Eagle Point completes IPO of CLO debt securities fund
A second closed-end fund established by Eagle Point Credit Co. in 2018 to acquire junior debt tranches of CLO securities has raised $23.1 million in an initial public offering.
Eagle Point Income Co. Inc. announced Tuesday after market close it has priced 1.2 million common shares at $19.89 per share. The company’s shares will begin trading today on the New York Stock Exchange under the ticker symbol EIC.
The IPO proceeds will continue to support the fund’s investment strategy molded by Eagle Point portfolio managers, including managing partner Thomas Majewski: acquiring the lower-rated, and riskier, tranches in U.S. collateralized loan obligations.
Those securities are typically the most subordinate debt tranches of CLOs with a double-B rating, but also with much higher-yielding coupons. New-issue spreads on BB-rated tranches averaged 697 basis points over three-month Libor last week, compared to 135-basis-point spreads on the AAA-rated tranches in CLOs, according to Deutsche Bank.
The lower-rated securities earn principal and interest like the AAA notes, but are further down the payment stream on receivables from the underlying pools of junk-rated corporate loans. The notes also have priority on assigned losses within a transaction.
As of June 30, Eagle Point Income held 36 CLO debt securities with a fair-market valuation of $82.3 million. That represents 88.4% of the company’s investment portfolio, according to a Securities and Exchange Commission filing.
Eagle Point Income’s CLO debt has a weighted average coupon of Libor plus 5.83%, and was acquired at a WA price of 93.83% of the par price of the CLO debt. The company holds securities from deals managed by Ares Management, Barings Asset Management, the Carlyle Group, Credit Suisse Asset Management and Conning's Octagon Credit Investors.
Eagle Point Income also holds two subordinate note tranches representing CLO equity in a pair of transactions. The firm’s original registration prospectus in 2018 noted the investment team intended to invest up to 20% of total assets in CLO equity.
Eagle Point Income’s strategy expands on the investment aims of Eagle Point’s original closed-end fund, Eagle Point Credit Co. (NYSE:ECC), which since 2014 has acquired mostly controlling shares in unrated equity tranches of U.S. CLOs. Unlike the debt securities, those tranches pay only available income streams and no interest.
But investing in majority equity interest of a particular CLO allows Eagle Point to influence the CLO manager on certain actions, such as refinancing, to boost equity returns.
Greenwich, Conn.-based Eagle Point Credit Co. oversees $2.5 billion in assets under management for institutional, high net worth and retail investors.
National Securities Corp., a wholly owned subsidiary of National Holdings Corp., and B. Riley FBR are joint book-running managers for the IPO, a press release stated. Wedbush Securities and Maxim Group are serving as co-managers.