As a reminder, this conference is being recorded. At this time, I will turn the conference over to Mr. Darren Daugherty from Prosek Partners. You may now begin.
Thank you, operator, and good morning. Welcome to Eagle Point Income Company's earnings conference call for the first quarter of 2026. Speaking on the call today are Thomas Majewski, Chairman and Chief Executive Officer of the company, Dan Ko, Senior Principal and Portfolio Manager for the company's advisor, and Lena Umnova, Chief Accounting Officer for the advisor. Before we begin, I would like to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from such projections. For further information on factors that could impact the company and the statements and projections contained herein, please refer to the company's filings with the SEC.
Each forward-looking statement or projection of financial information made during this call is based on the information available to us as of the date of this call. We disclaim any obligation to update our forward-looking statements unless required by law. Earlier today, we filed our first quarter 2026 financial statements and investor presentation with the Securities and Exchange Commission. These are also available in the investor relations section of the company's website, eaglepointincome.com. A replay of this call will also be made available later today. I will now turn the call over to Thomas Majewski, Chairman and Chief Executive Officer of Eagle Point Income Company. Tom?
Thank you, Darren. Good morning, everyone. We're glad you're joining us today for Eagle Point Income Company's quarterly earnings call. Despite facing some broader market challenges, EIC had a strong first quarter. During the quarter, we had an increase in our net investment income from the prior quarter. Our recurring cash flows covered our distributions and our total company expenses. The CLO market faced challenging conditions in much of the first quarter of 2026. The company was not immune to these broader dynamics. While CLO fundamentals remained relatively stable, a decline in loan prices, especially in the software sector, and a cautious tone across credit markets due to the ongoing war in Iran weighed on our NAV during the quarter.
The software sector was a particular area of focus during the first quarter, and investors continued to assess the potential impact of artificial intelligence on certain business models and revenue streams. Importantly, however, our exposure is principally through broadly syndicated loans, not middle-market loans that are commonly found in BDCs. The loans in our CLOs are typically larger, more liquid, institutionally syndicated credits with observable market pricing. While this observable pricing can result in more immediate mark-to-market volatility during periods of volatility, it provides clarity to investors as to the valuation of the underlying investments. While that volatility impacted quarterly valuations of many CLOs, we believe it also created opportunities for CLO collateral managers to reinvest proceeds from sales and pay downs into discounted loans with attractive forward return potential.
While these factors led to a decline in CLO valuations during the quarter for many securities, we believe the market typically undervalues the reinvestment option embedded in CLOs during times of volatility. The ability to buy loans at material discounts to par has allowed CLO equity to deliver attractive intermediate and long-term returns many times in the past. In addition, we believe our floating rates CLO junior debt portfolio will benefit from higher income should we see an upward movement in short-term rates. With an increase in inflation more and more the outlook by many market participants, it seems the potential for a rise in short-term rates may be more on the table than we thought even just three months ago.
During the quarter, we deployed $56 million into new investments across multiple credit asset classes with a weighted average effective yield of 16% as we took advantage of compelling relative value opportunities created by a particularly uncertain macro environment. Throughout the quarter, we continued to actively manage our CLO portfolio by completing four resets and two refinancings of our CLO equity positions. This resulted in weighted average CLO debt cost savings of 48 basis points for those CLOs. In addition to lowering debt costs, the reset positions extended their reinvestment periods to five years. While CLO junior debt remains central to EIC's strategy, we opportunistically increase our exposure to other credit classes, including infrastructure credit, regulatory capital relief transactions, portfolio debt securities, and other structured and private credit investments.
Eagle Point's platform has a dedicated team with deep, specialized expertise across all of these asset classes, and this is a meaningful platform advantage enabling EIC to access originated investment opportunities, increase portfolio diversification, and generate excess returns above traditional CLO securities. NAV decreased to $11.99 per share as of March 31st from $13.31 per share at year-end. The decrease primarily reflects negative mark-to-market adjustments on the company's CLO debt portfolio, driven by wider spreads and weaker risk appetite for CLO junior debt during the quarter. Our GAAP return on first equity was - 7.2%. That said, we saw a meaningful rebound in April, and indeed, EIC's NAV increased to between $12.48 and $12.58 per share. This is a 4.5% increase at the midpoint of the range.
