Eagle Point Credit Company Sells a Baby Bond Issue
By: Tim McPartland,
August 11, 2017
By Tim McPartland
Eagle Point Credit Company (NYSE:ECC), an externally managed closed-end management company, recently sold a small baby bond issue ($25/bond) with a 6.75% coupon.
While the coupon is a little below what we want, the issue’s maturity in 2027 makes it attractive to us. Specifically, 1.1 million bonds will be offered with an additional 165,000 available for broker overallotments, with proceeds totaling $30.63 million.
As a closed-end fund, ECC is registered under the Investment Company Act of 1940 (the Act), which means the company must have an asset coverage ratio of 300% of debt securities. We call this a “margin of safety” for holders of these baby bonds. The beauty of the “Act” is that holders of company debt will have approximately $4-5 of assets for each dollar in debt — only an event of mammoth proportions would render this debt worthless.
It should be understood that Eagle Point Credit Company is not a business development company (BDC), but is very similar to a BDC in that they must follow the Investment Company Act of 1940 rules and regulations. For those interested in these rules, the “Act” can be found here on the SEC website.
Up until now, ECC has financed the business with a combination of common and preferred stock offerings, as well as one other baby bond issue. The other outstanding baby bond (ticker: ECCZ) carries a coupon of 7% and the company has announced it may call the issue when it becomes optionally callable in December. ECC also has two “term” preferred issues outstanding which trade under the tickers ECCA and ECCB, both of which carry coupons of 7.75%. Each pays dividends on a monthly basis. The issues have mandatory redemption dates of 2022 and 2027, respectively.
The new baby bond issue will pay interest on a quarterly basis and payments will not be qualified for preferential tax treatment as interest is not given the same preferential tax break that many preferred stock dividends receive.
The new issue has just begun trading on the NYSE under ticker ECCY and has traded in a range of $25 to $25.10. Baby bonds do not trade on the OTC Grey Market prior to trading on the NYSE.
We are looking at this issue closely to consider a purchase for one of our short/medium duration model portfolios, which can be found here.
Tim McPartland is a private investor with over 45 years of investment experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.