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

This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.

Elevator Pitch

• 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'.

Read the full article here.