Eagle Point Credit Company Inc. (ECC) Q4 2018 Earnings Conference Call Transcript

ECC earnings call for the period ending December 31, 2018.

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Eagle Point Credit Company Inc. (NYSE:ECC)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 10:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning. My name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Eagle Point Credit Company Fourth Quarter and Year End 2018 Earnings Call. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press "*1" on your telephone keypad. If you would like to withdraw your question, please press "#".

I would now like to turn the call over to Garrett Edson. Please go ahead.

Garrett Edson -- Senior Vice President, ICR

Thank you, Michelle, and good morning. By now, everyone should have access to our earnings announcement and investor presentation, which was released prior to this call, which may also be found on our website at eaglepointcreditcompany.com

Before we begin our formal remarks, we need to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from those projected in such forward-looking statements and projected financial information.

Further information on factors that could impact the company and the statements and projections contained herein, please refer to the company's filings with the Securities and Exchange Commission. Each forward-looking statement and projection of financial information made during this call is based on information available to us as of the date of this call. We disclaim any obligation to update our forward-looking statements unless required by law.

A replay of this call can be accessed for 30 days via the company's website, eaglepointcreditcompany.com.

Earlier today, we filed our Form NCSR, all full-year 2018 audit financial statements, and our fourth quarter investor presentation with the Securities and Exchange Commission. Financial statements our fourth quarter investor presentation are also available on the company's website. Financials statements can be found by following the "Financial Statements and Reports" quick link on our website. The investor presentation can be found by following the "Investor Presentation and Portfolio Information" quick link.

I would now like to introduce Tom Majewski, Chief Executive Officer of Eagle Point Credit Company.

Thomas Majewski -- Chief Executive Officer

Great. Thank you and welcome, everyone, to Eagle Point Credit Company's Fourth Quarter Earnings Call. If you haven't done so already, we invite you to download our investor presentation from our website, which provides additional information about the company, including information about our portfolio on a line-by-line basis and underlying corporate loan obligors.

As we've done previously, I'll provide some high-level commentary on the fourth quarter. Then we'll turn the call over to Ken, who will walk us through the fourth quarter financials in more detail. I'll then return to talk about the macro environment, our strategy for the company, and provide updates on our recent activity. And then, as always, we'll open the call to your questions.

The fourth quarter delivered a marked reminder of the potential for loan price volatility, both in the price of loans as well as CLO securities, and the potential for this to manifest itself quickly. Importantly, we believe the price movement during the quarter in loans and CLO securities was principally driven by a technical factor, not a fundamental issue with the loan market or any security in the company's portfolio.

Specifically, the technical factor that I made reference to was forced selling of loans, principally by retail loan mutual funds, due to a surge in redemptions. During the quarter, these funds, which control roughly 20% of the total loan market, faced outflows of over $20 million over a three-month timeframe. When these funds, which typically offered daily liquidity to investors, face large outflows, they are forced to sell, and sell very quickly, loans in their portfolios to fund their redemptions.

What we observed is that many of the highest-quality and typically most liquid loans faced significant price pressure, as these are often the easiest loans to sell in the short time needed by these mutual fund investors. Notably, despite the drop in loan prices, there were very few corporate defaults underlying this volatility. Indeed, of the over 1,400 leveraged loan issuers tracked by S&P, only six actually defaulted during the fourth quarter.

As Eagle Point has always been a long-term oriented investor in CLO equity, we were excited to see this short-term price volatility, as it provides us greater opportunities to invest and, for our existing CLOs, to reinvest pre-payments they receive on their loans, and for relative value trades to be made within our CLO loan portfolios.

However, periods like what the market went through in the fourth quarter also keenly underscore an advantage offered by CLOs in such a volatile environment: their locked-in, long-term, non-mark-to-market financing. The locked-in financing of CLOs provides them with stability and allows many CLOs to profit by reinvesting principle proceeds and sale proceeds in their portfolios into additional loans, typically at lower prices in the secondary market and/or with wider spreads. In other words, we view our CLOs' long-term debt to actually be more in the money in volatile markets, like those at the end of 2018. We believe that the CLOs' financing was a more valuable asset at the end of the quarter versus the beginning.

While our NAV certainly was impacted in the quarter from the loan price dislocation, we've already recovered a significant amount of the December decline as of the end of January 2019. Many long-term followers of Eagle Point will recognize that short-term changes in NAV typically don't signal a drop in cash flow the way such moves could with a BBC. Rather, we expect that short-term drops in NAV may, in some cases, auger well for higher near-term cash flows, as our CLOs are able to reinvest in what quickly became a buyer's market for loans. We believe the company remains well-positioned to generate long-term value for stockholders, particularly in markets like these.

In terms of our portfolio in the fourth quarter, we continued to actively manage the portfolio in all facets. During the quarter, we deployed approximately $58 million of gross capital into new investments and, as in recent quarters, the new CLO equity we purchased had a higher weighted average effective yield than the overall weighted average yields in our portfolio. We also continued to leverage our advisors' competitive strength and priced four resets during the quarter.

For the fourth quarter, we generated net investment income and realized capital losses of $0.38 per common share and that's a $0.03 reduction from the prior quarter. Looking at the components of this, however, net investment income actually increased by $0.01 on a quarter-over-quarter basis but we had a small amount of losses realized, principally associated with the final liquidations of four CLOs that had been called some time ago.

A quick reminder regarding our GAAP net investment income. We remain mindful that we have been generating net investment income below our common distribution level and this has principally been driven by lower GAAP portfolio yields on our CLO equity. However, when determining our common distribution, in addition to GAAP yields, we also evaluate the cash flow we receive from the investments in our portfolio and our estimates for taxable income during each fiscal year. Indeed, to maintain our RIC status, it is taxable income that sets a floor on our common distribution.

2018 was another year of significant reset and refinancing activity at Eagle Point. While these actions bring a number of benefits that we have long discussed, they also allow a beneficial acceleration of certain deductions for tax purposes. This acceleration relates to unamortized issuance cost and OID from the original CLO debt that was retired as part of these actions.

The significant amount of reset and refinancing activity during the year meant that a meaningful portion of our 2018 common stock distributions were treated as a return of capital for our shareholders and not as taxable income. We estimate our ordinary taxable income would have been roughly $1.00 per share higher had we actually not completed any of these refis or resets during the year and that all of our 2018 common stock distributions would likely have been taxable to shareholders. So, an additional benefit of the refis and resets is that we were able to shelter some of the taxable income in 2018. This would have been reflected on your 1099-DIVs.

As we've already reset and refinanced now a majority of our portfolio, and given the current softer debt markets, we expect the pace of resets and refis in 2019 to slow from the prior two years. As a result, all else being equal, we expect cash flows from investments and taxable income to increase from 2018.

Based on current market conditions and assuming limited resets of CLOs in which the company is invested, the company currently estimates its taxable income for the year ended November 2019, which is our current tax year, to be approximately $2.40 per common share. Based on this estimate, the company intends to maintain the $0.20 per common share monthly distribution for the current fiscal year.

