s own assumptions (including assumptions the Adviser believes market participants would use in valuing investments
and assumptions relating to appropriate risk adjustments for nonperformance and lack of marketability), as provided for in the Adviser’s
valuation policy.
An estimate of fair value is made for each
investment at least monthly taking into account information available as of the reporting date. For financial reporting purposes, valuations
are determined by the Adviser on a quarterly basis.
See Note 3 “Investments” for
further discussion relating to the Company’s investments.
In valuing the Company’s investments
in CLO debt and CLO equity, the Adviser considers a variety of relevant factors, including, as applicable, price indications from a third-party
pricing service, recent trading prices for specific investments, recent purchases and sales known to the Adviser in similar securities
and output from a third-party financial model. The third-party financial model contains detailed information on the characteristics of
CLOs, including recent information about assets and liabilities, and is used to project future cash flows. Key inputs to the model, including
but not limited to assumptions for future loan default rates, recovery rates, prepayment rates, reinvestment rates and discount rates
are determined by considering both observable and third-party market data and prevailing general market assumptions and conventions as
well as those of the Adviser.
A third-party independent valuation firm
is used as an input by the Adviser to determine the fair value of the Company’s investments in CLO equity. The valuation firm’s
advice is only one factor considered in the valuation of such investments, and the Adviser does not solely rely on such advice in determining
the fair value of the Company’s investments in accordance with the 1940 Act.
Other Financial Assets and Financial
Liabilities at Fair Value
The Fair Value Option (“FVO”)
under FASB ASC Subtopic 825-10, Fair Value Option (“ASC 825”), allows companies an irrevocable election to use fair
value as the initial and subsequent accounting measurement for certain financial assets and liabilities. The decision to elect the FVO
is determined on an instrument-by-instrument basis and must be applied to an entire instrument. Assets and liabilities measured at fair
value are required to be reported separately from those instruments measured using another accounting method and changes in fair value
attributable to instrument-specific credit risk on financial liabilities for which the FVO is elected are required to be presented separately
in other comprehensive income. Additionally, upfront offering costs related to such instruments are recognized in earnings as incurred
and are not deferred.
The Company elected to account for its 5.00%
Series A Term Preferred Stock due 2026 (the “Series A Term Preferred Stock”) utilizing the FVO under ASC 825. The primary
reason for electing the FVO is to reflect economic events in the same period in which they are incurred and address simplification of
reporting and presentation.
Investment Income Recognition
Interest income from investments in CLO
debt is recorded using the accrual basis of accounting to the extent such amounts are expected to be collected. Interest income on investments
in CLO debt is generally expected to be received in cash. Amortization of premium or accretion of discount is recognized using the effective
interest method. The Company applies the provisions of Accounting Standards Update No. 2017-08 Premium Amortization on Purchased Callable
Debt Securities (“ASU 2017-08”) in calculating amortization of premium for purchased CLO debt securities.
In certain circumstances interest income
may be paid in the form of additional investment principal, often referred to as payment-in-kind (“PIK”) interest. PIK interest
is included in interest income and interest receivable through the payment date. The PIK interest rate for CLO debt securities represents
the coupon rate at payment date when PIK
Eagle
Point Income Company Inc.
Notes
to the Financial Statements
December
31, 2022
interest is received. On the payment date,
interest receivable is capitalized as additional investment principal in the CLO debt security. To the extent the Company does not believe
it will be able to collect PIK interest, the CLO debt security will be placed on non-accrual status, and previously recorded PIK interest
income will be reversed.
CLO equity investments and fee rebates recognize
investment income for U.S. GAAP purposes on the accrual basis utilizing an effective interest methodology based upon an effective yield
to maturity utilizing projected cash flows. ASC Topic 325-40, Beneficial Interests in Securitized Financial Assets, requires investment
income from CLO equity investments and fee rebates to be recognized under the effective interest method, with any difference between cash
distributed and the amount calculated pursuant to the effective interest method being recorded as an adjustment to the cost basis of the
investment. It is the Adviser’s policy to update the effective yield for each CLO equity position held within the Company’s
portfolio at the initiation of each investment and each subsequent quarter thereafter.
Other Income
Other income includes the Company’s
share of income under the terms of fee rebate agreements.
Interest Expense
Interest expense includes the Company’s
distributions associated with its Series A Term Preferred Stock and amounts due under the credit facility agreements in relation to the
outstanding borrowings and unused commitment fees. Interest expense is recorded as an expense on the Statement of Operations. The Company’s
Series A Preferred Stock had no interest payable as of December 31, 2022. Please refer to Note 6 “Mandatory Redeemable Preferred
Stock” for further discussion relating to the Series A Term Preferred Stock issuances. Please refer to Note 9 “Revolving Credit
Facility” for further discussion on the interest expense due under the credit facility agreements.
Interest expense also includes the Company’s
amortization of original issue premiums associated with its Series A Term Preferred Stock.
The following table summarizes the components
of interest expense for the year ended December 31, 2022:
|
|
Series
A Term Preferred Stock |
|
|
Credit
Facility |
|
|
Total |
|
|
Distributions declared and paid |
|
$ |
1,889,396 |
|
|
$ |
|
|
|
$ |
1,889,396 |
|
|
Interest expense on credit
facility |
|
|
|
|
|
|
648,567 |
|
|
|
648,567 |
|
|
Amortization of issuance
premium |
|
|
(11,211 |
) |
|
|
|
|
|
|
(11,211 |
) |
|
|
|
$ |
1,878,185 |
|
|
$ |
648,567 |
|
|
$ |
2,526,752 |
|
|
Original Issue Premiums
Consistent with FASB ASC Topic 835-30-35-2,
original issue premiums on liabilities consist of premiums received in connection with the issuance of the Series A Term Preferred Stock
as part of the Company’s at-the-market (“ATM”) program. The original issue premiums are capitalized at the time of issuance
and amortized using the effective interest method over the respective terms of the Series A Term Preferred Stock. Amortization of original
issue premium is reflected as a contra expense under interest expense in the Statement of Operations.
Securities Transactions
The Company records the purchases and sales
of securities on the trade date. Realized gains and losses on investments sold are recorded on the basis of the specific identification
method.
Cash and Cash
Equivalents
The Company has defined cash and cash equivalents
as cash and short-term, highly liquid investments with original maturities of three months or less from the date of purchase. The Company
maintains its cash in a bank account which, at times, may exceed federal insured limits. The Adviser monitors the performance of the financial
institution where the account is held in order to manage any risk associated with such account.
As of December 31, 2022, the Company held
cash in a Computershare Corporate Trust interest earning cash deposit account with a balance of $35,591. This account is classified as
Level I in the fair value hierarchy.
Eagle
Point Income Company Inc.
Notes
to the Financial Statements
December
31, 2022
Expense Recognition
Expenses are recorded on the accrual basis
of accounting.
Prepaid Expenses
Prepaid expenses consist primarily of insurance
premiums, filing fees, shelf registration expenses, ATM program expenses and the Committed Equity Financing expenses (refer to Note 5
“Common Stock”). Insurance premiums are amortized over the term of the current policy. Prepaid shelf registration expenses,
ATM program expenses and Committed Equity Financing expenses represent fees and expenses incurred in connection with the initial registration
of the Company’s current shelf registration, ATM program and the Committed Equity Financing. Such costs are allocated pro-rata based
on the amount issued relative to the total respective offering amount to paid-in-capital or expense depending on the security being issued
pursuant to the shelf registration, ATM program and the Committed Equity Financing. Any subsequent costs incurred to maintain the Company’s
ATM program and the Committed Equity Financing are expensed as incurred.
Any unallocated prepaid expense balance
associated with the shelf registration, ATM program and the Committed Equity Financing are accelerated into expense at the earlier of
the end of the program period or at the effective date of a new shelf registration or ATM program.
Deferred Financing Costs
Deferred financing costs consist of fees
and expenses incurred in connection with the BNP Credit Facility (refer to Note 9 “Revolving Credit Facility”). Deferred financing
costs are capitalized and amortized over the term of the BNP Credit Facility, and are reflected in borrowings under the credit facility
on the Statement of Asset and Liabilities (if any). Amortization of deferred financing costs is recorded as an expense on the Statement
of Operations on a straight-line basis, which approximates the effective interest method.
Offering Expenses
Offering expenses associated with the issuance
and sale of shares of common stock, inclusive of expenses incurred associated with offerings under the ATM program, are charged to paid-in
capital at the time the shares are sold in accordance with guidance noted in FASB ASC Topic 946-20-25-5, Investment Companies –
Investment Company Activities – Recognition, during the period incurred.
Federal and Other Taxes
The Company intends to continue to operate
so as to qualify to be taxed as a RIC under subchapter M of the Code and, as such, to not be subject to federal income tax on the portion
of its taxable income and gains distributed to stockholders. To qualify for RIC tax treatment, among other requirements, the Company is
required to distribute at least 90% of its investment company taxable income, as defined by the Code. Accordingly, the Company intends
to distribute its taxable income and net realized gains, if any, to stockholders in accordance with timing requirements imposed by the
Code. Therefore, no federal income tax provision is required. The Company’s tax year end is December 31. The Company intends to
file federal income and excise tax returns as well as any applicable state tax filings. The statute of limitations on the Company’s
tax return filings generally remains open for three years. The Company has analyzed its tax positions for its tax year ended December
31, 2022, including open tax years, and does not believe there are any uncertain tax positions requiring recognition in the Company’s
financial statements.
Because U.S. federal income tax regulations
differ from U.S. GAAP, distributions in accordance with tax regulations may differ from net investment income and realized capital gains
recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital
accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense,
gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term
capital gains as ordinary income for federal income tax purposes. The tax basis components of distributable earnings differ from the amounts
reflected in the Statement of Assets and Liabilities due to temporary book/tax differences arising primarily from partnerships and passive
foreign investment company investments.
For the year ended December 31, 2022, $196,812
of nondeductible offering expenses related to the Series A Term Preferred Stock, and $255,000 and $19,572 of nondeductible U.S. federal
excise taxes incurred in relation to the 2022
Eagle
Point Income Company Inc.
Notes
to the Financial Statements
December
31, 2022
and 2021 excise tax years, respectively,
was reclassified between aggregate distributable earnings (losses) and paid-in capital. This difference has no effect on net assets or
net asset value per share.
For the tax year ended December 31, 2022,
the estimated components of distributable earnings, on a tax basis, were as follows:
|
|
For
the tax year ended December 31, 2022 |
|
Undistributed
ordinary income |
|
$ |
6,689,300 |
|
Capital
loss carryforward |
|
|
14,302,577 |
|
Net unrealized
depreciation |
|
|
(40,633,035 |
) |
The following table summarizes the tax character
of distributions to common and preferred shareholders for the respective tax years. Tax information for the tax year ended December 31,
2022 is estimated and is not considered final until the Company files its tax return.
