Sound Point Meridian Capital Inc (SPMC) 2026 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Sound Point Meridian Capital Inc third fiscal quarter ended in December 31, 2025. (Operator Instructions) This call is being recorded on Wednesday, February 11, 2026.

I would now like to turn the conference over to Julie Smith, head of investor relations. Please go ahead.

Ladies and gentlemen, thank you for standing by. Sound Point Meridian Capital refers participants on this call to the investor webpage at www.soundpointMeridiancaps.com for the press release, investor information and filings of the Securities and Exchange Commission, and for a discussion of the risks that can affect the business.

Sound Point Meridian Capital specifically refers participants to the presentation furnished today on the Form 8-K with the SEC. And to remind listeners that some of the comments today may contain forward-looking statements and as such will be subject to risks and uncertainties which if they materialize could materially affect results.

References made to the section titled forward-looking statements in the company's earnings press release for the period ended December 31, 2025. Which is incorporated herein by reference. We note forward-looking statements, whether written or oral, include but are not limited to Sound Point Meridian Capital's expectation or prediction of financial and business performance and conditions, as well as its competitive and industry outlook.

Forward-looking statements are subject to risks, uncertainties, and assumptions which, if they materialize, could materially affect results, and such forward-looking statements do not guarantee performance. And Sound Point Meridian Capital gives no such assurances. Down Point Meridian Capital is under no obligation and expressly disclaims any obligation to update, alter, or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

In addition, historical data pertaining to the operating results and other performance indicators applicable to Sound Point Meridian Capital are not necessarily indicative of results to be achieved in succeeding periods.

I will now turn the call over to Ujjaval Desai, Chief Executive Officer of Sound Point Meridian Capital.

Thank you to everyone joining us today and welcome to the Sound Point Meridian Capital earnings call for the third fiscal quarter ended December 31, 2025. We'd like to invite you to download our investment presentation from our website, which provides additional information about the company and our portfolio. With me today is our Chief Financial Officer, Dan Fabian, and after our prepared remarks, we will open up the call to your questions.

For the third fiscal quarter ended December 31, 2025, we generated net investment income NII of $9 million or $0.44 per share, and recorded a net realized loss of $0.05 per share on exited investments. We paid distributions of $0.75 per share during the quarter. The shortfall in NRI relative to common distributions reflects the impact of persistent loan spread compression.

Elevated liability costs and reduced excess credit available to equity investors during the quarter. Net asset value NAV per share ended the quarter at $14.02 down from $16.91 as of September 30th, 2025. NAV declined primarily due to market to market pressure in CLO equity valuations as buyers stepped back late in the year despite generally stable underlying credit performance.

During the quarter we deployed approximately $6.8 million in two warehouse investments, purchased three new issue equity positions with an amortized cost of $11.29 million and weighted average cap yield of 9.31%, and purchased one new equity investment in the secondary market with an amortized cost of $5.23 million and yield of 15.6%.

We also sold two equity investments with an amortized cost of $8.1 million an average yield of 15.6%, and refinanced the liabilities of 10 equity investments. We deployed an additional $4.48 million related to these refinancing activities. As of quarter end, our CLO equity portfolio's weighted average GAAP yield was 11.0% versus 12.0% in the prior quarter, driven in large part by seven basis points of weighted average spread loss in our underlying portfolios.

The decline in portfolio yield underscores the unprecedented scale of repricing activity across the leveraged loan market over the past two years, which has meaningfully reduced asset spreads available to CLO equity. Subsequent to quarter end, we announced monthly distributions for calendar Q2 2026 of $0.20 per share, down from our previously announced Q1 2026 monthly distribution of $0.25 per share.

In setting the revised distribution level, the board considered a range of factors including current and expected portfolio yield, the importance of maintaining balance sheet flexibility, and our objective of supporting net asset value over time. While we believe our CLO equity investments have significant refinancing optionality in 2026, which may offset the effect of loan yield compression.

The sheer pace of loan repricing activity throughout the quarter and frankly over the past two years ultimately led to the decrease in our monthly distributions. We remain committed to our obligations as a regulated investment company and we'll continue to distribute at least the required portion of taxable income while evaluating distribution levels as earnings, market conditions, and portfolio positioning evolve.

Our portfolio continues to be highly diversified with 97 CLOs across 30 managers providing exposure to over 1,500 loan issuers spanning over 30 industries on a look-through basis. In an environment characterized by increasing dispersion across sectors, credits, and managers, this diversification remains an important risk management tool.

I'll now turn the call over to Dan for a more detailed review of the financial highlights for the quarter.

Thanks Ujabal and hello everyone. As Ujabal mentioned, for the quarter ended December 31, 2025, we delivered net investment income of $9 million or $0.44 per share. For the quarter ended December 30th, 2025, we recorded a net realized loss of $1.1 million and an unrealized loss on investments of $51.8 million. Total expenses during the quarter were $9 million.

The GAAP net loss for the quarter was $43.9 million or a loss of $2.14 per share. Moving to our balance sheet, as of December 31, 2025, total assets were $474.7 million. Net assets were $287.9 million and our net asset value stood at $14.02 per share. The fair value of our investment portfolio stood at $473.5 million while available liquidity consisting of cash was approximately $525,000 at the end of the quarter.

As of December 30, 2025, the company had outstanding debt that totaled 39% of total assets. During the quarter, we declared monthly cash distributions of $0.25 per share payable at the end of January, February and March. Based on our share price as of December 31, 2025, this represents an annualized dividend yield of 21.8%.

