Eagle Point Credit: Why I'm Buying The Notes And Preferreds But Avoiding The Common Stock

2025-04-06 16:00:18 ET

Summary

• ECC is seeing a shift towards a more aggressive portfolio, which increases risk for common equity shareholders in various ways.
• Firstly, ECC has meaningful exposure to borrowers in consumer-sensitive sectors that are at the highest risk of rising default rates.
• Secondly, spread compression continues to pressure net investment incomes (NIIs).
• But on the bright side, the valuations are rather undemanding and the relative technicals vs SPX500 point toward a balanced fight between the bulls and the bears.
• I think ECC's cash flow is robust enough to not hurt the claims of its debt security and preferred shareholders. And the yield in these instruments is attractive in a risk-off environment. So I rate these securities a 'Buy', but the common stock a 'Neutral/Hold'.

Performance Assessment

Eagle Point Credit ( ECC ) stock has not performed according to my bullish expectation. The stock has lagged the S&P500 ( SPY ) ( SPX ) ( IVV ) ( VOO ) since my last update .

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