As mentioned earlier, during the fourth quarter, we deployed approximately $58 million of capital on a gross basis in both the primary and secondary markets and received $27.9 million in proceeds from the sale of investments. We made four primary CLO equity purchases, five strategic CLO debt purchases, and funded four existing and two new loan accumulation facilities.

The new CLO equity investments that we made had a weighted average effective yield of 14.75% at the time of investment; once again, well above the weighted average effective yield of our overall portfolio. This continues to demonstrate our ability to source accretive investments through our advisors' investment process and access to the markets.

On the monetization side, we sold $3.7 million of CLO equity, where we saw unique selling opportunities, as well as $18.2 million of CLO debt securities, as we are generally seeking to lower our holdings of CLO debt tranches over time. However, modest losses associated with the finalization of several called CLOs more than offset any gains and led us to recognize a $0.03 per common share realized loss in the quarter. Despite the loss in the quarter, we are pleased that we have had realized net gains on our investments in 8 of the last 11 quarters. The net gain realizations across these 11 quarters totaled $0.35 per share.

The four resets that we priced during the quarter brought the total number of resets and refinancings that the company has been involved in since the beginning of 2017 through the end of 2018 to 27 and 28, respectively. That's a grand total of 55 different actions that were taken. As in prior quarters, the resets completed created new reinvestment periods of up to five years for those CLOs and typically reduced those CLOs weighted average cost of debt.

The value of our advisors' investment process and its resetting activity can clearly be seen in the extension of our weighted average remaining reinvestment period. Thanks to significant reset activity and other portfolio management undertakings during the year, at the end of 2018, the weighted average reinvestment period of our CLO equity portfolio was 3.41 years. This is an increase from 2.81 years at the end of 2017. Had our portfolio been static, our weighted average remaining reinvestment period would have decreased by approximately one year. Instead, it increased by more than half a year. Extending our portfolio's reinvestment periods is a very important part of the Eagle Point portfolio management strategy.

As of December 2018, the weighted average effective yield on our CLO equity portfolio was 13.3%. That compares to 13.99% last quarter and 14.42% as of prior year-end. As noted previously, the weighted average effective yields include an allowance for future credit losses. A summary of the investment-by-investment changes in expected yields are included in our quarterly investor presentation.

In January and so far through February 14th, we've deployed $21.1 million of gross capital and received $16.7 million in proceeds from sales of investments. We've converted one of our loan accumulation facilities into a new CLO. We remain opportunistic in resetting existing investments and active in pursuing new primary and secondary investments.

Overall, despite the loan price volatility at the end of the year, given the minimal number of defaults we've seen in the market and continued favorable economic performance in the United States, we remain quite favorable on the overall market and our portfolio. Frankly, we believe this is an attractive time for CLO equity investors.

After Ken's remarks, I'll take you through the current state of the corporate loan and CLO markets and our outlook for the balance of 2019.

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

Thanks, Tom. Let's go through the fourth quarter in a bit more detail. For the fourth quarter of 2018, the company recorded net investment income and realized capital losses of approximately $8.8 million or $0.38 per common share. This was comprised of net investment income of $0.41 per share and net realized capital losses from the company's portfolio of $0.03 per share. This compares to net investment income and realized capital gains of $0.41 per share in the third quarter of 2018 and net investment income and realized capital gains of $0.49 per share in the fourth quarter of 2017.

When unrealized portfolio depreciation is included, the company recorded a GAAP net loss of approximately $83.7 million or $3.62 per common share for the fourth quarter of 2018. This compares to net income of $0.50 per share in the third quarter of 2018 and net income of $0.68 per share in the fourth quarter of 2017. Just a reminder that our cash flow generation is completely unaffected by the unrealized depreciation or depreciation we record at the end of each quarter.

The company's fourth quarter net loss was comprised of total investment income of $17.7 million offset by net unrealized depreciation or mark-to-market losses of $92.4 million, net realized losses of $0.7 million, and total expenses of $8.3 million.

At the beginning of the fourth quarter, the company held $24.3 million of cash, net of pending investment transactions. As of December 31st, that amount was $1.5 million, reflecting the deployment of capital during the quarter. As a result of deploying $58.2 million in gross capital during the fourth quarter, there was an additional amount of capital that only generated income for a portion of the quarter, which we expect to generate full income going forward.

As of December 31st, the company's net asset value was approximately $287 million or $12.40 per common share. Each month, we publish on our website an unaudited management estimate of the company's monthly NAV, as well as quarterly net investment income and realized capital gains or losses. Management's unaudited estimate of the range of the company's NAV as of January 31st is between $13.66 and $13.76 per common share. Based on the range midpoint, this is an increase of approximately 10.6% since year-end, which could be attributed, in part, to an increase in demand for investments such that the company held during the month of January.

Non-annualized net GAAP return on common equity in the fourth quarter was a loss of 22%, primarily due to the drawdown in portfolio prices. Of course, any increase to our NAV, as we have estimated for January 2019, would result in a partial reversal of that number.

The company's asset coverage ratios at December 31st for preferred stock and debt, as calculated pursuant to Investment Company Act requirements, were 246% and 477%, respectively. These measures are above the statutory minimum requirements of 200% and 300%, respectively, and have risen from those levels in January as loan price volatility subsided.

As of December 31st, the company had debt and preferred securities outstanding totaling approximately 40.6% of the company's total assets less current liabilities. This is outside of our normal range, driven predominantly by the NAV decline experienced during the quarter. We've previously communicated management's expectations under current market conditions of generally operating the company with leverage in the form of debt and/or preferred stock within a range of 25% to 35% of total assets. At the end of January, given our estimated increase in NAV, we are now closer to that range.

Earlier this month, the company issued its 1099-DIV for the 2018 tax year, reporting ordinary taxable income of 63% and return of capital of 37%. Measured against the company's full-year common distribution of $2.40 per share, this equates to $1.51 per share of ordinary taxable income and $0.89 per share of return of capital. The impact of participating in 31 resets and refis associated with the company's CLO equity investment portfolio is reflected in the company's 2018 tax year results. As mentioned previously, reset and refi activity typically reduces taxable income, as it permits, for tax purposes, expense acceleration of unamortized issuance costs and original issue discount.

Management estimates the reduction of ordinary taxable income for the 2018 tax year resulting from such expense acceleration to be roughly $1.00 per share. In other words, if the company did not participate in any resets or refis this past year, 2018 ordinary taxable income would have been in line with the company's current annual distribution rate of $2.40 per share. And, as Tom mentioned earlier, all shareholder distributions would have been taxable.

As a reminder, the company is a RIC and is required to distribute, effectively, all of its taxable income to shareholders on an annual basis. We provided the aforementioned tax information to help illustrate that the company's ordinary taxable income in 2018, once normalized for reset and refi activity, was generally in line with its current annual common distribution rate.

Moving on to our portfolio activity in the first quarter through February 14th, investments that have reached their first payment date are generating cash flows in line with our expectations. In the first quarter of 2019, as of February 14th, the company received total cash flows on its investment portfolio, excluding proceeds from called investments, totaling $24.3 million or $1.05 per common share. This compares to $22.5 million, or $0.97 per share, received during the fourth quarter of 2018.

