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DATE

Wednesday, May 27, 2026 at 2 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Ujjaval Desai
  • Chief Financial Officer — Daniel Steven Fabian

TAKEAWAYS

  • Net Investment Income (NII) -- $7 million or $0.34 per share, below distributions paid and reflecting ongoing spread tightening and weaker arbitrage.
  • Net Realized and Unrealized Losses -- Net realized loss of $4.1 million and unrealized loss of $77.6 million, primarily attributed to exited positions with downside risk and market-driven revaluations.
  • Net Asset Value (NAV) Per Share -- $9.63 at quarter end, down from $14.02, with the decline linked to lower CLO equity valuations, underlying loan market weakness, and decreased projected equity cash flows.
  • Distribution -- $0.75 per share distributed during the quarter; monthly distribution of $0.20 per share remains unchanged for calendar 2026.
  • CLO Equity Weighted Average GAAP Yield -- 9.1% versus 11% in the prior quarter, driven by higher model default rates following a sell-off in software loans.
  • Portfolio Diversification -- Investments span 98 CLOs managed by 29 firms, providing exposure to over 1,500 loans across more than 30 industries.
  • Portfolio Actions -- Acquired $4.5 million in new issue CLO equity (10.65% yield) and $7.4 million in secondary CLO equity (31.37% yield); exited $8.4 million in positions (7% yield), refinanced two CLO equity liabilities for 34-basis-point savings, and redeemed two CLOs for $14.9 million cash.
  • Total Expenses -- $8.2 million for the quarter.
  • Leverage Ratio -- 46.8% of total assets as of quarter end.
  • Investment Portfolio Fair Value -- $368 million with $5.8 million in cash liquidity at quarter end.
  • Annualized Dividend Yield -- 26.8% based on quarter-end share price and distribution policy.
  • Estimated NAV After Quarter-End -- $10.57 per share as of April 30, 2026, up from quarter end.
  • AI and Software-Related Loan Exposure -- 12%-13% of the portfolio concentrated in credits potentially exposed to AI disruption, with management stress-testing and rebalancing positions to reduce tail risk.
  • Secondary Market Activity -- Focused on purchasing secondary CLO equity where yields and risk-return profiles are viewed as more attractive relative to primary market opportunities.
  • Refinancing Activity -- Liability spreads tightened back to December 2025 levels post quarter-end, increasing refinancing optionality for CLO equity portfolios.

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RISKS

  • The period's $74.7 million GAAP net loss and significant unrealized portfolio losses stemmed from broad market valuation declines, particularly in CLO equity and software-exposed loans.
  • Continued NII below distribution level was attributed to "spread tightening and significant decline in zero equity arbitrage," indicating ongoing earnings pressure relative to current payout policy.

SUMMARY

Sound Point Meridian Capital (SPMC +1.46%) highlighted material market-driven declines in NAV and elevated realized and unrealized losses, citing sector-specific loan volatility and the impact of AI disruption. Management outlined a proactive rebalancing of CLO equity positions, prioritizing secondary market opportunities and reducing tail risk by exiting underperforming and high-risk credits. Focused strategies included targeting exposure within the AI and software sector, active manager selection based on historical and recent performance, and leveraging improved post-quarter liability conditions for potential future refinancing and portfolio restructuring.

  • Company leadership indicated that estimated April NAV per share improved to $10.57 due to loan price rebounds and tighter liability spreads following earlier market disruptions.
  • Management detailed a shift in portfolio allocations in April and May, emphasizing selective acquisition in the secondary market and divestiture from high-tail-risk positions identified through intensive credit and manager review.
  • The investor call clarified that new issuance in primary CLO equity remains unattractive, while current opportunities are concentrated in select secondary transactions with higher yields and lower relative risk.
  • SPMC's forward focus includes ongoing portfolio repositioning, active engagement with CLO managers, and vigilance over evolving macro and sector-specific conditions, particularly regarding AI and software-related loan exposure.