Tax
Year |
|
|
Ordinary
Dividend |
|
|
Return
of Capital |
|
|
2022 |
|
|
$ |
12,677,539 |
|
|
$ |
- |
|
|
2021 |
|
|
|
8,744,744 |
|
|
|
- |
|
|
2020 |
|
|
|
7,997,030 |
|
|
|
1,106,093 |
|
|
2019 |
|
|
|
4,123,118 |
|
|
|
- |
|
As of December 31, 2022, the Company’s
tax cost for federal income tax purposes was $184,013,241. Accordingly, accumulated net unrealized depreciation on investments held by
the Company was $40,633,035, consisting of $0 gross unrealized appreciation and $40,633,035 gross unrealized depreciation.
Depending on the level of taxable income
earned in a tax year, the Company is permitted to carry forward taxable income (including net capital gains, if any) in excess of its
current year distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such
taxable income, as required.
The Company has determined that its estimated
current year annual taxable income will be in excess of current year distributions from such income, as a result the Company has accrued
a U.S. federal excise tax for the year ended December 31, 2022 of $255,000. The Company also incurred an additional $19,572 of U.S. federal
excise tax related to the tax year ended December 31, 2021, both of which are reported on the Statement of Operations.
For the year ended December 31, 2022, the Company incurred
$62,900 in Delaware franchise tax expense related to the 2022 tax year end, which is reported on the Statement of Operations.
Distributions
The composition of distributions paid to
common stockholders from net investment income and capital gains are determined in accordance with U.S. federal income tax regulations,
which differ from U.S. GAAP. Distributions to common stockholders and are comprised of net investment income, realized gains or losses
and return of capital for U.S. federal income tax purposes and are intended to be paid monthly. Distributions payable to common stockholders
are recorded as a liability on ex-dividend date. Unless a common stockholder opts out of the Company’s dividend reinvestment plan
(the “DRIP”), distributions are automatically reinvested in full shares of the Company as of the payment date, pursuant to
the DRIP. The Company’s common stockholders who opt-out of participation in the DRIP (including those common stockholders whose
shares are held through a broker who has opted out of participation in the DRIP) generally will receive all distributions in cash.
In addition to the regular monthly distributions,
and subject to available taxable earnings of the Company, the Company may make periodic special distributions representing the excess
of the Company’s net taxable income over the Company’s aggregate monthly distributions paid during the year (or for other
purposes).
Eagle
Point Income Company Inc.
Notes
to the Financial Statements
December
31, 2022
For the year ended December 31, 2022, the
Company declared and paid monthly distributions on common stock of approximately $10.8 million or approximately $1.53 per share. In addition,
on January 24, 2022 the Company paid a special distribution on common stock of approximately $1.4 million or $0.20 per share, to shareholders
of record as of December 23, 2021.
The characterization of distributions paid
to common stockholders, as set forth in the Financial Highlights, reflect estimates made by the Company for federal income tax purposes.
Such estimates are subject to change once the final determination of the source of all distributions has been made by the Company.
For the year ended December 31, 2022, the
Company declared and paid dividends on the Series A Term Preferred Stock of approximately $1.9 million or approximately $1.25 per share
of Series A Term Preferred Stock.
Fair Value Measurement
The following table summarize the valuation
of the Company’s investments measured and reported at fair value under the fair value hierarchy levels described in Note 2 “Summary
of Significant Accounting Policies” as of December 31, 2022:
Fair Value Measurement (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
I |
|
|
Level
II |
|
|
Level
III |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
0.04 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
0.04 |
|
CLO Debt |
|
|
- |
|
|
|
102.27 |
|
|
|
- |
|
|
|
102.27 |
|
CLO Equity |
|
|
- |
|
|
|
- |
|
|
|
41.11 |
|
|
|
41.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets at Fair Value |
|
$ |
0.04 |
|
|
$ |
102.27 |
|
|
$ |
41.11 |
|
|
$ |
143.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
at Fair Value Under FVO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Term Preferred Stock |
|
$ |
36.18 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
36.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities at Fair Value Under FVO |
|
$ |
36.18 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
36.18 |
|
The changes in investments classified as
Level III are as follows for the year ended December 31, 2022:
Change in Investments Classified as Level III (in millions) |
|
|
|
|
|
|
|
|
|
CLO
Equity |
|
Balance as of January 1, 2022 |
|
$ |
53.27 |
|
|
|
|
|
|
Purchases of investments |
|
|
5.12 |
|
Proceeds from sales or
maturity of investments (1) |
|
|
(3.88 |
) |
Net realized gains (losses) and net change
in unrealized appreciation (depreciation) |
|
|
(13.40 |
) |
|
|
|
|
|
Balance as of December 31, 2022 (2) |
|
$ |
41.11 |
|
|
|
|
|
|
Change in unrealized
appreciation (depreciation) on investments still held as of December 31, 2022 |
|
$ |
(13.40 |
) |
|
|
|
|
|
(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 in
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
Eagle
Point Income Company Inc.
Notes
to the Financial Statements
December
31, 2022
Operations.
Valuation of CLO Debt
The Company’s investments in CLO debt
have been valued using an independent pricing service. The valuation methodology of the independent pricing service includes incorporating
data comprised of observable market transactions, executable bids, broker quotes from dealers with two sided markets, as well as transaction
activity from comparable securities to those being valued. As the independent pricing service contemplates real time market data and no
unobservable inputs or significant judgment has been used by the Adviser in the valuation of the Company’s investment in CLO debt,
such positions are considered Level II assets.
Valuation of CLO Equity
The Adviser utilizes the output of a third-party
financial model to estimate the fair value of CLO equity investments. The model contains detailed information on the characteristics of
each CLO, including recent information about assets and liabilities from data sources such as trustee reports, and is used to project
future cash flows to the CLO note tranches, as well as management fees.
The following table summarizes the quantitative
inputs and assumptions used for investments categorized as Level III of the fair value hierarchy as of December 31, 2022. In addition
to the techniques and inputs noted in the table below, the Adviser may use other valuation techniques and methodologies when determining
the fair value measurements of the Company’s investments, as provided for in the Adviser’s valuation policy approved by the
Board. The table below is not intended to be all-inclusive, but rather provides information on the significant Level III inputs as they
relate to the Company’s fair value measurements as of December 31, 2022. Unobservable inputs and assumptions are periodically
reviewed and updated as necessary to reflect current market conditions.
|
|
Quantitative
Information about Level III Fair Value Measurements |
|
Assets |
|
Fair
Value as of December 31, 2022 |
|
|
Valuation Techniques/Methodologies |
|
Unobservable
Inputs |
|
Range
/ Weighted Average(1) |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
CLO
Equity |
|
$ |
41.11 |
|
|
Discounted
Cash Flows |
|
Annual
Default Rate (2) |
|
|
0.00%
- 6.04% |
|
|
|
|
|
|
|
|
|
Annual
Prepayment Rate (2) (3) |
|
|
20%
- 25% |
|
|
|
|
|
|
|
|
|
Reinvestment
Spread |
|
|
3.48%
- 3.79% / 3.60% |
|
|
|
|
|
|
|
|
|
Reinvestment
Price (2) |
|
|
95.00%
- 99.50% |
|
|
|
|
|
|
|
|
|
Recovery
Rate |
|
|
68.58%
- 69.86% / 69.42% |
|
|
|
|
|
|
|
|
|
Expected
Yield |
|
|
22.96%
- 47.89% / 29.85% |
|
(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.
Valuation of Series A Term
Preferred Stock
The Series A Term Preferred Stock is
considered a Level I security and is valued at the official closing price, taken from the NYSE.
Eagle
Point Income Company Inc.
Notes
to the Financial Statements
December
31, 2022
Investment
Risk Factors
The following list is not intended to be
a comprehensive list of all of the potential risks associated with the Company. The Company’s prospectus provides a detailed discussion
of the Company’s risks and considerations. The risks described in the prospectus are not the only risks the Company faces. Additional
risks and uncertainties not currently known to the Company or that are currently deemed to be immaterial also may materially and adversely
affect its business, financial condition and/or operating results.
Risks of Investing in CLOs and Other
Structured Debt Securities.
CLOs and other structured finance securities
are generally backed by a pool of credit-related assets that serve as collateral. Accordingly, CLO and structured finance securities present
risks similar to those of other types of credit investments, including default (credit), interest rate and prepayment risks. In addition,
CLOs and other structured finance securities are often governed by a complex series of legal documents and contracts, which increases
the risk of dispute over the interpretation and enforceability of such documents relative to other types of investments.
Subordinated Securities Risk
CLO junior debt and equity securities that
the Company may acquire are subordinated to more senior tranches of CLO debt. CLO junior debt and equity securities are subject to increased
risks of default relative to the holders of superior priority interests in the same CLO. In addition, at the time of issuance, CLO equity
securities are under-collateralized in that the face amount of the CLO debt and CLO equity of a CLO at inception exceed its total assets.
The Company will typically be in a subordinated or first loss position with respect to realized losses on the underlying assets held by
the CLOs in which the Company is invested.
High-Yield Investment Risk
The CLO junior debt and equity securities
that the Company acquires are typically rated below investment grade or, in the case of CLO equity securities, unrated and are therefore
considered “higher-yield” or “junk” securities and are considered speculative with respect to timely payment of
interest and repayment of principal. The senior secured loans and other credit-related assets underlying CLOs are also typically higher-yield
investments. Investing in CLO junior debt and equity securities and other high-yield investments involves greater credit and liquidity
risk than investment grade obligations, which may adversely impact the Company’s performance.
Leverage Risk
The use of leverage, whether directly or
indirectly through investments such as CLO junior debt and equity securities that inherently involve leverage, may magnify the Company’s
risk of loss. CLO junior debt and equity securities are very highly leveraged (with CLO equity securities typically being leveraged ten
times), and therefore the CLO securities in which the Company invests are subject to a higher degree of loss since the use of leverage
magnifies losses.
Credit Risk
If (1) a CLO in which the Company invests,
(2) an underlying asset of any such CLO or (3) any other type of credit investment in the Company’s portfolio declines
in price or fails to pay interest or principal when due because the issuer or debtor, as the case may be, experiences a decline in its
financial status, the Company’s income, net asset value (“NAV”) and/or market price would be adversely impacted.
Key Personnel Risk
The Company is dependent upon the key personnel
of the Adviser for its future success.
Conflicts of Interest Risk
The Company’s executive officers and
directors, and the Adviser and certain of its affiliates and their officers and employees, including the Senior Investment Team, have
several conflicts of interest as a result of the other activities in which they engage.
Prepayment Risk
The assets underlying the CLO securities
in which the Company invests are subject to prepayment by the underlying
Eagle Point Income Company Inc.