Despite the decline in NAV during the first quarter, our net investment income increased quarter-over-quarter to $0.36 per share. That's up from $0.35 per share in the fourth quarter of 2025. Both of these measures are in excess of the $0.33 per common share in distributions that we paid. Turning to our capital structure, during the first quarter, we launched our 6% Series AA and Series AB convertible perpetual preferred stock offering. This provides the company with a source of low-cost, long-duration capital and increases our financial flexibility. We are unaware of any other publicly traded entity that invests primarily in CLO debt with perpetual financing and consider this to be a material competitive advantage for our company.
Subsequent to quarter end, we completed the full redemption of our 8% Series C Term Preferred Stock, which had been our highest cost debt financing. These actions reflect our continued focus on lowering our cost of capital, lengthening our maturity profile, all with the goal to enhancing our long-term's earning power. During the quarter, we repurchased almost 390,000 shares of our common stock at an average discount to NAV of 19.3%. This resulted in NAV accretion of $0.04 per share. Since June of 2025, when the board initially announced the share repurchase authorization, through March 31st of this year, we've repurchased a total of $50 million of common stock at an average discount of 13% of NAV, resulting in NAV accretion of $0.26 per share.
We plan to selectively continue our common share buybacks as market opportunities present themselves. We believe the actions we've taken during the quarter, together with our current portfolio positioning, leave us well-situated for the quarters ahead. I'll now turn the call over to Senior Principal and Portfolio Manager Dan Ko for an update on the market.
Thanks, Tom. I'll provide a brief update on the loan and CLO markets. In the first quarter, the S&P/LSTA Leveraged Loan Index fell by 0.5%, rebounded by 1.2% during the month of April. Despite this mixed performance in loan returns, underlying loan borrower fundamentals have remained stable as corporate revenue and EBITDA growth remain positive, supporting overall credit performance across the broadly syndicated loan market. The trailing 12-month default rate ended the period at 1.4%, modestly higher than year-end levels, well below the long-term average of 2.5%. While lower loan prices have pressured CLO valuations in the near term, they are also creating a more attractive reinvestment environment.
With many loans trading below par and repricing activity slowing in the first quarter, we saw a greater potential for par build, wider spreads on new investments, and improved forward returns. For junior CLO debt securities, we believe this rate environment is constructive. With intermediate and long-term rates increasing, we expect short-term rates, including SOFR, which CLO debt floats off of, to follow. Indeed, the market is pricing in potential Fed rate hikes in the next year. With the potential for higher short-term rates, junior CLO debt investments continue to offer attractive floating rate income potential, which we would expect to support higher income on the portfolio in the future. In addition, periods of market volatility can create opportunities to purchase CLO debt at discounts, providing the potential for pull to par as markets normalize.
We believe that the combination of income generation, structural protection, and potential convexity makes junior CLO debt particularly compelling in the current environment. In terms of CLO new issuance, we saw $47 billion of volume during the quarter, down slightly from $55 billion in the fourth quarter of 2025. Reset activity for the first quarter was $32 billion, down from $54 billion last quarter, while refinancing activity was $24 billion, up from $20 billion last quarter. With the broader markets normalizing into the second quarter, we expect CLO volumes to remain robust going forward. With that, I'll hand it over to our advisor's Chief Accounting Officer, Lena Umnova, to walk through our financial results.
Thank you, Dan. During the first quarter, the company generated net investment income or NII of $0.36 per share and NII less realized losses of $0.34 per share. This compares to NII less realized losses of $0.03 per share last quarter and NII and realized gains of $0.44 per share for the first quarter of 2025. Including unrealized portfolio losses, GAAP net loss was $22 million or $0.95 per share for the first quarter of 2026. This compares to GAAP net loss of $0.60 per share last quarter and a GAAP net loss of $0.46 per share for the first quarter of 2025. Recurring cash flows from the company's investment portfolio totaled $14 million or $0.62 per share during the quarter and exceeded the company's common stock distributions and expenses.