INDUSTRY GLOSSARY

  • CLO (Collateralized Loan Obligation): A structured financial product backed by a pool of corporate loans, mainly below investment grade, divided into different risk tranches for investors.
  • Equity Tranche: The lowest-ranking (highest risk) tranche of a CLO capital structure, most sensitive to loan cash flow variability and market valuation shifts.
  • Weighted Average GAAP Yield: The portfolio-average expected return on investments based on Generally Accepted Accounting Principles, used for consistent period-to-period yield comparisons.
  • Zero Equity Arbitrage: A market environment where the yield gap between CLO assets and the costs of liabilities is too narrow to generate meaningful profit for the equity tranche.
  • Tail Risk: The risk of extreme negative outcomes or rare adverse events that significantly impair investment returns.
  • Non Call Period: The defined period during which a CLO cannot be refinanced or redeemed, affecting refinancing flexibility for the equity holder.

Full Conference Call Transcript

Ujjaval Desai: Thank you to everyone joining us today, and welcome to the SoundPoint Meridian Capital Earnings Call for the fourth fiscal quarter ended 03/31/2026. We would like to invite you to download our investor presentation from our website, which provides additional information about the company and our portfolio. With me today is our chief financial officer, Daniel Steven Fabian, And after our prepared remarks, we will open the call to your questions. For the fourth fiscal quarter ended 03/31/2026, we generated net investment income or NII of $7 million or 34¢ per share. And recorded a net realized loss of 20¢ per share on exited investments. We paid distributions of 75¢ per share during the quarter.

NII remained below common distributions because of spread tightening and significant decline in zero equity arbitrage over the past 12 to 18 months. Net asset value, or NAV, per share ended the quarter at $9.63, down from $14.02 as of 12/31/2025. The NAV decline was a result of weaker market valuations of CLO equity, and underlying leverage loans. Combined with lower projected CLO equity cash flows. As of quarter end, our CLO equity portfolio's weighted average GAAP was 9.1%, versus 11% in the prior quarter. Driven by a sell off in loans particularly in the software sector, which increased model default rates of the underlying loans.

Our portfolio remains highly diversified with investments across 98 CLOs managed by 29 different managers, providing exposure to over 1.5 thousand underlying loans spanning more than 30 industries on a look through basis. In an environment characterized by increasing dispersion across sectors, credits, and managers, we believe this level of diversification remains an important component of our risk management approach. Subsequent to quarter end, we announced monthly distributions for calendar 2026 of $0.20 per share unchanged from our previously announced Q2 26 monthly distributions. We will continue to evaluate distribution levels as earnings market conditions, and portfolio positioning evolve. And expect to reassess the distribution strategy over the coming months as market visibility improves.

I will now turn the call over to Daniel for a more detailed review of our financial highlights for the quarter.

Daniel Steven Fabian: Thanks, Ujjaval, and hello, everyone. As Ujjaval mentioned, for the quarter ended 03/31/2026, we delivered net investment income of $7 million or $0.34 per share. During the quarter, we purchased 1 new issue equity position with a cost of $4.5 million and a weighted average GAAP yield of 10.65%. We also purchased 3 equity investments in the secondary market with a cost of $7.4 million and a weighted average yield of 31.37%. In addition, we sold 2 equity investments, generating $8.4 million in cash proceeds a weighted average yield of 7%. We refinanced the liabilities of 2 CLO equity investments resulting in a weighted average debt cost saving of 34 basis points.

Finally, we redeemed 2 CLOs during the quarter, generating an additional $14.9 million in cash. For the quarter ended 03/31/2026, we recorded a net realized loss of $4.1 million and an unrealized loss on investments of $77.6 million. Total expenses during the quarter were $8.2 million The GAAP net loss for the quarter was $74.7 million or a loss of $3.63 per share. Moving to our balance sheet. As of 03/31/2026, total assets were $375 million Net assets were $199 million and our net asset value stood at $9.63 per share. The fair value of our investment portfolio stood at $368 million while available liquidity consisting of cash was approximately $5.8 million at the end of the quarter.

As of 03/31/2026, the company's leverage ratio was 46.8% of total assets. During the quarter, we declared monthly cash distributions of $0.2 per share payable at the end of April, May and June. Based on our share price, as of 03/31/2026, this represents an annualized dividend yield of 26.8%. As of 04/30/2026, our estimated net asset value per common share was $10.57. I will now turn it back to Ujjaval Desai.