Notes to the Financial
Statements
December 31, 2022
corporate borrowers. As such, the CLO
securities and related investments in which the Company invests are subject to prepayment risk. If the Company or a CLO collateral manager
are unable to reinvest prepaid amounts in a new investment with an expected rate of return at least equal to that of the investment repaid,
the Company’s investment performance will be adversely impacted.
LIBOR Risk
Certain CLO debt and equity securities in
which the Company invests earn interest at, and CLOs in which the Company invests typically obtain financing at, a floating rate based
on LIBOR. After the global financial crisis, regulators globally determined that existing interest rate benchmarks should be reformed
based on concerns that LIBOR was susceptible to manipulation. Replacement rates that have been identified include the Secured Overnight
Financing Rate (SOFR, which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase
agreement transactions collateralized with U.S. Treasury securities) and the Sterling Overnight Index Average Rate (SONIA, which is intended
to replace pound sterling LIBOR and measures the overnight interest rate paid by banks for unsecured transactions in the sterling market).
To the extent that any LIBOR replacement rate utilized for senior secured loans differs from that utilized for debt of a CLO that holds
those loans, for the duration of such mismatch, the CLO would experience an interest rate mismatch between its assets and liabilities,
which could have an adverse impact on the cash flows distributed to CLO equity investors as well as the Company’s net investment
income and portfolio returns until such mismatch is corrected or minimized. As of the date hereof, certain senior secured loans have transitioned
to utilizing SOFR based interest rates and certain CLO debt securities have also transitioned to SOFR.
Certain underlying loans held by CLOs do
not include a “fall back” provision that addresses how interest rates will be determined once LIBOR stops being published,
or otherwise leave certain aspects of the replacement rate to be negotiated between the loan issuer and the lender group. For example,
certain loans held by CLOs in which the Company invests provide for a negotiated “credit spread adjustment” (i.e., a marginal
increase in the applicable replacement rate to compensate lenders for the tendency of SOFR and other alternative rates to price lower
than LIBOR). If a CLO’s collateral manager and other members of the lending group agree to (or fail to reject) an amendment to an
underlying loan that provides for a below-market spread adjustment, then the equity investors in such CLO (such as the Company) would
be disadvantaged if the debt securities issued by the CLO have a larger spread adjustment.
Liquidity Risk
Generally, there is no public market for
the CLO investments in which the Company targets. As such, the Company may not be able to sell such investments quickly, or at all. If
the Company is able to sell such investments, the prices the Company receives may not reflect the Adviser’s assessment of their
fair value or the amount paid for such investments by the Company.
Management Fee Risk
The Company’s management fee structure
may incentivize the Adviser to use leverage in a manner that adversely impacts the Company’s performance.
Fair Valuation of the Company’s
Portfolio Investments
Generally, there is no public market for
the CLO investments in which the Company invests. The Adviser values these securities at least quarterly, or more frequently as may be
required from time to time, at fair value. The Adviser’s determinations of the fair value of the Company’s investments have
a material impact on the Company’s net earnings through the recording of unrealized appreciation or depreciation of investments
and may cause the Company’s NAV on a given date to understate or overstate, possibly materially, the value that the Company ultimately
realizes on one or more of the Company’s investments.
Limited Investment Opportunities
Risk
The market for CLO securities is more limited
than the market for other credit related investments. The Company can offer no assurances that sufficient investment opportunities for
the Company’s capital will be available.
Eagle Point Income Company Inc.
Notes to the Financial
Statements
December 31, 2022
Market Risk
Political, regulatory, economic and social
developments, and developments that impact specific economic sectors, industries or segments of the market, can affect the value of the
Company’s investments. A disruption or downturn in the capital markets and the credit markets could impair the Company’s ability
to raise capital, reduce the availability of suitable investment opportunities for us, or adversely and materially affect the value of
the Company’s investments, any of which would negatively affect the Company’s business. These risks may be magnified if certain
events or developments adversely interrupt the global supply chain, and could affect companies worldwide.
Loan Accumulation Facilities Risk
The Company may invest in LAFs, which are
short to medium term facilities often provided by the bank that will serve as placement agent or arranger on a CLO transaction and which
acquire loans on an interim basis which are expected to form part of the portfolio of a future CLO. Investments in LAFs have risks similar
to those applicable to investments in CLOs. Leverage is typically utilized in such a facility and as such the potential risk of loss will
be increased for such facilities employing leverage. In the event a planned CLO is not consummated, or the loans are not eligible for
purchase by the CLO, the Company may be responsible for either holding or disposing of the loans. This could expose the Company to credit
and/or mark-to-market losses, and other risks.
Currency Risk
Although the Company primarily makes investments
denominated in U.S. dollars, the Company may make investments denominated in other currencies. The Company’s investments denominated
in currencies other than U.S. dollars will be subject to the risk that the value of such currency will decrease in relation to the U.S.
dollar. The Company may or may not hedge currency risk.
Hedging Risk
Hedging transactions seeking to reduce risks
may result in poorer overall performance than if the Company had not engaged in such hedging transactions. Additionally, such transitions
may not fully hedge the Company’s risks.
Reinvestment Risk
CLOs will typically generate cash from asset
repayments and sales that may be reinvested in substitute assets, subject to compliance with applicable investment tests. If the CLO collateral
manager causes the CLO to purchase substitute assets at a lower yield than those initially acquired or sale proceeds are maintained temporarily
in cash, it would reduce the excess interest-related cash flow, thereby having a negative effect on the fair value of the Company’s
assets and the market value of the Company’s securities. In addition, the reinvestment period for a CLO may terminate early, which
would cause the holders of the CLO’s securities to receive principal payments earlier than anticipated. There can be no assurance
that the Company will be able to reinvest such amounts in an alternative investment that provides a comparable return relative to the
credit risk assumed.
Interest Rate Risk
The price of certain of the Company’s
investments may be significantly affected by changes in interest rates, including recent increases in interest rates.
Refinancing Risk
If the Company incurs debt financing and
subsequently refinance such debt, the replacement debt may be at a higher cost and on less favorable terms and conditions. If the Company
fails to extend, refinance or replace such debt financings prior to their maturity on commercially reasonable terms, the Company’s
liquidity will be lower than it would have been with the benefit of such financings, which would limit the Company’s ability to
grow, and holders of the Company’s common stock would not benefit from the potential for increased returns on equity that incurring
leverage creates.
Tax Risk
If the Company fails to qualify for tax
treatment as a RIC under Subchapter M of the Code for any reason, or otherwise becomes subject to corporate income tax, the resulting
corporate taxes (and any related penalties) could substantially reduce the Company’s net assets, the amount of income available
for distributions to the Company’s stockholders, and the amount of income available for payment of the Company’s other liabilities.
Eagle Point Income Company Inc.
Notes to the Financial
Statements
December 31, 2022
Derivatives Risk
Derivative instruments in which the Company
may invest may be volatile and involve various risks different from, and in certain cases greater than, the risks presented by other instruments.
The primary risks related to derivative transactions include counterparty, correlation, liquidity, leverage, volatility, over-the-counter
trading, operational and legal risks. In addition, a small investment in derivatives could have a large potential impact on the Company’s
performance, effecting a form of investment leverage on the Company’s portfolio. In certain types of derivative transactions, the
Company could lose the entire amount of the Company’s investment; in other types of derivative transactions the potential loss is
theoretically unlimited.
Counterparty Risk
The Company may be exposed to counterparty
risk, which could make it difficult for the us or the CLOs in which the Company invests to collect on obligations, thereby resulting in
potentially significant losses.
Global Economy Risk
Global economies and financial markets are
highly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different
country, region or financial market.
Price Risk
Investors who buy shares at different times
will likely pay different prices.
Russia Risk
Russia’s military incursion into Ukraine,
the response of the United States and other countries, and the potential for wider conflict, has increased volatility and uncertainty
in the financial markets and may adversely affect the Company.
Synthetic Investments Risk
The Company may invest in synthetic investments,
such as significant risk transfer securities and credit risk transfer securities issued by banks or other financial institutions, or acquire
interests in lease agreements that have the general characteristics of loans and are treated as loans for withholding tax purposes. In
addition to the credit risks associated with the applicable reference assets, the Company will usually have a contractual relationship
only with the counterparty of such synthetic investment, and not with the reference obligor of the reference asset. Accordingly, the Company
generally will have no right to directly enforce compliance by the reference obligor with the terms of the reference asset nor will it
have any rights of setoff against the reference obligor or rights with respect to the reference asset. The Company will not directly benefit
from the collateral supporting the reference asset and will not have the benefit of the remedies that would normally be available to a
holder of such reference asset. In addition, in the event of the insolvency of the counterparty, the Company may be treated as a general
creditor of such counterparty, and will not have any claim with respect to the reference asset.
4. |
RELATED PARTY TRANSACTIONS |
Investment Adviser
On October 5, 2018, the Company entered
into an investment advisory agreement with the Adviser (the “Advisory Agreement”). Pursuant to the terms of the Advisory Agreement,
the Company pays the Adviser, for its services, a management fee equal to an annual rate of 1.25% of the Company’s “Managed
Assets”. Managed Assets are defined as the Company’s total assets (including assets attributable to the Company’s use
of leverage) minus the sum of the Company’s accrued liabilities (other than liabilities incurred for the purpose of creating leverage).
The management fee is calculated monthly and payable quarterly in arrears based on the Company’s Managed Assets at the end of each
calendar month. For the year ended December 31, 2022, the Company was charged a management fee of approximately $2.0 million, of
which $0.5 million was payable as of December 31, 2022.
Administrator
Effective October 5, 2018, the Company
entered into an administration agreement (the “Administration Agreement”) with the Administrator, an affiliate of the Adviser.
Pursuant to the Administration Agreement, the
Eagle Point Income Company Inc.
Notes to the Financial
Statements
December 31, 2022
Administrator performs, or arranges for
the performance of, the Company’s required administrative services, which include being responsible for the financial records which
the Company is required to maintain and preparing reports which are disseminated to the Company’s stockholders. In addition, the
Administrator provides the Company with accounting services, assists the Company in determining and publishing its NAV, oversees the preparation
and filing of the Company’s tax returns, monitors the Company’s compliance with tax laws and regulations, and prepares and
assists the Company with any audits by an independent public accounting firm of the financial statements. The Administrator is also responsible
for printing and disseminating reports to the Company’s stockholders and maintaining the Company’s website, providing support
to investor relations, generally overseeing the payment of the Company’s expenses and the performance of administrative and professional
services rendered to the Company by others, and providing such other administrative services as the Company may from time to time designate.