During the quarter, we paid three monthly common stock distributions of $0.11 per share, and last week we declared three monthly common stock distributions of $0.11 per share for the third quarter of 2026. As of March month end, the company had outstanding preferred equity securities equal to 34% of total assets less current liabilities, which is within our target range of 25%-35%, where we expect to operate the company under normal market conditions. Looking at our portfolio activity during the month of April, the company received recurring cash flows on its investment portfolio of $11 million. Note that some of the company's investments are still expected to make payments later in the quarter. As of April month end, net of pending investment transactions and settlements, the company had $15 million of cash and revolver capacity available for investment and other purposes.
Management's unaudited estimate of the company's NAV as of April month end was between $12.48 and $12.58 per share. At the midpoint, this was an increase of 4.5% from March month end. I will now turn the call back over to Tom to provide closing remarks before we take your questions.
Thanks, Lena. In our view, the combination of lower loan prices, reduced loan repricing activity, and the potential for higher short-term rates is improving the outlook for our earnings power. Combined with our disciplined capital allocation and access to the full Eagle Point origination platform, we believe we are well-positioned to translate this environment into stronger results for shareholders over time. We appreciate your continued support, and thank you for your time and interest in Eagle Point Income Company. Lena, Dan, and I will now open the call to your questions. Operator?
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we call for questions. Our first question comes from the line of Erik Zwick with Lucid Capital Markets. Please proceed.
Thank you. Good morning again. Wanted to start with a question on software. You mentioned it in your comments, and it's obviously been very topical of late in the leveraged loan market. Looking at your, I think it's slide 22 maybe, where you know, kind of show the concentration of different industries in the portfolio, technology and software. You know, I guess kind of double at least the next largest one at the 12%, 12.5%. Curious, you know, what the lasting kind of and I guess maybe, Thomas, this is a bigger picture question. Just think if the impact could be, you know, is it likely to result in, you know, changes to volume in the leveraged loan issuance as potentially, you know, fewer IPOs in software?
Do you think it, you know, leads to increased defaults and credit quality issues? Maybe more importantly, how are you thinking about this and, you know, your desired kind of a target for exposure to software in the portfolio?
A lot of questions packed into one there.
Yeah, sorry for that.
Overall, indeed, you know, you can see it's, it is software and services is the largest, you know, category by a factor of more than two compared to the second place. I guess one of the first things we think about broadly is not all software companies are created equally. You know, at a high level, there's statistics that 70% of Fortune 500 companies still use mainframes. Forget about, you know, blades or SaaS or things like that. The risks are more pronounced in some sectors of software than others. A good example, like an airline reservation system would be something so critical not to be SaaS-ed away anytime soon. At Eagle Point, our internal books and records, like the official custodian records, I think it's a long time away before we see that.
At the same time, how we track vacation time and things like that, you know, I'm sure we subscribe for some silly thing that we could probably just make and do it less expensive. Broadly, the criticality of a tool is an important factor in its SaaS vulnerability, first off. Then two, you know, I'll make an analogy back to techno- to e-commerce and amazon.com's IPO, which I think was back in 1997, give or take. One of the things, you know, we talked about then, you could probably find Bloomberg articles and other mass media articles, you know, the end of retail as we know it. Indeed, Amazon has significantly changed retail. We're going on 29 years ago that that IPO happened, and there's still plenty of stores.
One stat I saw recently actually said retail was had the highest occupancy rate of any category in CMBS, in the CMBS markets, the lowest vacancy. While the predictions of doom are always great in the credit market, in my opinion and experience, they are often overstated. That said, there are snakes lurking in the grass and risks are out there. There are, you know, software loans in the syndicated market that are, you know, trading in the 50s, perhaps some even lower at this point. That's the exception. That's not the majority. It is certainly greater than 0. When we look at our portfolios, we're not buying or selling specific loans in any CLOs.