Consistent with prior periods, we want to highlight some of our investments that are expected to make payments later in the quarter. During the fourth quarter, we paid three monthly distributions of $0.20 per common share, as scheduled. On January 2nd, we declared monthly distributions of $0.02 per common share for each of January, February, and March.

Also during the quarter, our Board approved the issuance of additional shares of common stock and Series B term preferred stock under our ATM offering program. In the fourth quarter, the company issued approximately 36,000 shares of its common stock at a premium to NAV and approximately 17,000 shares of Series B term preferred stock for total net proceeds to the company of approximately $0.9 million.

I will now hand the call back over to Tom.

Thomas Majewski -- Chief Executive Officer

Great. Thanks, Ken. Let me first take everyone through some macro loan and CLO market observations and we can discuss how they may impact the company. I will also touch on our recent portfolio activity.

For 2018, the Credit Suisse Leveraged Loan Index generated a total return of 1.14% and it was really one of the few asset classes that generated a positive return in 2018. Loans, as you know, are the engine that drive the company's cash flow and 2018 marked the 25th year of positive returns out of the Index's 27 years of existence. This long-term consistent performance, in our view, is truly remarkable.

As touched on before, we saw record loan fund outflows in December. During the fourth quarter in total, according to J.P. Morgan, the loan funds experienced outflows of over $20 billion. Outflows have since moderated in January but still have continued. Outflows often bring same-day forced selling for these mutual funds. Indeed, we believe the technical from this forced selling of loans to be the primary driver of the drop in loan prices and our NAV during the quarter. Forced selling by others can be opportunities for those with steady hands, like CLOs.

The total amount of institutional corporate loans outstanding was $1.15 trillion as of year-end. That's a 5% increase from the third quarter according to data from S&P. Although 2018 was a strong year overall for loan issuance, that volume declined in the fourth quarter, including only about $4 billion of loans issued in December, the lowest level since Q1 of 2016.

Despite the volatility, as noted before, defaults remain well below historic averages. The one-year default rate sits at 1.63% at the end of December according to S&P Capital IQ and that lagging 12-month default rate remains low and, in fact, decreased from the end of the third quarter. By further comparison, at the end of 2017, the lagging 12-month default rate was 2.1% so we keep heading in the same direction.

We continue to expect default rates to remain below the average over the near to medium term. This is due to minimal impending loan maturities prior to 2022, a growing U.S. economy, and a large majority of the loan market consisting of covenant-light loans. The company's overall credit expense remains well below long-term averages.

As loan price volatility presents itself as it did in the fourth quarter, we believe the company and its investments are well-positioned to go on the offense and take advantage of lower loan prices, given the benefit of our long-term, locked-in-place, non-mark-to-market financing in our CLOs. From our perspective as long-term CLO equity investors, the environment of technically driven loan price volatility, often driven by forced sellers by others, without an increase in defaults over the near to medium term, is an extremely attractive situation.

In the CLO market in 2018, we saw issuance of $129 billion of new CLOs, along with $122 billion of resets and $34 billion of refinancings. Looking forward into 2019, we do expect lower volumes but it will be still significant. Overall, we're expecting about $100 billion of primary CLO issuance, $70 billion of resets, and potentially $40 billion of refinancings.

We expect to opportunistically direct additional resets and refinancings in 2019, although based on the portfolio activity we've done and current market conditions, we think it will be at a lower level than we have over the prior years. As a result, we'd expect our overall CLO equity cash flows to increase without the constant impact of reductions on a one-time basis associated with the costs of refis and resets. And, as Ken mentioned, cash flow per share went from $1.05 to $0.97 Q1, so far, versus all of Q4, with more to go in Q1. As always, our advisors' deep CLO investing experience provides us with a notable advantage as we seek to generate additional value for our portfolio and our stockholders.

We've deployed $4.4 million in capital across CLO equity and loan accumulation facilities so far in the first quarter of 2019, putting cash on the balance sheet to use as opportunistically as possible. Beyond seeking to maximize the value of our existing investments and opportunistically taking advantage of the loan price dislocation we've seen, we continue to maintain solid visibility on our new pipeline for the next few quarters.

To sum up, the loan price volatility that transpired in the fourth quarter, while impacting our NAV in the short term, was actually a very good thing for long-term CLO equity investors, in our view. The dislocation was technically driven by forced sellers and not caused by defaults. To the contrary, defaults in 2018 were lower than they were in 2017. As a result, we have a strong opportunity to utilize our advisors' strength to create additional value for our portfolio over the longer term.

We continue to invest in CLOs with effective yields above the portfolio's current weighted average effective yield and, when the opportunity arises, we'll continue to use our advisors' strength to proactively direct additional resets, which we expect to help improve future cash flows to our CLO equity securities. And as spreads widen on loans and prices fall, we believe our effective yields on our CLO equity positions will continue to rise.

We'll continue to be proactive in our management of the company in order to create long-term additional value for all of our stockholders. We thank you for your time and interest in Eagle Point. Ken and I will now open the call to your questions.

Questions and Answers:

Operator

Thank you. If anybody has a question, please press "*1" on your telephone keypad. Again, that would be "*1" on your telephone keypad. Your first question comes from Mickey Schleien from Ladenburg. Your line is open.

Thomas Majewski -- Chief Executive Officer

Good morning, Mickey.

Mickey Schleien -- Ladenburg -- Analyst

Good morning, Tom. And can you hear me OK?

Thomas Majewski -- Chief Executive Officer

Yeah.

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

Good morning.

Mickey Schleien -- Ladenburg -- Analyst

Can you walk us through the factors that caused the portfolio's weighted average spread and its effective yield to decline in a quarter when loan market spreads were widening?

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

So, on a quarterly basis, Mickey, we calibrate our effective yields. A good deal of our recalibration in the fourth quarter were anniversary resets. And you can see on Page 27, on an investment-by-investment basis, that the overall Q4 anniversary resets have declined, which was a significant part of the overall resets, while the other items related to more real-time portfolio information have either not declined as much, remained static, or actually increased.

Thomas Majewski -- Chief Executive Officer

And recall, recast the yields on CLOs at least once a year on the anniversary date or more frequently if we do a reset, refi, buy, or sell. So, if you look at Page 27, you'll see $99 million of fair value of securities went through recalibrations. A handful of the yields went up, frankly. Overall, that portion dropped about 3%. And that's manifesting itself -- those, in many cases, were CLOs that we hadn't reopened in the last year. So, that's what's driving the decline. At the same time, the weighted average spread of the overall portfolio was relatively flat. If you look at the underlying loan spreads, it was relatively static, maybe up or down a basis point or two, and that's driven by the fact that loan spread compression really didn't exist in the fourth quarter.

Mickey Schleien -- Ladenburg -- Analyst

Okay. So, if I understand correctly, it's basically a mechanical lag from the methodology that you do for recasting the effective yields, right?