Ujjaval Desai: Thanks, Daniel. Before we move into Q&A, I wanted to take a moment to touch on the recent market backdrop for corporate loans and CLO equity. The first quarter of 26 marked a noticeable shift in tone across US credit markets. After a year defined largely by favorable technicals and aggressive spread compression, the market came into 2026 expecting a transition from refinancing driven activity toward more M&A-related issuance. We did begin to see some of that shift early in the quarter, but sentiment began quickly as macro uncertainty geopolitical volatility, and stress in certain sectors weighed on broader market sentiment.

In particular, the sell off in software-related loans that began in February weighed on overall market activity and investor sentiment. US institutional leverage loan issuance totaled about $241 billion in the first quarter, which was roughly 32% behind the prior year's pace. Most of that decline came from a slowdown in refinancing and repricing activity, as borrowers became less willing to pursue opportunistic transactions in a more volatile market with wider spreads. At the same time, M&A-related issuance reached a 4-year high supported by several large transactions. Although activity was fairly concentrated over 40% of issuance tied to only a handful of mega deals rather than broad based deal flow.

Market technicals also weakened meaningfully during the quarter, Investor demand fell to a 3-year low, driven primarily by negative retail fund flows. While CLO issuance remained comparatively resilient, but was insufficient to offset the broader pullback. As a result, the supply demand dynamic shifted materially, with the loan market contracting by roughly $19 billion and the imbalance widening sharply relative to the prior year. Against this backdrop, spreads widened across the current spectrum. Specific to the broadly syndicated loan market, B-rated loan spreads widened by roughly 100 basis points from January levels. Loan prices declined during the quarter with the Morningstar LSTA Leveraged Loan Index posting a negative 55-basis-point return year to date. The weakest first quarter performance since 2020.

The sell off was most pronounced in the software sector, which dropped from 95.2 to 87.97 quarter over quarter, due to concerns around AI driven disruption, which triggered a sharp repricing and contributed to broader risk aversion across credit markets. Excluding software, price declines were more modest from 97.36 to 96.08 but sentiment generally deteriorated across sectors as geopolitical developments and inflation uncertainty reduced expectations for near term monetary easing. CLO issuance remained relatively stable compared to other segments of the market, totaling approximately $47 million in the first quarter, only modestly below 2025 levels. That said, activities slowed as the quarter progressed, as CLO managers becoming increasingly cautious in response to market volatility and widening liability spreads.

CLO refinancing and reset activity declined significantly year over year, reflecting less favorable arbitrage provisions and growing investor sensitivity to underlying credit quality. Looking ahead, we think the direction of credit markets will likely depend on whether macro conditions begin to stabilize and investor demand improves. Post quarter end, loan prices rebounded as immediate AI displacement fears began to subside, and the US-Iran ceasefire was announced. Dealer equity buyers returned to the secondary market, a subsequent rebound in prices. Reflected in our 04/30/2026 NAV that Daniel mentioned at $10.57 per share.

Though sentiment around the software space has improved from the February lows, we still believe that some CLO managers and portfolios are better positioned than others to manage the risk presented by the increasing impact of AI. April and May have afforded us the opportunity to rotate our portfolio of CLO equity positions we believe will benefit the fund in the long run. On the other side of the dealer balance sheet, liability cost began tightening again in April and May. To levels last seen in January which has opened up the refinancing optionality that our portfolio has as we move through the rest of 2026.

With that, we thank you for your time, and would like to open the call to any questions. Operator?

Operator: Thank you. Everyone, if you would like to ask a question, please press star 1. The first question today comes from Gaurav Mehta from Alliance Global.

Gaurav Mehta: I wanted to go back to your comments around software sell-off, and I am wondering if you would comment on how much exposure you have to software in your portfolio. And is that something you are looking to reduce going forward?

Ujjaval Desai: Hi, Gaurav. it is Ujjaval. Thanks for the question. So I think when you say software, you know, we are more interested in the exposure to AI, not just software. So what we look at is, you know, companies that are potentially going to be disrupted by AI. So that includes the software sector, traditional software sector, but also services, as well as health care. So, if you do that sort of look-through analysis, the portfolio is roughly around the kind of low teens. In terms of exposure to those types of credits.