Payments under the Administration Agreement
are equal to an amount based upon the Company’s allocable portion of the Administrator’s overhead in performing its obligations
under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s
allocable portion of the compensation of the Company’s chief compliance officer, chief financial officer, chief operating officer
and the Company’s allocable portion of the compensation of any related support staff. The Company’s allocable portion of such
compensation is based on an allocation of the time spent on the Company relative to other matters. To the extent the Administrator outsources
any of its functions, the Company pays the fees on a direct basis, without profit to the Administrator. Certain accounting and other administrative
services have been delegated by the Administrator to SS&C Technologies, Inc. (“SS&C”). The Administration Agreement
may be terminated by the Company without penalty upon not less than sixty days’ written notice to the Administrator and by the Administrator
upon not less than ninety days’ written notice to the Company. The Administration Agreement is approved by the Board, including
by a majority of the Company’s independent directors, on an annual basis.
For the year ended December 31, 2022,
the Company was charged a total of approximately $0.6 million in administration fees consisting of approximately $0.5 million and $0.1
million, relating to services provided by the Administrator and SS&C, respectively, which are included in the Statement of Operations,
and of which approximately $0.1 million was payable as of December 31, 2022 and reflected on the Statement of Assets and Liabilities.
Affiliated Ownership
As of December 31, 2022, the Adviser
and its affiliates and senior investment team held an aggregate of 0.6% of the Company’s common stock. Additionally, the senior
investment team held an aggregate of 0.1% of the Series A Term Preferred Stock as of December 31, 2022. An affiliate of Enstar
holds an indirect non-controlling ownership interest in the Adviser. As of December 31, 2022, subsidiaries of Enstar, including Cavello
Bay, held an aggregate of 47.7% of the Company’s common stock.
Exemptive Relief
On March 17, 2015, the SEC granted
exemptive relief to the Adviser and its affiliates which permits the Company to participate in certain negotiated co-investments alongside
other accounts managed by the Adviser, or its affiliates, subject to certain conditions.
As of December 31, 2022, there were
150,000,000 shares of common stock authorized, of which 7,896,757 shares were issued and outstanding.
On May 29, 2020, the Company filed
a new shelf registration statement with 150,000,000 shares of common stock authorized.
On December 20, 2021, the Company launched
a new ATM offering to sell up to $2.6 million aggregate amount of its common stock, pursuant to a prospectus supplement filed with the
SEC on May 29, 2020 and additional supplements thereafter.
Eagle Point Income Company Inc.
Notes to the Financial
Statements
December 31, 2022
On November 10, 2022, the Company launched
a new ATM offering to sell up to $11.3 million aggregate amount of its common stock, pursuant to a prospectus supplement filed with the
SEC on May 29, 2020 and additional supplements thereafter.
On December 13, 2022, the Company launched
a new ATM offering to sell up to $4.0 million aggregate amount of its common stock, pursuant to a prospectus supplement filed with the
SEC on May 29, 2020 and additional supplements thereafter. Costs incurred to maintain the ATM program are expensed as incurred and
are included in the Statement of Operations.
On August 16, 2022, the Company entered
into an agreement (the “Purchase Agreement”) with B. Riley Principal Capital II, LLC (“BRPC II”) in which BRPC
II has committed to purchase from the Company, at the Company’s discretion, up to $20.0 million of the Company’s common stock,
subject to terms and conditions specified in the Purchase Agreement (referred to as the “Committed Equity Financing”). The
Company filed a registration statement on December 15, 2022 in relation to the Committed Equity Financing. In connection with the
Committed Equity Financing, the Company incurred a $500,000 upfront commitment fee which was expensed as incurred and included in the
Statement of Operations.
For the year ended December 31, 2022,
the Company sold 1,006,487 shares of its common stock, pursuant to the ATM offerings, for total net proceeds to the Company of approximately
$14.3 million. In connection with such sales, the Company paid a total of approximately $0.3 million in sales agent commissions.
For the year ended December 31, 2022,
8,306 shares of common stock were issued in connection with the DRIP for total net proceeds to the Company of approximately $0.1 million.
6. |
MANDATORY REDEEMABLE PREFERRED STOCK |
As of December 31, 2022, there were
20,000,000 shares of preferred stock authorized, par value $0.001 per share, of which 1,521,649 shares of Series A Term Preferred
Stock were issued and outstanding.
The Company is required to redeem all outstanding
shares of the Series A Term Preferred Stock on October 30, 2026, at a redemption price of $25 per share (the “Series A
Liquidation Preference”), plus accumulated but unpaid dividends, if any. At any time on or after October 31, 2023, the Company
may, at its sole option, redeem the outstanding shares of the Series A Term Preferred Stock.
The Company has accounted for its Series A
Term Preferred Stock utilizing the FVO under ASC 825. Accordingly, the Series A Term Preferred Stock is measured at fair value. The
Company incurred additional issuance costs in the aggregate amount of approximately $0.1 million, which consisted of approximately eighty
thousand of professional fees and ten thousand of other expenses, which were expensed as incurred in the year ended December 31,
2022.
The estimated change in fair value of the
Series A Term Preferred Stock attributable to market risk for the year ended December 31, 2022 is approximately $3.7 million,
which is recorded as unrealized (appreciation) depreciation on liabilities at fair value under the FVO on the Statement of Operations.
The estimated change in fair value of the
Series A Term Preferred Stock attributable to instrument-specific credit risk for the year ended December 31, 2022 is approximately
($1.0) million, which is recorded as unrealized (appreciation) depreciation on liabilities at fair value under the FVO on the Statement
of Comprehensive Income. The Company defines the change in fair value attributable to instrument-specific credit risk as the excess of
the total change in fair value over the change in fair value attributable to changes in a base market rate, such as a United States treasury
bond index with a similar maturity to the instrument being valued.
Except where otherwise stated in the 1940
Act or the Company’s certificate of incorporation, each holder of Preferred Stock will be entitled to one vote for each share of
preferred stock held on each matter submitted to a vote of the Company’s stockholders. The Company’s preferred stockholders
and common stockholders will vote together as a single class on all matters submitted to the Company’s stockholders. Additionally,
the Company’s preferred
Eagle Point Income Company Inc.
Notes to the Financial
Statements
December 31, 2022
stockholders will have the right to elect
two Preferred Directors at all times, while the Company’s preferred stockholders and common stockholders, voting together as a single
class, will elect the remaining members of the Board.
On December 20, 2021, the Company launched
a new ATM offering to sell up to 140,000 shares of Series A Term Preferred Stock with an aggregate liquidation preference of $3.5
million, pursuant to a prospectus supplement filed with the SEC on May 29, 2020 and additional supplements thereafter.
For the year ended December 31, 2022,
the Company sold 121,649 shares of its Series A Term Preferred Stock, pursuant to the ATM offerings for total net proceeds to the
Company of approximately $3.0 million. In connection with such sales, the Company paid a total of approximately $0.1 million in sales
agent commissions.
See Note 10 “Asset Coverage”
for further discussion on the Company’s calculation of asset coverage with respect to its Preferred Stock.
7. |
COMMITMENTS AND CONTINGENCIES |
The Company is not currently subject to
any material legal proceedings. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business,
including proceedings relating to the enforcement of the Company’s rights under contracts. While the outcome of these legal proceedings
cannot be predicted with certainty, the Company does not expect these proceedings will have a material effect upon its financial condition
or results of operations.
As of December 31, 2022, the Company
had no unfunded commitments.
Under the Company’s organizational
documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the
Company. In addition, during the normal course of business, the Company enters into contracts containing a variety of representations
which provide general indemnifications. The Company’s maximum exposure under these agreements cannot be known; however, the Company
expects any risk of loss to be remote.
9. |
REVOLVING CREDIT FACILITY |
The Company may utilize leverage to the
extent permitted by the 1940 Act. The Company may obtain leverage using any form of financial leverage instruments, including funds borrowed
from banks or other financial institutions, margin facilities, notes or preferred stock and leverage attributable to repurchase agreements
or similar transactions. Instruments that create leverage are generally considered to be senior securities under the 1940 Act. The use
of leverage creates an opportunity for increased net income and capital appreciation, but also creates additional risks and expenses which
will be borne entirely by common stock holders. The Company’s leverage strategy may not ultimately be successful.
On September 24, 2021 the Company entered
into a credit agreement, which was amended on September 6, 2022, with BNP Paribas, as lender, that established a revolving credit
facility (the “BNP Credit Facility”). Pursuant to the terms of the BNP Credit Facility, the Company can borrow up to an aggregate
principal balance of $25,000,000 (the “Commitment Amount”). Such borrowings under the BNP Credit Facility bore interest at
1 month LIBOR plus a spread under the original credit agreement, and will bear interest at Term SOFR plus a spread under the amended credit
agreement. The Company is required to pay a commitment fee on the unused amount.
The BNP Credit Facility will mature on the
earlier of (i) the termination of the Commitment, as defined by the terms of the BNP Credit Facility or (ii) the scheduled maturity
date of September 23, 2023. The Company has the option to extend the maturity from time to time in accordance with the BNP Credit
Facility agreement.
Eagle
Point Income Company Inc.
Notes
to the Financial Statements
December
31, 2022
For
the year ended December 31, 2022, the Company had an average outstanding borrowing and average interest rate of approximately $18.2
million and 3.52%, respectively. The interest expense for the year ended December 31, 2022 on the BNP Credit Facility was approximately
$0.6 million, inclusive of the unused fee, and is recorded on the Statement of Operations. As of December 31, 2022, the current outstanding
borrowing amount was approximately $9.0 million, which is presented on the Statement of Assets and Liabilities.
See
Note 10 “Asset Coverage” for further discussion on the Company’s calculation of asset coverage with respect to the BNP
Credit Facility.
Under
the provisions of the 1940 Act, the Company is permitted to issue senior securities, including debt securities and preferred stock, and
borrow from banks or other financial institutions, provided that the Company satisfies certain asset coverage requirements.
With
respect to senior securities that are stocks, such as the Series A Term Preferred Stock, the Company is required to have asset coverage
of at least 200%, as measured at the time of the issuance of any such senior securities that are stocks and calculated as the ratio of
the Company’s total assets, less all liabilities and indebtedness not represented by senior securities, over the aggregate amount
of the Company’s outstanding senior securities representing indebtedness plus the aggregate liquidation preference of any outstanding
shares of senior securities that are stocks.
With
respect to senior securities representing indebtedness, such as the BNP Credit Facility or any bank borrowings (other than temporary borrowings
as defined under the 1940 Act), the Company is required to have asset coverage of at least 300%, as measured at the time of borrowing
and calculated as the ratio of the Company’s total assets, less all liabilities and indebtedness not represented by senior securities,
over the aggregate amount of the Company’s outstanding senior securities representing indebtedness.
If
the Company’s asset coverage declines below 300% (or 200%, as applicable), the Company would be prohibited under the 1940 Act from
incurring additional debt or issuing additional preferred stock and from declaring certain distributions to its stockholders. In addition,
the terms of the BNP Credit Facility require the Company to cure any breach of the applicable asset coverage if the Company fails to maintain
the applicable asset coverage, and the terms of the Preferred Stock require the Company to redeem shares of the Preferred Stock, if such
failure to maintain the applicable asset coverage is not cured by a certain date.
