Steven Bavaria

Sought to confirm for retail investors that the dividend reduction was purely a result of interest rate movements (lower SOFR) and not indicative of any credit issues, capital losses, or concerns about the principal of the CLOs in the portfolio.

Answer

Management confirmed that the dividend change is entirely driven by the change in SOFR (short-term interest rates) and is not related to credit issues or capital losses. Because the company's CLO debt holdings are floating-rate instruments, their earnings decrease when rates fall and increase when rates rise. The portfolio's credit quality remains strong.

Steven Bavaria from Inside The Income Factory sought clarification that the dividend reduction was driven solely by interest rate movements (SOFR) and not by any underlying credit issues or capital losses within the CLO portfolio.

Answer

Thomas Majewski, CEO & Chairman, confirmed that the change in the distribution rate was "principally driven by the change in SOFR" and was "not a credit related move whatsoever." He reassured that the company remains highly confident in the credit quality of its CLO BB portfolio, citing very low historical default rates, and reiterated that the adjustment was entirely based on the impact of Federal Reserve rate movements on the company's floating-rate assets.

Steven Bavaria asked how Eagle Point accounts for future loan losses, questioning if the inability to create reserves like a traditional bank leads to a back-ending of losses that could make distributions function like a return of capital annuity.

Answer

CEO Thomas Majewski detailed the differences between GAAP, tax, and cash accounting. He explained that for GAAP purposes, a provision for future losses is embedded in the effective yield calculation, creating a reserve. For tax purposes, losses are realized on a cash basis, which can result in distributions being classified as a return of capital. He stressed that cash flow is the primary driver and remains robust, ensuring the ability to pay distributions regardless of accounting treatment.