Thomas Majewski -- Chief Executive Officer

That's correct. Yes.

Mickey Schleien -- Ladenburg -- Analyst

Okay. Looking at NAV, Tom, in the fourth quarter, loan prices fell about 6%, give or take, and Eagle Point's NAV declined 25%. But in January, loan prices rebounded about 4% but estimated NAV only increased 10%. In other words, just mathematically, you would have expected a larger increase in NAV for January. I know it's an estimate but what factors kept the January estimate NAV from increasing more than the number you announced?

Thomas Majewski -- Chief Executive Officer

I guess a couple of things. If you just look at the Credit Suisse Leveraged Loan Index, the price of that Index on the last day of Q3 was $98.52. As of year-end, it was $94.09. So, that would suggest a drop of a little less than 4.5 points. Different indices may have moved differently but we typically look at the CS Leveraged Loan Index. And as of today, it's up to $96.34, or as of yesterday, and that's roughly where it would have been at the end of January.

There's a couple of things that go into the valuation of CLO equity. The price of loans is merely one of them but, by no means, the only driver. The other factors that play in are outlook for defaults and, frankly, the discount rate that the market applies. When prices of loans fall, as they did in the fourth quarter, not only does the terminal value of a CLO fall but, typically, the market demands a wider discount rate. It's a risk-off world. So, you might have used a 15% discount rate to PV a portfolio at a payment in the future at 98. By the end of the year, you might have been using a 20% discount rate to PV a payment of 94.

So, those two things actually kind of compound together. Against that, it's not just taking the change in loan price times ten times leverage to come up with the change in NAV. On the way back up, we're up a little over 10% to the midpoint of management estimate in January and that reflects, certainly, an increase in the price of loans and a little bit of a tightening in yields, but maybe not as strong yet as the widening of yields for CLO equity that we saw in the fourth quarter.

Mickey Schleien -- Ladenburg -- Analyst

So, Tom, if I could paraphrase, your assumptions for the discount rate, in terms of defaults and everything else that goes into calculating that rate, didn't rebound as much in January as the prices of loans rebounded. Is that a fair statement?

Thomas Majewski -- Chief Executive Officer

The default rate didn't change substantially on the way down or the way up, really, if at all. The market yield that investors would demand to buy our securities is something that we set on a security-by-security basis. And different shelfs or different collateral manager platforms are going to trade at wider or tighter yields. Once you've run out the assumptions, we saw an improvement in yields, and the market would take a lower and lower yield, but it didn't rebound all the way, which suggests, potentially, there could be more upside to go or, obviously, yields could widen the other way. But it's not just as simple of a test as take change in price times leverage. There's any number of factors that go into it. We've seen a rebound in yield demands, in that investors are demanding lower and lower yields for CLO equity, but we're nowhere near back to the levels we would have been as of September 30th.

Mickey Schleien -- Ladenburg -- Analyst

So, Tom, have CLO equity prices moved meaningfully upward in February so far?

Thomas Majewski -- Chief Executive Officer

Without addressing our specific portfolio, I think, in general, demand for CLO equity securities has remained positive and the trends have been positive. Any given security could have good or bad things happening to it but the trend certainly hasn't moved the wrong way and probably has moved the right way.

Mickey Schleien -- Ladenburg -- Analyst

Okay. My last question. I understand that in the current year, 2019, you expect taxable income to track the dividend more closely and you don't, at least for now, intend to change the dividend. But, as you know, on a GAAP basis, the dividend is causing a meaningful drag on NAV. Looking back, at the beginning of 2016, the company's NII per share was covering the dividend and through the beginning of 2017, NII plus realized gains were covering it. But they haven't covered it since then. So, I want to understand what your thesis is on trends for estimated yields and NII and realized gains, looking at today's market and the stage of the credit cycle.

Thomas Majewski -- Chief Executive Officer

Sure. The biggest driver in NII is the weighted average effective yield in our portfolio. Two to three years ago, that number was 17-and-change percent and now it's 13%, roughly. And that drop has principally been driven by spread compression on loans, loans coming at tighter and tighter spreads over LIBOR.

While we have been able to offset a fair bit of that with refi and reset activity, frankly, we chose more resets. Or any time we chose a reset versus a refi -- reset is where you reopen the docs and buy yourself a new reinvestment period -- we could have lowered our costs further, which likely would have gotten us higher yields, had we done refis but without the benefit of lengthening the reinvestment period. And I'd rather sit here and tell you we increased the weighted average reinvestment period by a half a year plus this past year than we saved even more costs on a reset. So, we make a conscious decision which way we're going and buying runway costs us a little bit of current yield but, in my belief, that's absolutely the most defensive long-term way to be managing our portfolio.

With the state of the loan market and most loans trading at discounts to par, repricing of loans is substantially off the table in current market conditions. That can come back quite quickly but where we sit today, loans kind of in the 95-97 area with the index at 96.34 with very, very few companies defaulting -- again, six out of 1,400 companies defaulted in the fourth quarter -- is a very attractive scenario for CLOs. And, frankly, what we're seeing within our portfolio, and as we work with the collateral managers, we seek to help them increase spread in the portfolios, build par, and/or reduce risk. Ideally, they can do all three. A few of them can do that. Typically, they get one or two of them done. But these kind of markets are the situations where they're able to do that.

Importantly, what they're not facing is a barrage of spread compression. And that was something that really hurt the yields over the past few years. Where we sit today, if current market conditions were to remain unchanged, we'd expect an increase in the spreads of our underlying loans, which, all else equal, would suggest an increase in our weighted average effective yield. Obviously, there's a lot of additional things that go into that simply beyond the spread of loans but the spread of loans going up would be something we actually see a credible path to happening right now.

Mickey Schleien -- Ladenburg -- Analyst

All right. I agree with that and that's been my thesis as well. Those are all my questions for this morning. I thank you for taking them.

Thomas Majewski -- Chief Executive Officer

Great. Thanks so much, Mickey. Operator, can we move on to the next call?

Operator

Your next question comes from Chris Kotowski. Your line is open.

Thomas Majewski -- Chief Executive Officer

Hey. Good morning, Chris.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Good morning. Your response to Mickey confused me a little bit. You referenced Page 27. What I see on Page 27 is a taxable income exhibit that I was going to ask you about. Did you mean a different page?

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

Yeah. In the quarterly investor presentation, Page 24, 25, and 23 gets you the information that you need. Just to orient, 25 shows the changes, quarter-on-quarter, and 24 and 23 give you the detail to the type of change to effective yield. So, using those three pages can get you to what we referred to earlier.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Sorry about that. I had the board deck out which has a couple of introductory pages. Okay. I was momentarily confused. But, actually, I did want to ask you about Page 27.

Thomas Majewski -- Chief Executive Officer

Well, I'm glad I drew it to your attention then. Perfect.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Actually, that was the first one that jumped out at me. And I guess the thing is, just as a RIC, just technically speaking, for 2018, you really only needed to distribute $1.51, right?

Thomas Majewski -- Chief Executive Officer

You got it.