The collateral managers are the ones doing that. That said, the software industry is an area of significant focus for us, both in our monitoring and ongoing diligence of existing investments in the ground, including the decisions potentially to sell investments, as well as an important part of our decision when we're selecting a new security to invest in. We don't sit here and say we have a target software exposure. All else equal, I would seek to lower it. That said, due to activity in the underlying portfolios, it's possible it goes the other way as well. Overall, I suspect that trend is gonna be in the downward direction. But I highlight and I really underscore the pace of transition.
While it's probably faster this time than it was with e-commerce 29 years ago, we're not in an immediate situation. There are a small number of watch names. That said, I think many companies have a fair bit of runway to go. It's something we're actively watching. We're in active dialogue with our collateral managers, and it is impacting our investment decisions, but it's by no means the only factor we consider when we decide to buy, sell, or make the decision to hold a security.
Thanks, Tom. I appreciate the insight on that topic. Last question from me, then I'll step aside. Just given, especially looking at the, you know, update for the April NAV, that the stock continues to trade at a discount to NAV. Is it, you know, fair to say that the share repurchases still remain, you know, attractive from your viewpoint and likely to, you know, continue for the repurchasing for the near term?
We have continued to use the program, although I'll say it's not been as aggressive as we've used it in the past. If you listen to prior calls, I definitively use that word or a similar word. One of the things we balance is the potency of the buybacks in terms of NAV accretion, and I think we've built up about $0.24 of NAV through discounted buybacks. The flip side, we also balance liquidity in the stock and the actual potency of our buying to the stock price. It's something we continue to monitor and tweak. The program remains open and active, and we do have open capacity on it.
I will say I balance We love buying our stock cheap, we love volume in our stock, and we like to use our powder when we can really move the stock price. It's a collage of all of those three that may inform our decision every day. I would no longer say right now we're aggressively buying back stock, but the program is open and active.
Thank you for the update.
The next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed.
Hi, Dan. Actually, for anyone. The 12-month default rate was 1.40, and part of my notes is 1.20 last quarter. Was software the reason for that change?
Yeah. I mean, we haven't seen really the software names, you know, default significantly. It's more so it was not necessarily in a specific sector yet. I mean, a lot of the software names we're kind of seeing kind of them play out in terms of kind of whether they'll survive or not. You know, we think that there's been a lot of baby thrown out with the bath water for software names and that about 75% of them still trade above 90. There's actually pretty decent kind of par building opportunities there. I mean, a lot of the CLO collateral managers were selling software last year in 2025 'cause they were kinda getting ahead of this AI disruption risk. This is not anything that's new to the CLO market.
And with kind of the lower concentrations than kind of private credit and the ability to trade loans, there is an ability to kinda make those relative value swaps. You know, maybe, there certainly will be defaults kind of in some of the software names that could lead to kind of higher defaults in the future, but, kinda getting ahead of it, trading it around, allows us to, at least the BSL market seems to keep the default rates still relatively low.
You're not really seeing, you know, higher non-accruals or anything like that per se, just necessarily.
Correct.
A bank non-performer. Okay. On a follow-up, some of the BDCs I cover, believe it or not, have started seeing increased credit stress in healthcare. Have you guys seen anything like that?
Not significantly, unless it's, I guess, somehow related to AI. You know, if it's like some sort of software company that's really categorized within healthcare and has the risk of being disrupted by AI, but otherwise, no, we haven't seen that.
Okay. That's it for me. Thank you.
Thank you. There are no further questions at this time. I'd like to turn the call back over to Thomas Majewski for closing remarks.
Great. Thank you very much, everyone, for joining today. Lena, Dan, and I appreciate your interest in Eagle Point Income Company. If you have any further questions, we'll be in the office later today and be happy to speak. Thank you very much.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.