Eagle Point Credit Company Inc. (NYSE:ECC) Q4 2023 Earnings Call Transcript

Tom Majewski : Exactly. So GAAP, we have to use the effective yield method, which includes a reserve for losses. Maybe there’s been a year where there’s been an exactly an average number of losses. But in my experience, it’s usually above or below the average. And over time, you get to the average. And what you’ve seen is that translates — so that’s the GAAP is basically accrual model. Tax is a realized model. So I mean, there’s been years where the vast majority of our distribution has been treated as a return of capital for tax. Because CLOs even if it’s — if you bought a loan, at par, you sold it at 90, you bought another loan at 88, you get to take the $0.10 loss on the first one, and you don’t have to pick up the gain on the next one until you sell it.

So there’s been years where we’ve had very low taxable income. And then there’s been years where we’ve had these — the next year invariably, when all those 88 loans pay off at par, which stays in the system because it doesn’t get paid out to us because it’s in the principal account. We’ve had situations where we’ve had — and we talked about with the prior question, needs to pay big specials. So the crux of the matter is GAAP is accrual, taxes as incurred.

Steven Bavaria: So it can work on both for you and against you. Hey, thanks. It’s complicated.

Tom Majewski : You got it.

Steven Bavaria: Appreciate your explanation.

Tom Majewski : Cash in the bank is the simple part. That’s the — yeah, we can debate all the referring of it. Money in the bank is the easiest part to analyze in our opinion. So thank you.

Steven Bavaria: Thanks. Thank you. Keep it up.

Operator: Thank you. There are no further questions at this time. I’d like to hand the floor back over to Thomas Majewski for closing comments.

Tom Majewski : Great. Thank you very much, everyone for your time and attention today. We appreciate all the questions. Ken and I’ll be around later today to the extent people have follow up questions. And we also invite you to join the Eagle Point Income Company call which will be held today at 11:30 am. Thank you very much.