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

That's correct.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Okay. And what you're saying is, just if you just don't do any resets but hold everything else the same, theoretically, your ordinary taxable income would be $2.61 for 2019?

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

Yes. On this analysis, correct.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Okay.

Thomas Majewski -- Chief Executive Officer

And let me expand upon that. So, we kind of hinted through or said through the year, kind of midway through last year, that we thought we were going to come out below $2.40 for taxable income in 2018. And you could take the theoretic argument we should have lowered the distribution for two quarters. But we had already done the 2019 outlook and we believe we would have had to increase it right back up so we kind of thought that would be a little more whiplash than the market would like and didn't make sense to do.

All else equal, we view it as a tax benefit to the extent people can get cash and not have to pay tax on it in the current year, albeit it does adjust their basis down the road. Net acceleration of deductions, in any corporate scenario, is always a good thing. So, had we not done any of those refi/resets, you see we would have actually been over-distributed and had to pay a $0.20 special, which our experience shows the market doesn't give us any credit for.

Where we look in 2019, we've had our tax accountants prepare preliminary estimates. Frankly, because of our non-calendar year tax year, we actually have a lot of information already related to our November 2019-ending tax year because a lot of CLOs give us K-1s or PFIC statements on December 31, 2018. So, we've already got a pretty good insight into what our taxable income is going to be for this coming year.

And where we sit today, it looks like it's around $2.40 per share. Obviously, that can move up or down a little bit and lots of things can change in the market but, based on where we sit, based on the activity we've done, and the smaller number of CLOs that haven't yet reported their income to us for tax year 2019, we feel pretty good on this $2.40 number, which means that's what we're going to need to pay to keep our RIC status. So, as a result, we remain very confident that the company will continue the distribution on the current rate, certainly for the balance of the year.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Okay. And is there any kind of rational methodology by which we could use the information in this exhibit and kind of think about what it would imply for GAAP NII? Or is that just an exercise you can't do at home?

Thomas Majewski -- Chief Executive Officer

Basically. The short answer is it's impossible to do. A couple of things we'll highlight. We have three different masters: GAAP, tax, and cash. Tax, that's the rule of the minimum we have to distribute. GAAP is the number everyone likes to see although it includes a big reserve for losses. And then cash is an interesting one. That's what we're all here for. And if you look back on -- where do we have that other page, Ken?

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Page 22. I was just going to go there, yeah.

Thomas Majewski -- Chief Executive Officer

Or even 21, I believe. Right?

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Twenty-two in mine.

Thomas Majewski -- Chief Executive Officer

If you go back to 21, go back one page, what this shows, just from an overall sustainability of the company, mindful that GAAP has a meaningful reserve for loan losses, if you were to kind of comp us to a BDC, for example, where no such reserve exists, if you look at this Q4 '18 column, a little bit down you'll see we received $1.21 in distributions on our portfolio. $0.24 of that was related to calls, so that's not recurring. That means we got down to $0.97 of recurring portfolio cash flows. Common distributions, expenses, including preferred and dividends, interest, fees, and other legal costs got us to $0.96 of outflows. So, just raw interest in minus money out for dividends, distributions, interest, costs, the company was positive. And then, obviously, the calls helped as well.

As Ken mentioned, our cash flows to-date in the first quarter, which is not yet the full first quarter, actually are up. We're up to $1.05 versus $0.97. Our expenses, all else equal, will stay about the same, maybe a penny or two different on accruals, and we still have more cash flow expected to come in during the first quarter. So, when you think about -- unfortunately, we've got these three different things that are three different calculations. The way I think people would look at a BDC is they would say what's the interest that came in on the loans, which in this case is $0.97, what's the cost and payout -- in this case, it was $0.96. So, that, we think, is pretty darn good. And as we foreshadowed for Q1, we're even in better shape so far than where Q4 shook out and the quarter is not yet over, in terms of cash flow.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Yeah. Though, presumably, the $1.21 in cash distributions received isn't just interest income. It also includes principal repayment, right?

Thomas Majewski -- Chief Executive Officer

And that's why we -- correct. That includes $0.24 of repayment so that's why we net it to get the $0.97.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Okay. So, the $0.97 is really reflective of interest?

Thomas Majewski -- Chief Executive Officer

Correct. Yeah. $0.97 is reflective of interest and that number is up to $1.05 so far this quarter and the quarter's not over.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Okay. And then if I go to the next page, Page 22, and just look at the total portfolio cash received at 27.97. I mean, obviously, it seems to bounce around all over the place on a quarterly basis. But you look, year-over-year, it's down even though, obviously, you've raised capital and made investments all through the year. Is there any guidance you can give us on kind of what to expect during the course of 2019?

Thomas Majewski -- Chief Executive Officer

Well, certainly for Q1, we can say recurring cash flows will be up because we're up $1.05 versus $0.97. If you flip back to 21 for a minute, or maybe we'll add this on 22 going forward, if you look at the $0.24 that we netted out for cash related to calls, the $1.21 minus $0.24 to $0.97, you can see that $0.24 was $0.15, it was $0.47, $0.06, $0.60, which kind of lines up to, as you put it, that cash flows have moved all over the place quarter to quarter. Maybe one of the things that we can do going forward on Page 22 is we'll break out an additional line item in future quarters of cash flow from called deals. Just to make that clearer for you.

But you can kind of see the pattern. If you look back on 21, the recurring portfolio cash flows, they have come down a little bit. It was $1.23 a year ago. It kind of bounced around. The $0.97, it was $1.04, $1.18, $1.00, $0.97, we're back up to $1.05 with probably a little more gas in the tank for this quarter. That's kind of where we've been bouncing around. And in all periods -- let me check my math here -- the recurring cash flows have exceeded the distributions and fees and expenses out.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Okay. And --

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

If I can just add one other item?

Thomas Majewski -- Chief Executive Officer

Ken wants to supplement. He's got a piece here.

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

On Page 22, as we note in Footnote 5 at the bottom of the page, is the impact to our refi and resets affecting current cash flows. That's also taking out anywhere from $0.05 to $0.15 per quarter throughout each quarter of the year. Just something to note. And as our refi and reset activity subsides in 2019, that would be accretive to recurrent cash flow.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Okay.

Thomas Majewski -- Chief Executive Officer

Does that make sense to you, Chris?

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Yeah. Yeah, it does. It's -- gosh, you'd just die for two or three or four quarters of stability where it doesn't move around like that.

Thomas Majewski -- Chief Executive Officer

Let me address that. I think if you add back the footnote on Page 5 to the quarterly numbers on Page 21 -- the footnote on Page 22, Footnote 5, to the recurring cash flows on Page 21, it paints a reasonably stable picture, in my view. Obviously, beauty is in the eye of the beholder. But the cash has been bouncing around. It's going to move around a little bit in these things. They are complicated, living, breathing beasts. But we've been consistently generating well over $1.00 per share per quarter in recurring cash flows and paying out that or less. So, that's good.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Okay. All right. And, presumably, the reason why it's down from $1.23 last fourth quarter to $0.97, that's just the tightening spreads, primarily.

