Eagle Level Earnings: Frequent Shares Yield 15%, 7.5% Yield On Most well-liked Shares (NYSE:EIC)

Introduction

Eagle Level Earnings (NYSE:EIC) is an funding firm specializing in CLO debt, and as defined in a earlier article, Steven Bavaria is an authority on this sector and I might strongly advocate you to learn a few of his older articles. This October 2022 article is maybe 18 months previous, however nonetheless explains very properly how it’s best to take a look at CLO debt. I’ve an extended place in EIC’s frequent shares, however I’ve a a lot bigger place within the 2026 time period most popular shares (NYSE:EICA) the place the yield to maturity is sort of interesting given the extra layer of security.

A really sturdy This fall outcome units the tone

Sadly EIC didn’t launch the detailed This fall outcomes. Nonetheless, by evaluating the FY 2023 outcomes with the 9M 2023 report, we’re ready to determine the This fall efficiency.

As you possibly can see beneath, Eagle Level Earnings reported a complete funding revenue of $26.75M and a internet funding revenue of $17.4M for your complete monetary yr 2023.

This compares to a internet funding revenue of $11.83M as of the tip of the third quarter, which suggests the NII within the remaining quarter of the yr was a really spectacular $5.55M. Contemplating the common share count during the fourth quarter was 10.26M shares, the underlying earnings have been 0.54 per share on the web funding revenue degree.

That is additionally backed by the summarized quarterly overview supplied by Eagle Level the place you possibly can see the full NII and realized features earlier than non-recurring gadgets was $0.56/share and $0.54 after together with the non-recurring gadgets.

The frequent shares are nonetheless buying and selling at a (small) premium to the NAV as of the tip of 2023 and it shouldn’t be a shock to see the corporate continued to challenge new shares. On the finish of 2023, there have been slightly below 11 million shares excellent which suggests EIC issued simply greater than 1 million shares throughout the remaining quarter of 2023.

This instantly reduces my considerations concerning the asset protection ratio for the time period most popular shares. These asset protection ratio must be a minimum of 200% at any given time and in my earlier article I already talked about that regardless of seeing the corporate challenge further most popular securities, I didn’t count on Eagle Level Earnings to get near the 200% protection ratio. That is now confirmed within the annual monetary outcomes and the asset protection ratio as of the tip of final yr was roughly 279%.

This ratio will proceed to extend. EIC disclosed it had bought a further 1.18 million of its frequent shares between Jan. 1 and Feb. 21, for complete internet proceeds of $17.4M (internet of $0.4M in fee). On a professional forma foundation, assuming all different parameters stay unchanged, the asset protection ratio for the popular shares is slowly creeping up towards 300% once more. I count on EIC to proceed to challenge new inventory, and for each frequent share it points, the popular shares are getting safer. On the finish of February, EIC’s frequent shares have been buying and selling at a premium of almost 6% to the NAV/share.

Eagle Level Earnings at the moment pays a monthly dividend of $0.20 on the frequent shares, however as rates of interest on the monetary markets begin to lower, I count on the month-to-month dividend funds to lower as properly. That’s completely regular contemplating the CLO debt historically has floating rates of interest. Luckily EIC nonetheless sees good alternatives within the secondary market because it deployed cash at 17% yields throughout the remaining quarter.

I am nonetheless obese EICA

One of many largest positions in my mounted revenue portfolio are the 2026 most popular shares issued by Eagle Level Earnings. These most popular shares have a compulsory compensation date in October 2026 and may be referred to as from Oct. 30 this yr on, and are buying and selling with (EICA) as ticker image. And though they’re categorized as a legal responsibility as a result of obligatory name date, they don’t seem to be child bonds, as some have erroneously prompt. That’s an necessary distinction as curiosity funds and (most popular) dividend funds are inclined to have totally different tax remedies, particularly for non-US buyers. Simply to be clear: EICA pays month-to-month most popular dividends that are topic to the relevant dividend taxation guidelines.

The EICA safety is paying the $1.25 in annualized funds per most popular share in 12 equal month-to-month funds of simply greater than $0.104 monthly. These most popular shares may be referred to as at any given second at their principal worth of $25, however what makes this challenge much more enticing is the actual fact EIC has to redeem these most popular shares by Oct. 30, 2026. One of many predominant the reason why I like EICA a lot is the truth that this most popular share additionally enjoys the advantages of the required 200% minimal asset protection degree, which provides an attention-grabbing layer of safety.

The EICA time period most popular shares at the moment supply a professional forma yield to maturity of roughly 7.5-7.6% which I feel may be very interesting for a safety with a remaining time period of two years and 7 months.

Funding thesis

I’ve a small lengthy place within the frequent shares of Eagle Level Earnings however I’ve a reasonably substantial place within the 2026 time period most popular shares issued by Eagle Level. I feel each the frequent shares in addition to the popular shares are nonetheless a “buy” though I am a bit reluctant to pay a mid single digit premium over the present NAV of the frequent shares. That being mentioned, EIC performs fairly properly and I feel the administration is making the precise determination to proceed to challenge new shares as that can defend the stability sheet (and it makes the popular shares safer).

I’ve an extended place in each. The frequent shares are a purchase on dips and the 2026 time period most popular shares are a purchase on the present ranges.