Tom Majewski : Yeah. The short answer is, it’s much ado about nothing in my opinion. While all we do is yeah, we’re a borrower and a lender, all with interest rates. In the old days, LIBOR now SOFR, largely cancels each other out in a CLO. So we — loans, here we went from zero. We have basically zero or near zero rates a couple years ago, are at around 5% rates today. We can see the equity, cash flow, if you look at it over time in our portfolio, didn’t adjust it by share accounting or whatever other stuff like that, it doesn’t even move that much in that the bulk of our income distributions that come to us, the CLO equity holders is simply the difference in the spread on the loans versus the spread on the liabilities. Increases in rates have the potential to increase defaults for companies to pay these higher rates.
Although, as you heard, four companies that have 1,400 or something like that in the portfolio, defaulted, is not a not a default situation, down from six over the prior quarter or whatever it may be. So there’s a little bit of drag there. Probably the best thing going on is the ability for us to start refining and resetting. That’s the thing that’s going to drive increases in cash flows on the existing portfolio, where we can rip out costs on the right side of the CLOs balance sheet. The flip side, one or two loans have repriced as well, but that’s really the exception. If we think back to like 2017, we saw a loan repricing wave. That was bad news for us and loans were getting repriced faster than we could reset and refinance our CLOs play, that there’s a very small amount of loan activity on repricing, more activity and optionality for us on the right side of our balance sheet.
So those are things we like. Would we take up leverage? Not particularly, I mean, we seek to operate the company within the 25 to 35% band. We’ve been consistent with that message probably since 2015, when we added the first ECCAs, which we paid off a long time ago. I remember those. We were a little below the target. We got the apps off earlier, might have even been, you or one of your colleagues who suggested we do something like that, although it might have been in the works on the last call. But we got the apps off. And that’s a good piece of paper for us. And if you read in the financials, it’s not that deep of a market. We do continue to issue a little bit of the Series D perpetual preferred via the ATM as well. Those are kind of trading just looking at the screen right now around right, low to mid 8, type yield.
So that’s obviously very attractive and we can kind of drift that in as we need it. So we’re fixed income investors but the biggest thing that’s going to drive is getting our effective yield up and the things that get our effective yield up are getting our CLO debt costs as low as possible for our existing portfolio and continuing to put in very attractive new investments on the balance sheet as capital comes in, and cash flow on our portfolio comes in.
Matthew Howlett: And you have a ten-year now on call. Right, no look, it makes me — look at one thing where it certainly can matter. You look at Eagle Point, ECC is 18% plus yield, rates are going lower. That’s got to be more apparent to a lot of people earning, — that were 125% on their money market isn’t really might take some cash off the sidelines and buy your stock. And that’s where I want to go with the next question on, you have this. It’s just, we always sort of thought that the excess cash flow over the dividend, think it was — what was it $0.14 over dividend expenses, this quarter. I mean, at some point it was going to come down, but it’s sort of like a high — it’s just the gift that keeps on giving. It’s a high class problem.
You just have this every quarter, almost like clockwork, and maybe you don’t expect it forever. But my question is, how — at some point, did you have — you’re going to have to pay a special — do you want to pay a special dividend? You just rather pay an excess tax? Do you have to pay it? Just walk me through how — you had the supplemental, which is great, but at some point did you have to true everything up because of this just bonanza that’s happening with your cash flow or longer — higher for longer?
Tom Majewski : Yeah. And again, we’re probably the higher for longer type here. But again, that’s not going to be the big driver for us. The way we’ve looked at this, we’ve evolved our thinking as we learn how to work 10 years, this is our 10th year anniversary, I guess in October. It will be a decade. We’ve kind of gotten our sea legs, Ken and I, I remember back in probably 2017, we declared a special distribution for the first time. And maybe it was $0.50 distribution, I don’t remember exactly what it was, but it was in that context. And the stock went up $0.50 cents the next day. And for the person who bought that stock at 3:59 pm, had no idea, it was a bit of a windfall. And we’re just — I mean, that gives just distributing cash back to the shareholders.