Thomas Majewski -- Chief Executive Officer

Principally, yeah.

Chris Kotowski -- Oppenheimer & Co. -- Analyst

All right. That's it for me. Thank you.

Thomas Majewski -- Chief Executive Officer

Appreciate it. Thanks so much.

Operator

Your next question comes from Christopher Testa from National Securities. Your line is open.

Thomas Majewski -- Chief Executive Officer

Good morning, Chris.

Christopher Testa -- National Securities -- Analyst

Hi. Good morning, Tom. Thanks for taking my questions today. So, I'll start off by badgering you more on what you have already answered with Chris and Mickey a bit. Just if we look at tax versus GAAP versus cash, obviously, over time, these things are all supposed to be equal. We understand how this works. So, since the inception of ECC, obviously, you guys have paid a certain amount of distributions and the GAAP NII, which is the GAAP income, has been underneath this. So, given that pretty wide differential, is there ever a point where there has to be sort of a catch-up? Does GAAP ever have to, I guess, increase to catch up with this so that it's equal over time, so to speak, or does taxable income go down? I'm just wondering if you could just speak to the timing aspect and how these are supposed to be equal and how this plays out with a public vehicle and distributions.

Thomas Majewski -- Chief Executive Officer

Sure. Yes, they do have to be equal. If you look on our website, back in 2015, we did publish a GAAP-tax-cash comparison for a single investment. We did take the simplifying approach of showing a single investment, not a portfolio of 75-plus securities coming and going at different times. But, indeed, they will all equal over time. Some of the differences that you're hitting on, when we look at 2018, taxable income was less than GAAP income because we were able to take a lot of deduction acceleration, which is a benefit in 2018 tax year.

To be kind of academically pure again, in theory, Ken and I should have said we're going to cut the distribution for two quarters but then increase it back in 2019. We think the market doesn't really -- we think the market would have been more confused by that and we did not do that. And, indeed, the company remains committed to a $0.20 distribution per month, certainly for the balance of the 2019 tax year.

In that case, we did end up leaking out a little more money than we would have otherwise done, to the point of "it's all going to equal," but we paid out a little extra in those periods because taxable income would be lower or GAAP income higher or those two net out. The flip side against all of that, where prudent, we have continued to issue stock at a premium to NAV. and while that doesn't close all of the excess distribution, frankly, we picked up -- I think we disclosed an amount.

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

$0.17.

Thomas Majewski -- Chief Executive Officer

In the last year?

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

Yes. So, net, $0.17.

Thomas Majewski -- Chief Executive Officer

So, $0.17 net pickup in NAV for all shareholders through use of the ATM and one overnight deal last year. While that doesn't bridge the entire difference, that's an extra input into the stability of the NAV of the company. Overall, what we encourage people to look at is what the recurring cash flows are versus our operating expenses. That's really kind of the BDC comparison. Our effective yields are baking in reserves for future losses.

Where we sit right now, we expect credit quality to remain, reasonably, quite strong. The economy is growing. Loans are covenant-light which suggests there's going to be few defaults. And, overall, we actually saw NII, ignoring the gain and loss, move up in the quarter-over-quarter basis and we're doing everything we can to get that NII number back up. And then, further, hopefully, we can trickle in -- we've been 8 out of 11 quarters with gains and those gains totaling $0.35. Trying to make sure we get a few pennies of those every quarter. Obviously, no one knows what's going to happen in any given quarter but, where possible, harvesting some gains is another input.

Christopher Testa -- National Securities -- Analyst

Got it. Okay. No, that's helpful, Tom. The thing is the question that I get frequently is, given that these three are supposed to be equal over a period of time, is there ever a situation that arises where, again, either taxable has to come down or you have to recalibrate the GAAP yields up. Which, if taxable income comes down to meet GAAP, so to speak, obviously, there's pressure on the distribution at that point. So, are you basically saying that that's not a concern because there's different timing of different CLOs? Sorry to be a pain. I'm just trying to get as concrete of an answer as I can with that because I get asked that pretty frequently.

Thomas Majewski -- Chief Executive Officer

Yeah. And it did happen, frankly. Tax was, I think, below GAAP NII in gains last year. And we knew that happening because of all the refi and reset activity and the acceleration of deductions. We made the conscious decision not to temporarily lower the distribution just to reincrease it for this year. So, there's an example where we've accepted a difference. But, indeed, overall, our objective is getting the weighted average effective yield on the portfolio up. These are the type markets we believe we can do that. Obviously, markets can change between today and tomorrow. But, in general, these numbers will equal. We did make an exception in the fourth quarter and paid out higher than we thought the taxable income would be but hopefully that's not -- we don't expect that situation to reoccur in the near term. And then, finally, we've also been able to pick up some degree of NAV capture through premium issuance.

Christopher Testa -- National Securities -- Analyst

Got it. Okay. That's helpful. Again, sorry to beat a dead horse. Just wanted to get the details there.

Thomas Majewski -- Chief Executive Officer

This is going to be talked about on every call ever, Chris, so don't hesitate. We're prepared.

Christopher Testa -- National Securities -- Analyst

Yeah, I'm sure it will be. Now, in the fourth quarter, Triple A spreads, I think, widened by about 36 basis points. I'm just wondering what, if any, effect that had on your ability, or inclination rather, to do loan accumulation facilities and primary issuance versus just picking up some certain CLOs in the secondary market?

Thomas Majewski -- Chief Executive Officer

As I mentioned, we converted, so far this year, one accumulation facility into a new CLO. That played out in the portfolio. That one, we were able to get in one of the tight prints of the year and, frankly, the deal was somewhat ramped but a significant portion was un-ramped and we were able to buy loans really very, very cheap. And the objective with the collateral manager is, OK, let's price the deal and, proverbially, the second after the deal is priced, go buy the rest of the loans cheaply in the secondary market. So, we will continue to do that from time to time.

We have other deals in various stages of marketing process. We do also continue to look at secondary opportunities. I've never said there's more secondary opportunities than we'd like. I always say there's not enough secondary opportunities for us. We continue to have dry powder available to go after things.

And what I'll say also is the Triple A spread on a newly issued CLO is not necessarily a correlate with what the overall equity IRR will be. and that one thing we know for certain is that Triple A spreads will very likely -- compliance is probably going crazy that I said "certain" -- what we believe is very likely is that Triple A spreads will be different two years from now, either wider or tighter. If they're tighter, you can be assured we'll continue our usual track record of trying to reset or refinance that deal tighter. And if it's wider, we'll look back at January of 2019 and say, "Boy, we're glad we locked that in."

So, vintage diversification is a very important part of our investment strategy. And as you look through our portfolio, we have a wide variety of Triple A spreads. Obviously, we like them as low as possible, but we have a continued pipeline of things coming off of non-call periods, six months from now, a year from now, two years from now, is an important part of our long-term investment strategy.

