Eagle Point Credit: Don’t Speculate On This 14% Yielder

Eagle Point Credit Company (ECC), (CHP-UN.TO) is a Collateralized Loan Obligation (CLO) fund that offers a covered 13.6% yield, making it a potentially attractive ‘high yield’ stock. You can see the full list of high yield stocks here.

Eagle Point Credit Company also pays its dividends on a monthly basis, which is rare in a world where the vast majority of companies that pay a dividend, pay them quarterly.

Eagle Point Credit’s high dividend yield and monthly dividend payments make it an intriguing stock for dividend investors, even though its dividend payment has been stagnant in recent years.

This article will analyze the investment prospects of Eagle Point Credit in detail.

Business Overview

Eagle Point Credit is a closed-end fund launched and managed by Eagle Point Credit Management LLC. It was formed on March 24, 2014, and is domiciled in the United States.

It invests in fixed income markets of the United States, primarily equity and junior debt tranches of collateralized loan obligations that mainly consist of below investment grade U.S. senior secured loans.

Eagle Point Credit is a popular CLO fund among institutional investors thanks to management’s long term buy-and-hold philosophy and conservative approach to running the business. Eagle Point Credit’s business consists of primarily owning a large portfolio of CLOs.

CLOs are composed of a significant amount of senior secured loans that are grouped together into tranches. The returns on these tranches are risk-adjusted, meaning that the higher the credit rating of the tranche, generally the lower its yield.

(Click on image to enlarge)

ECC Overview

Source: Investor presentation, page 20

Eagle Point Credit – in an effort to maximize yield for investors – focuses on the bottom tiers as well as the equity position in the CLOs. Unfortunately, this means that their portfolio is also higher-risk as the equity position is the lowest in the priority list for returns and the lower tranche CLOs in general are considered riskier.

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