The
following table summarizes the Company’s asset coverage with respect to its Series A Term Preferred Stock and credit facilities
as of December 31, 2022, and as of December 31, 2021:
|
As
of |
|
As
of |
|
December
31, 2022 |
|
December
31, 2021 |
Total Assets |
$ |
148,573,523 |
|
$ |
173,181,861 |
Less liabilities and debts
not represented by senior securities |
(1,414,870) |
|
(2,456,694) |
Net total assets and liabilities |
$ |
147,158,653 |
|
$ |
170,725,167 |
|
|
|
|
Preferred Stock |
$ |
38,041,225 |
|
$ |
35,000,000 |
Credit Facilities |
9,030,000 |
|
19,550,000 |
|
$ |
47,071,225 |
|
$ |
54,550,000 |
|
|
|
|
Asset coverage for preferred
stock (1) |
313% |
|
313% |
Asset coverage for debt
securities (2) |
1630% |
|
873% |
|
|
|
|
(1)
Asset coverage of the preferred stock is calculated in accordance with Section 18(h) of the 1940 act, as generally described above. |
(2) Asset
coverage of the debt securities is calculated in accordance with Section 18(h) of the 1940 act, as generally described above. |
Eagle
Point Income Company Inc.
Notes
to the Financial Statements
December
31, 2022
On
January 31, 2023, the Company paid a monthly distribution of $0.16 per share on its common stock to holders of record as of January 11,
2023.
On
January 31, 2023, the Company paid a monthly distribution of $0.104167 per share on its Series A Preferred Stock to holders of record
as of January 11, 2023.
For
the period from January 1, 2023 to February 21, 2023, the Company sold 435,808 shares of its common stock, pursuant to the ATM offering,
for total net proceeds to the Company of approximately $6.1 million. In connection with such sales, the Company paid a total of approximately
$0.1 million in sales agent commissions.
For
the period from January 1, 2023 to February 21, 2023, the Company sold 53,390 shares of its common stock, pursuant to the Committed Equity
Financing, for total net proceeds to the Company of approximately $0.7 million.
On
January 20, 2023, the Company filed a prospectus supplement to update the aggregate offering price of common stock sold through the existing
ATM offering from $4,000,000 to $5,750,000, exclusive of any shares of common stock previously sold through the ATM offering. The Company
is not currently selling shares of Series A Term Preferred Stock through the ATM offering.
As
of February 21, 2023, the Company has fully paid down the outstanding principal amount borrowed from the BNP Credit Facility.
Management’s
unaudited estimate of the range of the Company’s NAV per common share as of January 31, 2023 was $13.67 to $13.77.
Management
of the Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date of release
of this report, and has determined there are no events in addition to those described above which would require adjustment to or disclosure
in the financial statements and related notes through the date of release of this report.
Eagle
Point Income Company Inc.
Financial
Highlights
|
|
For
the |
|
|
|
|
|
|
|
|
|
|
For
the period from |
|
|
year
ended |
|
For
the year ended |
|
For
the year ended |
|
For
the year ended |
|
October 16,
2018 |
Per
Share Data |
|
December 31,
2022 |
|
December 31,
2021 |
|
December 31,
2020 |
|
December 31,
2019 |
|
to
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, beginning of period |
|
$
|
16.76 |
|
$
|
16.89 |
|
$
|
19.34 |
|
$
|
18.28 |
|
$
|
20.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income, before fee waivers and expenses reimbursed (1) (2) |
|
|
1.64 |
|
|
0.98 |
|
|
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 |
|
|
1.64 |
|
|
0.98 |
|
|
1.27 |
|
|
1.32 |
|
|
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized gain (loss) and change in unrealized appreciation (depreciation) on investments (1) (3) |
(4.45) |
|
|
0.38 |
|
|
(2.21) |
|
|
0.70 |
|
|
(1.72) |
Net
change in unrealized (appreciation) depreciation on liabilities at fair value under the fair value option |
|
|
0.53 |
|
|
(0.01) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) and net increase (decrease) in net assets resulting from operations |
|
|
(2.28) |
|
|
1.35 |
|
|
(0.94) |
|
|
2.02 |
|
|
(1.37) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock distributions from net investment income (4) |
|
|
(1.53) |
|
|
(1.33) |
|
|
(1.32) |
|
|
(0.69) |
|
|
(0.35) |
Common
stock distributions from net realized gains on investments (4) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Common
stock distributions from tax return of capital (4) |
|
|
- |
|
|
- |
|
|
(0.18) |
|
|
- |
|
|
- |
Total
common stock distributions declared to stockholders (4) |
|
|
(1.53) |
|
|
(1.33) |
|
|
(1.50) |
|
|
(0.69) |
|
|
(0.35) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock distributions based on weighted average shares impact (5) |
|
|
- |
|
|
(0.02) |
|
|
- |
|
|
(0.15) |
|
|
- |
Total
common stock distributions |
|
|
(1.53) |
|
|
(1.35) |
|
|
(1.50) |
|
|
(0.84) |
|
|
(0.35) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of other comprehensive income |
|
|
(0.15) |
|
|
(0.13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of shares issued (6) |
|
|
0.14 |
|
|
0.10 |
|
|
- |
|
|
(0.19) |
|
|
|
Effect
of underwriting discounts, commissions and offering expenses associated with shares issued (6) |
|
|
(0.03) |
|
|
(0.10) |
|
|
(0.01) |
|
|
|
|
|
|
Effect
of offering expenses associated with shares issued (7) |
|
|
- |
|
|
- |
|
|
- |
|
|
(0.12) |
|
|
|
Effect
of shares issued in accordance with the Company's dividend reinvestment plan |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
Effect
of paid-in capital contribution (8) |
|
|
- |
|
|
- |
|
|
- |
|
|
0.19 |
|
|
|
Net
effect of shares issued |
|
|
0.11 |
|
|
- |
|
|
(0.01) |
|
|
(0.12) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value at end of period |
|
$
|
12.91 |
|
$
|
16.76 |
|
$
|
16.89 |
|
$
|
19.34 |
|
$
|
18.28 |
Per
share market value at beginning of period (9) |
|
$
|
17.03 |
|
$
|
14.41 |
|
$
|
18.76 |
|
$
|
19.89 |
|
|
N/A |
Per
share market value at end of period |
|
$
|
13.87 |
|
$
|
17.03 |
|
$
|
14.41 |
|
$
|
18.76 |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
return, based on market value (10) |
|
|
(8.67%) |
|
|
26.55% |
|
|
(14.07%) |
|
|
(2.27%) |
|
|
N/A |
Total
return, based on net asset value (11) |
|
|
(13.84%) |
|
|
7.22% |
|
|
(4.91%) |
|
|
9.56% |
|
|
(6.85%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of common stock outstanding at end of period |
|
|
7,896,757 |
|
|
6,881,964 |
|
|
6,106,458 |
|
|
6,018,273 |
|
|
3,769,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
and Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value at end of period |
|
$
|
101,943,840 |
|
$
|
115,349,167 |
|
$
|
103,120,136 |
|
$
|
116,408,383 |
|
$
|
68,923,362 |
Ratio
of net investment income to average net assets (12) (14) |
|
|
11.20% |
|
|
5.66% |
|
|
8.65% |
|
|
6.67% |
|
|
8.54% |
Ratio
of expenses, before fee waivers and expenses reimbursed, to average net assets (12) (13) (14) |
|
7.16% |
|
|
5.36% |
|
|
3.99% |
|
|
2.75% |
|
|
3.12% |
Ratio
of expenses, after fee waivers and expenses reimbursed, to average net assets (12) (13) (14) |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
1.89% |
|
|
0.00% |
Portfolio
turnover rate (15) |
|
|
6.32% |
|
|
27.98% |
|
|
29.14% |
|
|
11.42% |
|
|
2.35% |
Asset
coverage of preferred stock |
|
|
313% |
|
|
313% |
|
|
N/A |
|
|
N/A |
|
|
|
Asset
coverage of debt securities |
|
|
1630% |
|
|
873% |
|
|
796% |
|
|
947% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facility: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
amount outstanding at end of period |
|
$
|
9,030,000 |
|
$
|
19,550,000 |
|
$
|
14,815,000 |
|
$
|
13,743,000 |
|
$
|
- |
Asset
coverage per $1,000 at end of period (16) |
|
$
|
16,296.64 |
|
$
|
8,732.75 |
|
$
|
7,960.52 |
|
$
|
9,470.38 |
|
$
|
- |
Eagle
Point Income Company Inc.
Financial
Highlights
Footnotes
to the Financial Highlights:
|
(1) |
Per share amounts are based
on the weighted average of shares of common stock outstanding for the period. |
|
(2) |
Per share distributions paid
to preferred stockholders are reflected in net investment income, and totaled ($0.27) and ($0.05) per share of common stock for the years
ended December 31, 2022 and December 31, 2021, respectively. |
|
(3) |
Net realized gain (loss)
and change in unrealized appreciation (depreciation) on investments may include a balancing figure to reconcile to the change in NAV per
share at the end of each period. The amount shown for a share outstanding throughout the period may not agree with the change in the aggregate
net realized gain (loss) and change in unrealized appreciation (depreciation) on investments for the period because of the timing of sales
of the Company’s common stock in relation to fluctuating market values for the portfolio. |
|
(4) |
The information provided
is based on estimates available at each respective period. The Company’s final taxable income and the actual amount required to
be distributed will be finally determined when the Company files its final tax returns and may vary from these estimates. |
|
(5) |
Represents the difference
between the per share amount distributed to common stockholders of record and the per share amount distributed based on the weighted average
of shares of common stock outstanding for the period. |
|
(6) |
Represents the effect per
share of the Company’s issuance of shares of common stock pursuant to a private placement in May 2019 and the Company’s
ATM and follow on offerings. Effect of shares issued reflect the impact of the offering price when compared to management’s estimated
NAV per share at the time of each respective offering. |
|
(7) |
Represents the effect per
share of offering expenses incurred prior to or in connection with the Company’s IPO. |
|
(8) |
Represents the effect of
the paid-in capital contribution made by an affiliate of the Adviser pursuant to a private placement in May 2019. |
|
(9) |
Represents the IPO price
as of July 23, 2019 for the year ended December 31, 2019. |
|
(10) |
Total return based on market
value is calculated assuming shares of the Company’s common stock were purchased at the market price as of the beginning of the
period, and distributions paid to common stockholders during the period were reinvested at prices obtained by the Company’s dividend
reinvestment plan, and the total number of shares were sold at the closing market price per share on the last day of the period. For the
year ended December 31, 2019 the total return on market value is calculated as the change in market value per share for the period
commencing July 23, 2019, the date of the Company’s IPO, through December 31, 2019. The beginning market value per share
is based on the initial public offering price of $19.89 per share. Total return does not reflect any sales load. |
|
(11) |
Total return based on net
asset value is calculated as the change in net asset value per share during the period plus declared and paid dividends per share, divided
by the beginning net asset value per share. |
|
(12) |
Ratios for the period from
October 16, 2018 to December 31, 2018 are annualized. Ratios include the impact of the fee waivers and expenses reimbursed by
the Adviser, where applicable. |
|
(13) |
Expenses of the Company for
the period from October 16, 2018 to December 31, 2018 and for the period from January 1, 2019 to May 31, 2019 were
reimbursed by the Adviser. In addition, the Adviser has voluntarily waived the management fee and the Administrator has voluntarily waived
the administration fee for the same periods from October 16, 2018 to December 31, 2018 and from January 1, 2019 to May 31,
2019. |
|
(14) |
Ratios for the year ended
December 31, 2022 and the years ended December 31, 2021, December 31, 2020 and December 31, 2019 include interest
expense on the credit facility of 0.63%, 0.40%, 0.60% and 0.04% of average net assets, respectively. Ratios for the year ended December 31,
2022 and the year ended December 31, 2021 include interest expense on the Series A Term Preferred Stock of 1.83% and 0.31% of
average net assets, respectively. Ratios for the year ended December 31, 2022 and the years ended December 31, 2021 and December 31,
2019 include excise tax expense of 0.27%, 0.06% and 0.10% of average net assets, respectively. |
|
(15) |
The portfolio turnover rate
is calculated as the lesser of total investment purchases executed during the period or the total of investment sales and repayments of
principal executed during the period, divided by the average fair value of the investments for the same period. |
|
(16) |
The asset coverage per unit
figure is the ratio of the Company’s total assets, less liabilities and indebtedness not represented by the credit facility, to
the aggregate dollar amount of outstanding borrowings of the credit facility, in accordance with section 18(h) of the 1940 Act. The
asset coverage per unit figure is expressed in terms of dollar amounts per $1,000 principal amount. |
Eagle
Point Income Company Inc.