What we are doing and what we have done is sort of in February, March, and April, we undertook a very thorough re underwrite of all the names. That constitute this 12-13% bucket. Around 54 names in this bucket. And we re-underwrote all the names, did a deep dive to understand the risk return profile of these credits. What we found was that a large majority of them are actually strong companies that will be able to withstand the risk from AI. In fact, some of them can actually benefit from AI by adopting it by, you know, spending money, improving their business prospects. And use AI to their advantage.

And so as a result of that, what we are doing is that, as you know, we are not you know, we do not manage the underlying loans. We are invested in equity in these in these CLOs. And so what we have done is, again, after speaking to you know, all the managers in our portfolio, we have identified credits that we like, credits we do not like, and what we have been doing already is rebalancing the portfolio by kind of reducing CLO equity exposure where there is, you know, a lot more negative credits, and adding CLO positions where there is more sort of positive portfolio.

So it is been a, you know, a lot of rebalancing that we are doing. A result of that, our AI exposure probably will go down a little bit. But we are not trying to reduce the exposure. We are just trying to make sure we are in the right credits. Within the sector, and that is really the important thing for us to focus on.

Gaurav Mehta: Thanks for those details. Second follow-up question I have is maybe on the investment environment between primary and secondary markets. Also curious to learn the secondary investment that you made in the quarter at 31.3%. Were those opportunities sort of onetime opportunities because of the loan sell-off during the quarter?

Ujjaval Desai: Yeah. So I think it is just maybe just looking at the timeline here. You know, February is when this whole AI sell off started. And then March, we had impacts from the US-Iran conflict. So, really, the market was completely you know, shut off in February and March and not much secondary activity is going on. So we did participate in a couple of these new secondary transactions. But really, most of the activity has been in April and May. In terms of our portfolio positioning. And so you will not see that in the in the March numbers, but you will see it in the in the next quarter's numbers.

So we will obviously highlight that in 3 months' time. But what we have been focused on in the last few weeks has been exactly what I said earlier, picking up sort of, you know, good secondary investments that add to the portfolio. And we have already sold certain positions where we see a lot more tail risk, whether that is because of AI, whether that is just because of, you know, loans trading at big discounts, you know, triple c risk, or risk of cash flows getting cut off.

There are, you know, equity positions and as we said in our early part of the call that, you know, the opportunity set here is really to identify you know, the strong outperformers and use this market opportunity to reduce tail risk in the portfolio, and that is exactly what we were doing. And we will expect to do that going forward as well. Your initial question about primary versus secondary, the opportunity set really that we are seeing today is in the secondary markets. Primary equity returns still do not look attractive. And part of the reason here is that while loan repricings have slowed down, The and so spreads have actually stabilized on the loan side.

You know, we saw disruption in the liability market. So the liability levels have actually widened out. They are slowly going back to their earlier levels. But the arbitrage in new issue, you know, still does not look attractive to us. So we are watching that market carefully to the extent we find new schedules that make sense. We will certainly, you know, pursue those opportunities as well. But right now, we are seeing a lot more interesting opportunities in the secondary markets.

Gaurav Mehta: Thank you. that is all I had.

Ujjaval Desai: Okay. Thanks, Gaurav.

Operator: And your next question today comes from Erik Zwick from Lucid Markets.

Eric Zwick: First, wanted to ask for the 4.1 million of realized losses in the quarter. You know, what was that driven from? What did you decide to sell, and what was the reason for that?

Ujjaval Desai: Can I take that 1? Yeah. Hi, Erik. So, yeah, I think it is really just, as I said earlier, it is positions where we see more downside relative to upside going forward. So we are more focused here on the go forward return of these positions. So those are the transactions we sold. That resulted in a loss because they were held at a much higher cost than where they were trading. But rather than, you know, worrying about that, our main focus really is to reduce losses going forward. And so, you know, we, again, through our, you know, significant reunderwrite of these names, you know, and sort of reanalyzing CLO cash flows.