Christopher Testa -- National Securities -- Analyst

Got it. Okay. That's helpful, Tom, and definitely appreciate the remarks on the vintage staggering. That's definitely important. And looking at -- obviously, I think Double B spread's back up something like 140 basis points or something like that. Just wondering how this could potentially fit in with your strategy where, if we see sustained volatility for a long time, yes, it might be more beneficial for you to simply just pick up some CLO equity on the secondary market or convert more LAFs, but you could potentially improve the Sharpe ratio of the portfolio and by Double B or Single B extremely cheap. Just curious how you think about that against the backdrop of, obviously, being a more CLO equity-focused vehicle.

Thomas Majewski -- Chief Executive Officer

Yeah. It's a dilemma and we're active in both the equity and debt markets. And across Eagle Point Advisor, we have somewhere between $500 million and $1 billion of CLO debt securities under management. So, we're very active in the market. If you look at our schedule of investments, you can see right now about 14% to 15% of the portfolio is in CLO debt. All else equal, those are all, in our view, very good securities. And, in nearly every case, you can see they're also related to a piece of equity that we own, so maybe there's some strategic reason we own it. We believe they will be good investments or else we wouldn't have made them.

A drawback, they don't generate quite enough earnings to -- they help weigh down our earnings in that the effective yield or the blended yield on our portfolio of debt is lower than the effective yield on our CLO equity. So, we buy them, in many cases, anticipating that there could be some strategic benefit from it. Against that, it is a lower yielding opportunity.

Now, if we were to see a significant sell-off -- and if you kind of look, you can kind of look at the fair value versus the principle amounts. Many of these are going to be marked in the 90s. Maybe one or two of them has an 8 handle mark. If we start seeing this stuff fall to the 60s or 70s, not that we're forecasting that, but if that were to happen, frankly, those are the kind of investments we'd consider very keenly for the company, whether or not there was a strategic benefit. Just the bonds are so cheap.

Overall, we've said, in general, we try to actually lighten up some of our CLO debt exposure, just to help improve NII for the company. But every one of the debt bonds in the portfolio is here for a reason and you'll be able to figure it out if you just line it up next to the equity positions.

Christopher Testa -- National Securities -- Analyst

Got it. Okay. That's helpful. And last one for me, if I may. Looking at the balance sheet, obviously, you have a pretty good structure with termed out debt and you have the preferreds, obviously, which are pickable if, god forbid, you ever need to. Just how are you looking -- right now, obviously, spreads have widened, now they've come back in since the beginning of the year, kind of been all over the place. What are your thoughts on potentially terming out the debt more? Maybe more unsecured note issuance? Or are the potential IRRs that you're looking at on CLO equity high enough that that ATM issuance just makes the most sense for the near term?

Thomas Majewski -- Chief Executive Officer

Very good question. If you look at ECC's balance sheet, the only security that we can even do anything with are the As. Those are callable and they're due in 2022, if memory serves correct. The 7.75 monthly pay. As we look at the balance, this is unscientific, but you can see our debt versus preferred is roughly 50/50. It looks there's a hair more debt than preferred right now -- 92 and 98, roughly. But I think of it, roughly, as half and half between the two. And mindful we have two different limits on them. The debt, of course, is not pickable and, indeed, the debt doesn't attract management fees in our shareholder friendly fee structure. So, that's doubly potent for investors.

Against that, the preferreds do give us a greater degree of flexibility. So, we kind of balance between the two of them. Whereas, when we had issued the Xs, the market was red hot for securities like that and we were able to get the lowest cost of financing on a 10-year, non-call three paper that we've ever achieved at 6 and 11/16. I don't think we could reachieve that today. At some point, obviously, between now and 2022, we have to deal with the As. But that's really the only thing on the balance sheet that's even up for review.

We talk about maintaining the company between 25% and 35% leverage between the two. With the drawdown in NAV as of the fourth quarter, we obviously went outside that band. The recovery in January, we're closer to that band. Overall, I'd expect us to stay -- our continued goal of wanting to be within that band is certainly how we plan to manage the company over the medium to long term.

In terms of equity issuance, as you talk about, it's probably been about a year since we did a common deal on an overnight basis. We have used the ATM selectively. It was pretty light in the fourth quarter but you can see, every quarter, we disclose it and that is an important tool that we will use when it makes sense and investments present themselves.

Christopher Testa -- National Securities -- Analyst

Got it. Okay. Those are all for me. Thanks for your time today.

Thomas Majewski -- Chief Executive Officer

Great. We appreciate it. Thanks so much.

Operator

Your next question comes from the line of Ryan Lynch from KBW. Your line is open.

Thomas Majewski -- Chief Executive Officer

Hey, Ryan. Good morning.

Paul Johnson -- Keefe, Bruyette & Woods -- Analyst

Morning, guys. This is actually Paul Johnson stepping in for Ryan. He had to hop on the other line.

Thomas Majewski -- Chief Executive Officer

Hey, Paul.

Paul Johnson -- Keefe, Bruyette & Woods -- Analyst

Sure. I just had one question for you guys. You guys focused on several loan accumulation facilities, primaries, and just a few secondaries so far here in 2019. We're curious. Is there any sort of concerted effort to focus more on the secondary market, just given the weakness in December? It sounds like it's rebounded a little bit in January although not quite to the level before the volatility last year.

Thomas Majewski -- Chief Executive Officer

Yeah. So, roughly, if you use our estimate of NAV, that would suggest marks are up about 10% for the month on our portfolio. Obviously, any individual security can vary. We continue to look actively in the primary and secondary market. We converted one accumulation facility into a new CLO and everything else we've done, I think, has been in the secondary market. I know we only did one new one so everything else, by definition, had to be secondary. And we do look actively at slews of secondary offerings. We do have a number of accumulation facilities which are all of sufficient tenor and allow us to opportunistically accumulate loans for the formation of new CLOs.

In December, I regret to say, there was not a lot of forced selling by others in the CLO equity arena. So, while marks were down, it was not due to panicked selling of CLO securities. There was forced selling of loans by mutual funds but I wish I could say we sat here just shooting fish in a barrel, buying stuff cheap left, right, and center. That wasn't the case, unfortunately. We did pick up some attractive pieces but it's never as much as you'd like.

My experience in past sell-offs is you kind of need to see things down for 3-5 months, consistently, before we can start really manifesting themselves and offering out large quantities of secondary CLO equity at very cheap levels. With the rebound we've seen in January, frankly, we haven't seen too much of that happening. So, we do remain active in both primary and secondary markets. There's never enough cheap secondary, period.

Paul Johnson -- Keefe, Bruyette & Woods -- Analyst

Sure. No, that's very interesting and understandable. I apologize. I may have some of the numbers misconstrued from last year. But thanks for taking my question.

Thomas Majewski -- Chief Executive Officer

No worries. Thank you.

Operator

Your next question comes from the line of Troy Ward from Ares Management. Your line is open.

Troy Ward -- Ares Management -- Analyst

Great. Thank you.

Thomas Majewski -- Chief Executive Officer

Hey, Troy.