Financial
Highlights
Financial
highlights for the period from October 4, 2018 (Commencement of Operations) to October 15, 2018 for the Members are as follows:
|
|
|
For
the period from |
|
|
|
October 4,
2018 |
|
|
|
(Commencement
of Operations) |
Per
Unit Data |
|
|
to
October 15, 2018 |
|
|
|
|
Net
asset value at beginning of period |
|
$
|
1,000.00
|
|
|
|
|
Net
investment income |
|
|
2.69
|
Net
change in unrealized appreciation (depreciation) on investments |
|
|
0.51
|
Net
income (loss) and net increase (decrease) in net assets resulting from operations |
|
|
3.20
|
|
|
|
|
Net
asset value at end of period |
|
$
|
1,003.20
|
|
|
|
|
Total
return (1) |
|
|
0.32% |
|
|
|
|
Ratios
and Supplemental Data: |
|
|
|
|
|
|
|
Net
asset value at end of period |
|
$
|
75,391,911
|
Ratio
of net investment income to average net assets (1) |
|
|
0.27% |
Ratio
of expenses to average net assets (2) |
|
|
0.00% |
Portfolio
turnover rate (3) |
|
|
0.00% |
|
|
|
|
|
(1) |
Total return and ratio of net investment income to average
net assets for the period from October 4, 2018 (Commencement of Operations) to October 15, 2018 are not annualized. |
|
(2) |
No expenses were borne by
the Company from October 4, 2018 (Commencement of Operations) to October 15, 2018. |
|
(3) |
The Company did not enter
transactions to purchase or sell securities from October 4, 2018 (Commencement of Operations) to October 15, 2018. As such,
the portfolio turnover rate is 0.00%. |
Note:
The above Financial Highlights for the period from October 4, 2018 (Commencement of Operations) to October 15, 2018 for Members
represents the period when the Company was initially organized as a Delaware limited liability company.
Eagle Point Income Company Inc.
Supplemental
Information
Senior Securities Table
Information about the Company’s senior securities
shown in the following table has been derived from the Company’s financial statements as of and for the dates noted.
Class |
|
Total Amount Outstanding Exclusive
of Treasury Securities (in millions) |
|
Asset Coverage Per Unit
(1) |
|
Involuntary Liquidating Preference
Per Unit (2) |
|
Average Market Value Per
Unit (3) |
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2022 |
|
|
|
|
|
|
|
|
Preferred Stock |
|
$38,041,225
|
|
$78.16
|
|
$25
|
|
$23.68
|
Credit Facility (BNP
Paribas) |
|
$9,030,000
|
|
$16,296.64
|
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2021 |
|
|
|
|
|
|
|
|
Preferred Stock |
|
$35,000,000
|
|
$78.24
|
|
$25
|
|
$25.32
|
Credit Facility (BNP
Paribas) |
|
$19,550,000
|
|
$8,732.75
|
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2020 |
|
|
|
|
|
|
|
|
Credit Facility (Société
Générale) |
|
$14,815,000
|
|
$7,960.52
|
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2019 |
|
|
|
|
|
|
|
|
Credit Facility (Société
Générale) |
|
$13,743,000
|
|
$9,470.38
|
|
N/A |
|
N/A |
|
(1) |
The asset coverage per unit figure is the ratio of the Company’s total assets,
less all liabilities and indebtedness not represented by senior securities, to the aggregate dollar amount of senior securities, as calculated
separately for each of the Series A Term Preferred Stock and Credit Facilities in accordance with section 18(h) of the 1940
Act. With respect to the Series A Term Preferred Stock, the asset coverage per unit figure is expressed in terms of dollar amounts
per share of outstanding preferred stock (based on a per share liquidation preference of $25). With respect to the Credit Facilities,
the asset coverage per unit figure is expressed in terms of dollar amounts per $1,000 of indebtedness. |
|
(2) |
The involuntary liquidating preference per unit is the amount to which a share
of Preferred Stock would be entitled in preference to any security junior to it upon our involuntary liquidation. |
|
(3) |
The average market value per unit is calculated by taking the average of the closing
price of the Series A Term Preferred Stock (NYSE: EICA). |
![img099.jpg](https://content.edgar-online.com/edgar_conv_img/2023/02/24/0001104659-23-024865_img099.jpg)
|
KPMG LLP |
|
345 Park Avenue |
|
New York, NY 10154-0102 |
Report
of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Eagle Point Income Company Inc:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and
liabilities of Eagle Point Income Company Inc. (the Company), including the schedule of investments as of December 31, 2022, the related
statements of operations, comprehensive income and cash flows for the year then ended, the statements of changes in net assets for each
of the years in the two-year period then ended, and the related notes (collectively, the financial statements), and the financial highlights
for the four-year period then ended, the period from October 16, 2018 to December 31, 2018, and the period from October 4, 2018 (commencement
of operations) to October 15, 2018. In our opinion, the financial statements and financial highlights present fairly, in all material
respects, the financial position of the Company as of December 31, 2022 and the results of its operations for the year then ended, the
changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years
in the four-year period then ended, the period of October 16, 2018 through December 31, 2018, and the period from October 4, 2018 through
October 15, 2018, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial
highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31,
2022, by correspondence with custodians and brokers. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We
believe that our audits provide a reasonable basis for our opinion.
Accompanying Supplemental Information
We have also previously audited, in accordance with the
standards of the PCAOB, the statements of assets and liabilities, including the schedules of investments, of the Company as of December
31, 2021, 2020 and 2019 and the related statements of operations and cash flows for the respective years then ended and the statements
of changes in net assets for each of the years in the respective two-year periods then ended, and the related notes, and the statement
of comprehensive income for the year ended December 31, 2021 (none of
KPMG LLP, a Delaware
limited liability partnership and a member firm of
the KPMG global organization
of Independent member firms affiliated with
KPMG International Limited,
a private English company limited by guarantee.
![img100.jpg](https://content.edgar-online.com/edgar_conv_img/2023/02/24/0001104659-23-024865_img100.jpg)
which is presented herein), and we expressed unqualified
opinions on those financial statements. The senior securities table on page 51 has been subjected to audit procedures performed in conjunction
with the audits of the Company’s respective financial statements. The supplemental information is the responsibility of the Company’s
management. Our audit procedures included determining whether the supplemental information reconciles to the respective financial statements
or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the
information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the
supplemental information, including its form and content, is presented in conformity with the instructions in Form N-2. In our opinion,
the senior securities table is fairly stated, in all material respects, in relation to the respective financial statements as a whole.
![img101.jpg](https://content.edgar-online.com/edgar_conv_img/2023/02/24/0001104659-23-024865_img101.jpg)
We have served as the auditor of one or more companies advised by an affiliate
of Eagle Point Income Management LLC since 2014.
New York, New York
February 22, 2023
Price Range of Common Stock
Our common stock began trading on July 24, 2019
and is currently traded on the NYSE under the symbol “EIC.” The following table lists the high and low closing sale price
for our common stock, the high and low closing sale price as a percentage of NAV and distributions declared per share each quarter
since January 1, 2021.
|
|
Closing
Sales Price |
Premium (Discount) |
Premium (Discount) |
|
Period |
NAV(1) |
High |
Low |
of High Sales Price to NAV(2)
|
of Low Sales Price to
NAV(2) |
Distributions Declared(3) |
Fiscal year ending December 31, 2021(4) |
|
|
|
|
|
|
First quarter |
$16.90 |
$15.48 |
$14.60 |
(8.4)% |
(13.6)% |
$0.26 |
Second quarter |
$17.38 |
$16.20 |
$15.29 |
(6.8)% |
(12.0)% |
$0.27 |
Third quarter |
$17.69 |
$17.65 |
$16.11 |
(0.2)% |
(8.9)% |
$0.36 |
Fourth quarter |
$16.76 |
$19.36 |
$16.79 |
15.5% |
0.2% |
$0.56 |
Fiscal year ending December 31, 2022(5) |
|
|
|
|
|
|
First quarter |
$16.52 |
$17.38 |
$15.85 |
5.2% |
(4.1)% |
$0.38 |
Second quarter |
$13.66 |
$17.91 |
$14.75 |
31.1% |
8.0% |
$0.38 |
Third quarter |
$13.05 |
$17.29 |
$13.60 |
32.5% |
4.2% |
$0.42 |
Fourth quarter |
$12.91 |
$16.11 |
$13.57 |
24.8% |
5.1% |
$0.48 |
|
(1) |
NAV per share is determined as of the last day in the relevant
quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding
shares at the end of each period. |
|
(2) |
Calculated as of the respective high or low closing sales
price divided by the quarter end NAV. |
|
(3) |
Represents the cash distributions (including dividends, dividends
reinvested and returns of capital, if any) per share that we have declared on our common stock in the specified quarter. Tax characteristics
of distributions will vary. |
|
(4) |
For the fiscal year ending December 31, 2021, as reported
on the Company’s 2021 Form 1099-DIV, distributions made by the Company were comprised of net investment income, as calculated
on a per share basis, of 100% (or $1.325 per share of common stock). |
|
(5) |
For the fiscal year ending December 31, 2022, as reported
on the Company’s 2022 Form 1099-DIV, distributions made by the Company were comprised of net investment income, as calculated
on a per share basis, of 100% (or $1.53 per share of common stock). |
Shares of closed-end management investment companies
may trade at a market price that is less than the NAV that is attributable to those shares. The possibility that the Company’s shares
of common stock will trade at a discount to NAV or at a premium that is unsustainable over the long term is separate and distinct from
the risk that the Company’s NAV will decrease. It is not possible to predict whether the Company’s shares will trade at, above
or below NAV in the future. Our NAV per share was $12.91 as of December 31, 2022. The closing sales price for shares of the Company’s
common stock on the NYSE on December 31, 2022 was $13.87, which represented a 7.44% premium to NAV per share. On February 15,
2023, the last reported closing sales price of the Company’s common stock was $14.59 per share. As of February 15, 2023, there
were 10 stockholders of record of the Company’s common stock (which does not reflect holders whose shares are held in street name
by a broker, bank or other nominee).