Using our systems, using our internal sort of credit expertise, but also speaking to all of our managers We identified certain underperforming transactions that we wanted to sell. Reduce our tail risk, and we went into sort of better performing secondary positions. And so that rebalancing is what resulted in some of these realized losses. Relative to the cost we were holding those assets at. But so that was that was why we did that. I think because of these trades, we think that now we are going to have a much better a healthier portfolio, but also much better go forward IRR.

So that is really what we are trying to do is make sure that the portfolio continues to perform well. And what we are seeing in this market really is that you know, I will give you an example. You know, we are seeing transactions where we can sell something which we think in, you know, a bear-- let's say, a bear scenario, if the market really takes a negative turn here, you know, certain equity positions could have negative returns going forward. So they could actually lose money from here onwards. While there are plenty of transactions that are available where you could have a strong positive return in the same sort of bear market environment.

So I think it is really those types of kind of risk management trades to try to, you know, change the shape of the curve, if you will, the IRR curve, and try to reduce that tail risk. So that is that is really what resulted in those losses.

Eric Zwick: Yeah. Thank you for explaining the process and strategy there. I am curious as you re underwrote some of those positions and those that you did decide to sell, were there any common themes in terms of either, you know, individual loans that you saw as having some of that tail risk or industry concentrations? Or, you know, what did you identify that was driving you know, kind of the more downside that you potentially saw, the downside risk?

Ujjaval Desai: Yeah. I think it is really at the end of the day, it sort of comes down to, you know, name by name credit risk. So when we underwrote our portfolio, we also looked at manager performance. Right? So it is important to re underwrite managers as well. We rank them based on how they have done. How they manage the sort of the AI stress, if you will. And so based on all that analysis, we were able to identify credits that we think are, you know, you know, loans trading at, you know, at discounts. So these are not trading at par. These are stress loans. A lot of them happen to be kind of software-related loans.

But if a loan is trading, let's say, at 90, but we think that there is a lot more downside here, and it could actually default or go through an out-of-court restructuring. And, you know, it could actually end up trading, you know, 20 points lower. We would rather reduce exposure to those loans. And if there are loans where, you know, they are trading at sort of 80, 85, but you know, they probably are money good, there is a lot more upside there. We would like to add to those types of names. So that is the kinda analysis we did. So it is a combination of industry credit, but also managers. Right?

Certain managers have underperformed because either they had too much exposure to AI or they did not, you know, trade the portfolio properly. And so we think that some of those managers will underperform going forward. And, you know, the market has been very active since April mid April, really, for the last month, month and a half. The secondary market has been quite attractive. Loan prices have rebounded. CLO equity prices have rebounded, and I mentioned that our NAV has gone up now. To $10.57. So it is a significant increase in NAV in April.

So in sort of this reasonably positive environment that we have had over the last couple of weeks, we have taken advantage of that environment and used that opportunity to really do this sort of risk management transactions. So that is really kind of the process that we undertook.

Eric Zwick: Thank you for the additional commentary. that is helpful. that is actually a great segue into my next question I wanted to ask about. On the April NAV, and you have talked about that the drivers there. I am curious. I know you do not have a month end May estimate, quantitative estimate yet, but we are getting towards the end of the month. So curious if just directionally you can say how you know, some of the drivers that drove the April NAV increase, have those at least maintained or potentially increased additionally at this point?

Ujjaval Desai: Yes. So, what drove the positive performance in April? A couple of factors. 1, as we mentioned, loan prices rebounded, and that happened sort of in the, you know, in the in the AI sector, but also across the board, loan prices rebounded in April. And that rebound has continued to happen in May. And so, you know, that is sort of related to general you know, feeling or sentiment of the market that, you know, that some of these loans were had sold off too much, indiscriminately, really. And so that sort of, reversed, in April and has continued in May. The second thing that is very important to note here is that the liability cost have also improved.

So I think if you look at our kind of the where the liability market was, let's say, at the end of the last year, so December 2025, you know, the average cost of you know, refinancing a CLO liability stack about $1.55. If you look at what it was at the end of March, it was $1.68. So liabilities widened out 13 basis points roughly, right, on average. That number has now gone back to $1.55 roughly. So the liability widening we saw in the first quarter has now reversed itself and kinda gone back to where it was at the end of December.