Troy Ward -- Ares Management -- Analyst

Hey, guys. Tom, back to Slide 21. I just want to go back to cash distributions received and less cash received on CLOs called. So, the $1.21, you keep comparing it to BDCs, but if I'm thinking about this correctly, obviously, when a BDC makes a loan, at the end of that loan, they're going to get their full principle back if they made the credit call correctly. What we're seeing here in cash distributions, unlike straight interest, while you got $1.21 of cash distributions, that includes a portion of that -- because you take an effective yield, you're going to use a portion of that to basically take down the cost basis of the original investment so, at the end of that CLO investment, you don't have a large realized loss. Am I thinking about that correctly?

Thomas Majewski -- Chief Executive Officer

That's correct.

Troy Ward -- Ares Management -- Analyst

Okay. So, the $0.97 you point to as available to -- you're way overearning on a taxable basis. I get that. but the higher number that you pay out relative to GAAP, eventually, that's either going to show up in a realized loss on the investment or tax and GAAP have to come together. Is that correct?

Thomas Majewski -- Chief Executive Officer

Well, GAAP and tax do ultimately come together on every investment. The number to focus on, the kind of BDC-comparable number is the $0.97, not the $1.21.

Troy Ward -- Ares Management -- Analyst

But that also includes capital that you need to reduce your cost basis with, correct?

Thomas Majewski -- Chief Executive Officer

Correct. What we've also though -- by virtue of having roughly $0.35 in realized gains over the past 11 quarters, I guess, what we're showing is we've been able, on average, to harvest -- that our loan loss reserve assumptions have been too darn conservative and we've been able to pick up gains in excess of that amortized cost.

Troy Ward -- Ares Management -- Analyst

Okay. So, during that time, those 11 quarters where you had a realized gain, book value has come down. So, is the rest of it -- well, tell me what percentage of the decline in book value during just say those 11 quarters -- and these can be approximate, they don't have to be to the penny. Just trying to get a feel for how much of that is capital paid out in excess of earnings -- so, return of capital through the dividend -- or unrealized losses that are still on the balance sheet.

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

It's Ken. I just want to make sure I answer your question because there's a couple of things out there. So, the first point you've raised is that our non-recurring cash flows, the $0.97 in the recent quarter --

Thomas Majewski -- Chief Executive Officer

No, that was the recurring cash flows.

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

Yeah, recurring cash flow is covering, from a cash perspective, our distribution and expenses. So, from an operational perspective, the company is covering all of its commitments, whether they're distribution-related or expense-related. I think your point is more along the lines of our effective yield calculation, which takes into account interest income and return of capital. so, the cash that comes in -- and this might be better illustrated on Page 22 -- a portion of that cash is applied to -- let's say we're leaving our interest income, i.e. effective yield, and the residual amount, the extra cash that we receive, is reducing the amortized cost. That return of capital is reflected in the cash flow treated as return of capital of $10.27 per share.

Thomas Majewski -- Chief Executive Officer

That's in millions.

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

Sorry, $10.27 million in the fourth quarter. In our effective yield calculation, the control check we have is, at the end of that effective yield, as we run it through, versus expected cash flows and terminal value, that's going to equal zero. So, we do take it into account and I would look at cash having two purposes. One is, on an operational basis, cover all our commitments and, two, from a GAAP accounting, i.e. effective yield basis, to relieve any interest income that we record, as well as reduce our cost basis, i.e. return of capital, to ensure, at the end of the day, that cash and effective yield and GAAP and everything equals. Did I answer your question?

Troy Ward -- Ares Management -- Analyst

Yeah, you have. One last thing. So, as you think about the yields have come down -- again, the comparisons to the BDCs, I think, here is the most important. So, you've seen the yields come down over the last couple of years. And, obviously, since you went to the monthly dividend in early 2017, I believe, during that time, the yields have come down and the dividend stayed dead flat and GAAP and tax eventually equal zero. So, something has to give. Right?

It appears that, based on GAAP earnings, you're overpaying the dividend and you said, the last couple of quarters, that was the case. You think that may reverse in 2019. But at the end of the day, just the investment decisions that have been made, you're getting less, the yields are coming down, and the dividend stays the same. At some point, something has to give. We saw it in the BDC space over the last few years. We saw a lot of dividend reductions and it just seems to us that the concern over the dividend and your ability to earn it is not going to less in 2019.

Thomas Majewski -- Chief Executive Officer

Well, the No. 1 variable in the GAAP NII is the effective yield on the portfolio. And there's a couple of things that are going to drive that. Reducing our CLO debt exposure and having more CLO equity exposure, all else equal, is yield-enhancing. So, that's good. And then we faced a significant period of spread compression and the weighted average spread on the underlying loans has probably fallen between 40-50 basis points over the last two years. In current market conditions, with the loan index in the 96 area, loan spread compression is really not a factor today and, frankly, these are the markets -- if markets stayed unchanged from here for some time, I'd be quite pleased, in that these are the markets where loans get hung by dealers. They come out at wider levels and the ability to build par and make relative value trades within CLO portfolios in the mid- to high-90s, versus par 50 versus par and a quarter, become really quite potent.

The things that can help the GAAP earnings, which do include a reserve for losses which, frankly, have been an excess reserve, at least to-date, in our opinion, are our ability to rotate the portfolio a little more into equity versus debt and the cessation of spread compression, which certainly, at this point in time today, feels like the case. We all know markets can change tomorrow. To the extent you sensitize the company, looking at a 50, 100, 200 basis point increase in effective yield. We're certainly not predicting any of those today but as you sensitize the earnings going forward, the thing I would look at, or if you want to run scenarios, what happens if the effective yield falls by those amounts or goes up by those amounts and what if we make some debt shifts, what does that do to the overall NII number? You can see it's pretty darn powerful.

Troy Ward -- Ares Management -- Analyst

Okay. Great. Thanks, Tom.

Thomas Majewski -- Chief Executive Officer

Right now, there's a little bit of decay. We don't think that's indicative of where we'll be over the longer term. And then on the very near term, just to reiterate, based on our outlook for taxable income, which is the floor for what we distribute, the company remains -- you've talked about other people cutting their dividend or distribution in the last year. Eagle Point remains very comfortable, based on our current outlook for tax, that the distribution will remain unchanged for the balance of this tax year.

Operator

At this time, I have no further questions in queue. I turn the call back over to Tom Majewski for closing remarks.

Thomas Majewski -- Chief Executive Officer

Great. Thank you very much, everyone. We truly appreciate the questions and active dialogue with all of our investors. Ken and I are around today if there's any follow-up questions and we thank you for your continued interest in Eagle Point.

Operator

Thank you, everyone. This will conclude today's conference call. You may now disconnect.

Duration: 79 minutes

Call participants:

Garrett Edson -- Senior Vice President, ICR

Thomas Majewski -- Chief Executive Officer

Kenneth Onorio -- Chief Financial Officer and Chief Operating Officer

Mickey Schleien -- Ladenburg -- Analyst

Chris Kotowski -- Oppenheimer & Co. -- Analyst

Christopher Testa -- National Securities -- Analyst

Paul Johnson -- Keefe, Bruyette & Woods -- Analyst

Troy Ward -- Ares Management -- Analyst

More ECC analysis

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