Dividend
Reinvestment Plan
The
Company has adopted a dividend reinvestment plan (“DRIP”). Under the DRIP, each registered holder of at least one full share
of our common stock will be automatically enrolled in the DRIP and distributions on shares of the Company’s common stock are automatically
reinvested in additional shares of the Company’s common stock by American Stock Transfer & Trust Company, LLC (the “DRIP
Agent”) unless a stockholder “opts-out” of the DRIP. Holders of the Company’s common stock who receive distributions
in the form of additional shares of the Company’s common stock are nonetheless required to pay applicable federal, state or local
taxes on the reinvested distribution but will not receive a corresponding cash distribution with which to pay any applicable tax. Distributions
that are reinvested through the issuance of new shares increase the Company’s stockholders’ equity on which a management fee
is payable to the Adviser. If we declare a distribution payable in cash, holders of shares of the Company’s common stock who opt-out
of participation in the DRIP (including those holders whose shares are held through a broker or other nominee who has opted out of participation
in the DRIP) generally will receive such distributions in cash.
The
DRIP Agent, on the Company’s behalf, will primarily use newly-issued, authorized shares of common stock to implement reinvestment
of distributions under the DRIP (regardless of whether the outstanding shares are trading at a premium or at a discount to the Company’s
net asset value (the “NAV”)). However, the Company reserves the right to instruct the DRIP Agent to purchase shares of the
Company’s common stock on the open market (on the New York Stock Exchange or elsewhere) in connection with the reinvestment of distributions
under the DRIP to the extent that the Company’s shares of common stock are trading at a discount to NAV per share.
The
number of shares of common stock to be credited to each participant’s account will be determined based on the closing market price
per share of common stock on the payment date (the “Market Price”). If 95% of the Market Price is greater than the Company’s
last determined NAV per share, the number of shares to be credited to each participant’s account pursuant to DRIP will be determined
by dividing the aggregate dollar amount of the distribution by 95% of the Market Price. If 95% of the Market Price is less than the Company’s
last determined NAV per share, the number of shares to be credited to each participant’s account pursuant to DRIP will be determined
by dividing the aggregate dollar amount of the distribution by the lesser of (i) the last determined NAV per share and (ii) the
Market Price.
In
the event that the DRIP Agent is instructed to buy shares of our common stock on the open market, any shares so purchased will be allocated
to each participant based upon the average purchase price (excluding any brokerage charges or other fees) of all shares purchased with
respect to the distribution. In any case, the DRIP Agent (or the DRIP Agent’s broker) will have until the last business day before
the next date on which the shares trade on an “ex-dividend” basis or 30 days after the payment date for the applicable distribution,
whichever is sooner, to invest the distribution amount in shares acquired on the open market. To the extent that the DRIP Agent is unable
to reinvest the full amount of the distribution through open market purchases, the balance shall be credited to participants’ accounts
in the form of newly-issued shares of common stock, in accordance with the procedures described above. Open market purchases may be made
on any securities exchange where shares of our common stock are traded, in the over-the-counter market or in negotiated transactions,
and may be on such terms as to price, delivery and otherwise as the DRIP Agent shall determine.
There
are no brokerage charges with respect to shares of common stock issued directly by the Company. However, whenever shares are purchased
or sold on the NYSE or otherwise on the open market, each participant will pay a pro rata portion of brokerage trading fees, currently
$0.07 per share purchased or sold. Brokerage trading fees will be deducted from amounts to be invested.
Holders
of the Company’s common stock can also sell shares held in the DRIP account at any time by contacting the DRIP Agent in writing
at American Stock Transfer & Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, NY 10269-0560. The DRIP Agent
will mail a check to such holder (less applicable brokerage trading fees) on the settlement date, which is three business days after the
shares have been sold. If a stockholder chooses to sell its shares through a broker, the
holder
will need to request that the DRIP Agent electronically transfer their shares to the broker through the Direct Registration System.
Stockholders
participating in the DRIP may withdraw from the DRIP at any time by contacting the DRIP Agent in writing at American Stock Transfer &
Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, NY 10269-0560. Such termination will be effective immediately if
the notice is received by the DRIP Agent prior to any dividend or distribution record date; otherwise, such termination will be effective
on the first trading day after the payment date for such dividend or distribution and thus apply to any subsequent dividend or distribution.
If a holder of the Company’s common stock withdraws, full shares will be credited to their account, and the stockholder will be
sent a check for the cash adjustment of any fractional share at the market value per share of the Company’s common stock as of the
close of business on the day the termination is effective, less any applicable fees. Alternatively, if the stockholder wishes, the DRIP
Agent will sell their full and fractional shares and send them the proceeds, less a transaction fee of $15.00 and less brokerage trading
fees of $0.07 per share. If a stockholder does not maintain at least one whole share of common stock in the DRIP account, the DRIP Agent
may terminate such stockholder’s participation in the DRIP after written notice. Upon termination, stockholders will be sent a check
for the cash value of any fractional share in the DRIP account, less any applicable broker commissions and taxes.
Stockholders
who are not participants in the DRIP, but hold at least one full share of our common stock, may join the DRIP by notifying the DRIP Agent
in writing at American Stock Transfer & Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, NY 10269-0560.
If received in proper form by the DRIP Agent before the record date of a dividend, the election will be effective with respect to all
dividends paid after such record date. If a stockholder wishes to participate in the DRIP and their shares are held in the name of a brokerage
firm, bank or other nominee, the stockholder should contact their nominee to see if it will participate in the DRIP. If a stockholder
wishes to participate in the DRIP, but the brokerage firm, bank or other nominee is unable to participate on their behalf, the stockholder
will need to request that their shares be re-registered in their own name, or the stockholder will not be able to participate. The DRIP
Agent will administer the DRIP on the basis of the number of shares certified from time to time by the stockholder as representing the
total amount registered in their name and held for their account by their nominee.
Experience
under the DRIP may indicate that changes are desirable. Accordingly, the Company and the DRIP Agent reserve the right to amend or terminate
the DRIP upon written notice to each participant at least 30 days before the record date for the payment of any dividend or distribution
by the Company.
All
correspondence or additional information about the DRIP should be directed to American Stock Transfer & Trust Company, LLC, 6201
15th Avenue, Brooklyn, NY 11219.
Additional
Information
Management
Our
Board of Directors (the “Board”) is responsible for managing the Company’s affairs, including the appointment of advisers
and sub-advisers. The Board has appointed officers who assist in managing the Company’s day-to-day affairs.
The
Board
The
Board currently consists of six members, four of whom are not “interested persons” (as defined in the 1940 Act) of the Company.
The Company refers to these directors as the Company’s “independent directors.”
Under
our certificate of incorporation and bylaws, our board of directors is divided into three classes with staggered terms, with the term
of only one of the three classes expiring at each annual meeting of our stockholders. The classification of the board across staggered
terms may prevent replacement of a majority of the directors for up to a two-year period.
The
directors and officers of the Company are listed below. Except as indicated, each individual has held the office shown or other offices
with the same company for the last five years. Certain of the Company’s officers and directors also are officers or managers of
our Adviser and its affiliates. Each of our directors also serves as a director/trustee of Eagle Point Credit Company Inc., and Eagle
Point Institutional Income Fund, each a registered investment company for which an affiliate of our Adviser serves as investment adviser.
Name,
Address1
and
Age |
|
Position(s) held
with the Company |
|
Term
of Office and Length of Time Served |
|
Principal
Occupation(s)
During
the Past 5 Years |
Other
Directorships3 |
Interested
Directors2 |
|
|
|
|
|
|
|
|
|
|
|
Thomas P. Majewski Age:
48 |
|
Class III
Director, Chief Executive Officer, and Chairperson of the Board |
|
Since
inception;
Term
expires 2023 |
|
Managing
Partner of Eagle Point Income Management LLC since September 2018; Managing Partner of Eagle Point Credit Management LLC since September 2012. Chief
Executive Officer of Eagle Point Credit Company Inc. since May 2014 and Eagle Point Institutional Income Fund since January 2022. |
Eagle
Point Credit Company Inc. and Eagle Point Institutional Income Fund |
|
|
|
|
|
|
|
|
James R. Matthews Age:
55 |
|
Class II
Director |
|
Since
inception;
Term
expires 2025 |
|
Managing
Director of Stone Point Capital LLC. |
Eagle
Point Credit Company Inc. and Eagle Point Institutional Income Fund |
Independent
Directors |
|
|
|
|
|
Scott
W. Appleby Age: 58
|
|
Class I
Director |
|
Since
inception;
Term
expires 2024 |
|
President
of Appleby Capital, Inc., a financial advisory firm, since April 2009. |
Eagle
Point Credit Company Inc. and Eagle Point Institutional Income Fund |
Name,
Address1
and
Age |
|
Position(s) held
with the Company |
|
Term
of Office and Length of Time Served |
|
Principal
Occupation(s)
During
the Past 5 Years |
Other
Directorships3 |
Kevin
F. McDonald Age: 56 |
|
Class III
Director |
|
Since
inception;
Term
expires 2023 |
|
Chief
Operating Officer of AltaRock Partners, an asset management firm, since January 2019; Director of Business Development and Investor
Relations of Folger Hill Asset Management, LP from December 2014 to July 2018; Principal of Taylor Investment Advisors, LP from
March 2002 to March 2017.
|
Eagle
Point Credit Company Inc. and Eagle Point Institutional Income Fund |
Paul
E. Tramontano Age: 61
|
|
Class II
Director |
|
Since
inception;
Term
expires 2025 |
|
Senior
Managing Director and Portfolio Manager at First Republic Investment Management since October 2015. |
Eagle
Point Credit Company Inc. and Eagle Point Institutional Income Fund |
Jeffrey L.