And that is important for us because as you as you know, our portfolio has you know, fair bit of shorter noncall and that is something that we actively pursued, that strategy last year to keep the portfolio shorter on the non call side. We still have very long reinvest period, so we have a pretty long runway. But we try to have a shorter non call, Why is that important? that is important because in a market that we have, which we think will continue, which is where loans you know, when there is anything positive, loans spreads kinda stay tight. They reprice fast.

You wanna have, you know, as much of a match as possible between assets and liabilities. So having a slightly shorter non call, not having a 2 year but having on average, let's say, you know, a 10-11 month non call, that is quite helpful. And that is kinda what we have right now. Now that hurt us in the first quarter because shorter non call meant there was a lot of optionality for refinancings, but those that optionality we could not take advantage of because liability-- liability spreads had widened out.

Because of that, we did not really undertake too many refinancings in the first quarter, and we mentioned in our commentary that we did 2 transactions, 2 refinancings, and 2 liquidations. So that is what we did last quarter. But since the end of the quarter, we have actually done a lot more and we will continue to do a lot more given that liability levels have come down. So that also helps us. Loan pricing increases, that helps us, but also liability tightening also helps improve cash flows. The expectation of refinancings of our liabilities, and all of that improves our go forward cash flows too.

So long way to answer your question, but those are the factors that affected positively in April, and that has continued in May. I do not have the numbers for May right now. Still little too early because generally get our NAVs towards the end of the month. But the month so far has been positive. For both loans and CLO equity prices. So expectation at this point, at least, unless something happens materially in the next few days or week or so is that May should also be a good month for CLOs.

Eric Zwick: Great. Thank you. I appreciate that, and that guess, kind of putting it all together, and thanks for the detail on the liability spread that gonna ask about that. I guess if I kind of put all that together, you are seeing know, reposition the portfolio a little bit, seeing some wider spreads on the you know, buying in the in the secondary market, and you have got the ability to you know, kinda do some resets and refis with the tighter liability spreads, Just thinking about the portfolio yield going forward, it seems like there is potentially opportunity here to see that you know, at least stabilize, if not start moving higher. Going forward?

Is that the right way to put all that together?

Ujjaval Desai: Yeah. that is that is our hope as well. I think, you know, it is really hard to predict you know, you still have this concern that the loan the new loan market has not really picked up. It started picking up in January early February, and then it stopped again. Because of the volatility, and then the war. You know, our hope is that the market sort of the M&A activity comes back. We have seen some new issue loans already. In the last few weeks. There is a lot more issuance in particular in sort of the data center space as well that is that is making its way into the loan market.

So if that loan issuance continues to stay healthy, that is really what we need. That was what was missing last year. It sort of came up, but then disappeared again. We hope that comes back. If it does, that should help. Stabilize loan spreads and that obviously is the number 1 factor when it comes to our yield. And then the secondary things, yes, is the refinancing of our liabilities, which should also be very helpful. The relative sort of the ReLVALS repositioning that we I thought talked about earlier, that also helps with our spread.

With our yield rather, you know, selling sort of positions where the yield is low, there is a lot more tail risk, you know, selling out of those. Although we realized crystallized some losses there, it not only improves our sort of tail risk in the portfolio, but also can potentially improve go forward yield as well. So I think those are sort of the components of the of our yield. And, you know, certainly, we are working hard to try to stabilize that and see if we can improve it and bring it bring it up. And that is that is certainly our focus going forward.

Eric Zwick: I appreciate that, the very detailed commentary. Thank you. Taking my questions today.

Ujjaval Desai: Okay. Thanks, Erik.

Operator: At this time, there are no further questions.

Ujjaval Desai: I will hand the call back to Ujjaval Desai for any additional or closing remarks. Okay. Thank you, everyone, for listening in today. I hope you found the discussion fruitful and informative. And we look forward to seeing you guys again in 3 months' time. Thank you again. Take care.

Operator: And once again, that does conclude today's conference. Thank you all for your participation today. You may now disconnect.