Weiss Age: 61 |
|
Class I
Director |
|
Since
inception;
Term
expires 2024 |
|
Private
Investor since June 2012; Managing Partner of Colter Lewis Investment Partners since January 2018. |
Eagle
Point Credit Company Inc. and Eagle Point Institutional Income Fund |
|
1 |
The business address of each
of our directors is c/o Eagle Point Income Company Inc., 600 Steamboat Road, Suite 202, Greenwich, Connecticut 06830. |
|
2 |
Mr. Majewski is an interested
director due to his position as our Chief Executive Officer and his position with the Adviser. Mr. Matthews is an interested director
due to his position with Stone Point Capital LLC, which is an affiliate of the Adviser. |
|
3 |
Eagle Point Credit Company
Inc. and Eagle Point Institutional Income Fund are each considered to be in the same fund complex as us and, as a result, each director
serves as a director/trustee of three investment companies in the same complex. Each director was elected as trustee of Eagle Point Institutional
Income Fund in January 2022. |
The
Company’s registration statement, prospectus and proxy statement for the annual stockholders’ meeting include additional information
about our directors. A copy of the prospectus and proxy statement is available free of charge at www.eaglepointincome.com or upon request
by calling (844) 810-6501.
Officers
Information
regarding our officers who are not directors is as follows:
Name,
Address1 and
Age |
|
Positions
Held with the Company |
|
Term
of Office and Length of Time Served2 |
|
Principal
Occupation(s)
During
the Last Five Years |
Kenneth
P. Onorio Age: 55 |
|
Chief
Financial Officer and Chief Operating Officer |
|
Since
inception |
|
Chief
Financial Officer of Eagle Point Credit Company Inc. since July 2014 and Chief Operating Officer of Eagle Point Credit Company Inc.
since November 2014; Chief Financial Officer and Chief Operating Officer of Eagle Point Institutional Income Fund since January 2022;
Chief Financial Officer of the Adviser since October 2018 and Eagle Point Credit Management since July 2014; Chief Operating
Officer of the Adviser since October 2018 and Eagle Point Credit Management since August 2014.
|
Nauman
S. Malik
Age:
42 |
|
Chief Compliance
Officer |
|
Since inception |
|
Chief
Compliance Officer of Eagle Point Credit Company Inc. since September 2015 and Eagle Point Institutional Income Fund since January 2022;
General Counsel of the Adviser since October 2018 and Eagle Point Credit Management since June 2015; Chief Compliance Officer
of the Adviser from October 2018 to March 2020 |
|
|
|
|
|
|
and Eagle Point
Credit Management from September 2015 to March 2020. |
|
|
|
|
|
|
|
Courtney
B. Fandrick
Age:
40 |
|
Secretary |
|
Since inception |
|
Chief
Compliance Officer of the Adviser and Eagle Point Credit Management since April 2020; Secretary of Eagle Point Credit Company Inc.
since August 2015 and Eagle Point Institutional Income Fund since January 2022; Deputy Chief Compliance Officer of the Adviser
from October 2018 to March 2020 and Eagle Point Credit Management from December 2014 to March 2020. |
|
1 |
The
business address of each of our officers is c/o Eagle Point Income Company Inc., 600 Steamboat Road, Suite 202, Greenwich, Connecticut
06830. All of our officers are officers or employees of the Adviser or affiliated companies. |
|
2 |
Each
officer holds office until his or her successor is chosen and qualifies, or until his or her earlier resignation or removal. |
Director
and Officer Compensation
Our
independent directors received compensation from the Company in the amounts set forth in the following table during the fiscal year ended
December 31, 2022.
Name |
|
Aggregate
Compensation from the Company1, 2 |
|
|
|
Scott
W. Appleby |
|
$65,000 |
Kevin
F. McDonald |
|
$60,000 |
Paul
E. Tramontano |
|
$60,000 |
Jeffrey
L. Weiss |
|
$70,000 |
TOTAL |
|
$255,000* |
*
Reflects $32,500, $30,000, $30,000, and $35,000 relating to the year ended December 31, 2021 that was payable to each of Mr. Appleby,
Mr. McDonald, Mr. Tramontano and Mr. Weiss as of December 31, 2021, respectively, and paid during the year ended December 31,
2022; does not reflect $127,500 relating to the year ended December 31, 2022 that was paid during the month ended January 31,
2023, which amount was comprised of $32,500, $30,000, $30,000, and $35,000 paid to each of Mr. Appleby, Mr. McDonald, Mr. Tramontano
and Mr. Weiss, respectively.
|
1 |
For
a discussion of the independent directors’ compensation, see below. |
|
2 |
The
Company does not maintain a pension plan or retirement plan for any of our directors. |
As
compensation for serving on the Board, each independent director receives an annual fee of $60,000, as well as reasonable out-of-pocket
expenses incurred in attending Board and committee meetings. The chairman of the audit committee receives an additional annual fee of
$10,000 and the chairman of the nominating committee receives an additional annual fee of $5,000 for their additional services in these
capacities.
No
compensation is, or is expected to be, paid by us to our directors who are “interested persons” of us, as such term is defined
in the 1940 Act, or to our officers. Our officers are compensated by the Adviser or one of its affiliates, as applicable.
We
have entered into an Administration Agreement pursuant to which Eagle Point Administration LLC, our administrator (“Eagle Point
Administration”), performs, or arranges for the performance of, our required administrative services, among other things. Payments
under the Administration Agreement are equal to an amount based upon our allocable portion of Eagle Point Administration’s overhead
in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance
functions and our allocable portion of the compensation of our chief financial officer and chief compliance officer and our allocable
portion of the compensation of any administrative support staff. Our allocable portion of such total compensation is based on an allocation
of the time spent on us relative to other matters. The Administration Agreement will remain in effect if approved by the Board, including
by a majority of our independent directors, on an annual basis. The Administration Agreement was most recently approved by the Board in
May 2022.
Stockholder
Meeting Information
An
annual meeting of stockholders of the Company was held on May 18, 2022. At the meeting, the two nominees for re-election as Class II
directors, James R. Matthews and Paul E. Tramontano, were each elected to serve as a director for a term expiring at the Company’s
2025 annual meeting or until his successor is duly elected and qualified. A discussion regarding the voting at such meeting is available
in our Semiannual Report for the period ended June 30, 2022. A copy of the Semiannual Report is available free of charge at www.eaglepointincome.com,
upon request by calling (844) 810-6501, or from the EDGAR Database on the SEC’s website (www.sec.gov).
Investment
Advisory Agreement
Subject
to the overall supervision of our Board, the Adviser manages the day-to-day operations of, and provides investment advisory and management
services to, us pursuant to an Investment Advisory Agreement (the “Advisory Agreement”). A discussion regarding the basis
for the Board’s approval of the Advisory Agreement is available in our Semiannual Report for the period ended June 30, 2022.
A copy of the Semiannual Report is available free of charge at www.eaglepointincome.com, upon request by calling (844) 810-6501, or from
the EDGAR Database on the SEC’s website (www.sec.gov).
Portfolio
Information
The
Company files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit
to its reports on Form N-PORT. The Company’s Form N-PORT is available without charge, upon request by calling (844) 810-6501,
or from the EDGAR Database on the SEC’s website (www.sec.gov).
Proxy
Information
The
Company has delegated its proxy voting responsibility to the Adviser. A description of these policies and procedures is available (1) without
charge, upon request, by calling toll free (844) 810-6501; and (2) in the Company’s pre-effective amendment to its registration
statement on Form N-2 filed on May 29, 2020 with the SEC, which can be found on the SEC’s website (www.sec.gov).
Information
regarding how the Company voted proxies relating to portfolio securities for the 12-month period ending June 30, 2022 is available:
(1) without charge, upon request, by calling toll free (844) 810-6501; and (2) in the Company’s Form N-PX filing
made on July 21, 2022 with the SEC, which can be found on the SEC’s website (www.sec.gov).
The Company also makes this information available on its website at www.eaglepointincome.com.
Tax
Information
For
the tax year ended December 31, 2022, the Company recorded distributions on our common stock equal to $1.53 per share or $10.8 million.
Privacy
Notice
The
Company is committed to protecting your privacy. This privacy notice explains the privacy policies of Eagle Point Income Company Inc.
and its affiliated companies. The terms of this notice apply to both current and former stockholders. The Company will safeguard, according
to strict standards of security and confidentiality, all information it receives about you. With regard to this information, the Company
maintains procedural safeguards that are reasonably designed to comply with federal standards. We have implemented procedures that
are designed to restrict access to your personal information to authorized employees of the Company’s investment adviser, Eagle
Point Income Management, LLC and its affiliates who need to know your personal information to perform their jobs, and in connection with
servicing your account. The Company’s goal is to limit the collection and use of information about you. While we may share your
personal information with our affiliates in connection with servicing your account, our affiliates are not permitted to share your information
with non-affiliated entities, except as permitted or required by law.
When
you purchase shares of the Company’s common stock and in the course of providing you with products and services, we and certain
of our service providers, such as a transfer agent, may collect personal information about you, such as your name, address, social security
number or tax identification number. This information may come from sources such as account applications and other forms, from other written,
electronic or verbal correspondence, from your transactions, from your brokerage or financial advisory firm, financial adviser or consultant,
and/or information captured on applicable websites.
We
do not disclose any personal information provided by you or gathered by us to non-affiliated third parties, except as permitted or required
by law or for our everyday business purposes, such as to process transactions or service your account. For example, we may share your
personal information in order to send you annual and semiannual reports, proxy statements and other information required by law, and to
send you information the Company believes may be of interest to you. We may disclose your personal information to unaffiliated third party
financial service providers (which may include a custodian, transfer agent, accountant or financial printer) who need to know that information
in order to provide services to you or to the Company. These companies are required to protect your information and use it solely for
the purpose for which they received it or as otherwise permitted by law. We may also provide your personal information to your brokerage
or financial advisory firm and/or to your financial adviser or consultant, as well as to professional advisors, such as accountants, lawyers
and consultants.
We
reserve the right to disclose or report personal or account information to non-affiliated third parties in limited circumstances where
we believe in good faith that disclosure is required by law, such as in accordance with a court order or at the request of government
regulators or law enforcement authorities or to protect our rights or property. We may also disclose your personal information to a non-affiliated
third party at your request or if you consent in writing to the disclosure.
If
you have any queries or concerns about the privacy of your personal information, please contact our investor relations team at (203) 340-8510
or (844) 810-6501.
We
will review this policy from time to time and may update it at our discretion.
*
*
*
End
of Annual Report. Back Cover Follows.