Subsequent to quarter end and as previously mentioned, we announced our calendar Q2 2026 distributions this morning. As of January 30th, 2026, our estimated net asset value per common share was $13.40.

I will now turn it back to Ujjaval, our CEO, to provide an update on the CLO market.

Thanks, Dan. Before we move on to Q&A, I'd like to provide a brief update on the market environment for corporate loans and CLO equity. The US leveraged loan market remained highly active in 2025, with primary broadly syndicated loan activity exceeding $1 trillion resulting in one of the strongest years of growth by volume in the last decade.

Notably, roughly half of that volume came from repricing amendments which do not represent new supply for investors. Supply levels were further constrained by below average LBO and M&A activity which failed to rebound over the year amid policy volatility and heightened macro uncertainty. The result of limited loan supply coupled with robust investor demand resulted in relentless loan compression in 2025.

With the weighted average spread of the Morningstar leverage loan index dropping 21 basis points over the year to SOR plus 3.2%, the lowest level since 2012. For the single B subset, the compression was even more pronounced, falling 29 basis points in 2025 and 52 basis points over the last two years. Simultaneously, volatility failed to provide relief as loans rebounded quickly from the post-liberation date tariff shock and CLO liabilities remained range bound.

This resulted in the CLO weighted average cost of capital remaining nearly unchanged from the start of 2025, despite loan spread compression weakening the overall CLO equity arbitrage. Despite tight spreads and limited supply, US managers priced $55 billion in new issue CLOs in the fourth quarter, setting a new annual issuance record for the second consecutive year.

This new issuance was predominantly driven by manager-controlled captive funds. While broader credit fundamentals remain generally stable, 2025 was marked by increasing dispersion across the loan market. Sector-specific headwinds, issuerle challenges, and elevated liability management activity contributed to a more bifurcated environment with stronger credits continuing to refinance while weaker credits faced mounting pressure.

A small number of highly visible idiosyncratic credit events added to investor caution and reinforced sensitivity to downside risk even as headline default rates remained near historical averages. Taken together, these dynamics increased differentiation across CLO portfolios and underscored the importance of manager selection. Structural protections and active portfolio oversight as we enter 2026.

Looking ahead in 2026, the loan market is expected to transition away from the repricing dominated environment of 2024 and 2025 towards modest growth in true new money issuance. Importantly, the composition of supply is expected to improve, with LBO and M&A volume projected to increase, supported by lower borrowing costs, improved policy visibility, deregulation tailwinds, and an improving sponsor exit backdrop.

On the other side of the coin, CLO liabilities do not need to materially tighten from here for equity yields to improve. Rather, a period of relative stability in liability spreads would allow refinancing and reset activity to proceed on an accretive basis, lowering overall funding costs and partially offsetting the impact of loan spread compression.

In this environment, execution, market access, and timing will be critical, and we believe a reduction in debt costs may significantly offset the loan spread tightening scene throughout 2025 and increase the equity arbitrage throughout 2026, which we view as a welcome development after a technically challenged year.

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

(Operator Instructions) Mikey Schlang, Cleart Street.

Yes, good morning, everyone. First of all, I think you mentioned CLO cap funds, and there's been increasing discussion about them, accepting, lower equity returns because they can obviously capture management fees and incentive fees. Could you help us understand how meaningful that group has been in 2025 and, what, how do you think that group is going to behave going forward?

Sure. Hi, Niky. How are you doing? So that's a very interesting question. I think, captive funds as a whole, right, have certainly been driving the new issue loan market, new issue CLO market rather, for 2025. I think, currently, I would say 95% of CLO equity CLOs being issued are driven by captive funds for the reasons you mentioned.

I think they, there is a need to the money has been raised by these funds, and there's a need to invest that capital. And so they can be more long-term focused rather than just looking at the arbitrat that exists today, and unfortunately, given that the loan market, didn't grow as much last year, but new CLO supply continued to grow, that resulted in this supply demand imbalance, which meant loan spreads continued to tighten because there was a, demand for CLO for loans from CLOs.

While CLO liability papers statewide because a lot of CLOs were being issued and so you know that sort of imbalance was not healthy. Now I think looking ahead, we're seeing, as I said in my remarks, we're seeing a lot more new issue loan activity, so hopefully that will offset the somewhat upset offset the demand from captive funds and hopefully bring the arbitrage sort of back towards where, it would make sense for other investors to also start investing in new equit.

If I could just follow-up then, sort of back of the envelope, I understand what you're saying in terms of their ability to capture fees which third-party investors like yourselves may not be able to do, but there's gotta be a point where even taking those fees into account, we sort of reach a trough. Do you think we're anywhere near that trough, from their perspective?

Well, again, I don't want to, sort of talk or disparage any particular, group of participants in the market, but, the reality is that, if you have a fundraise already, you have to put that money to work and so. There isn't any, I mean, the manager decides, which investment investment they want to do and when they want to do a CLO, so the return that they get on that deal, depends on how you model it.

And so, you can use a lot of different assumptions to make the numbers look good. Unfortunately, so I don't know if there is a particular threshold beyond which they will stop investing in their own CLOs, because, you can assume that, defaults will be lower in the future, spreads will be wider, and you can kind of justify, whatever returns you like. So I don't know, it depends on how each person behaves. I think ultimately.

These captive funds, the returns that the investors get is sort of, long-term returns. They're not mark to market. So ultimately when those funds, come to the end of their life, that's when investors will see what the returns really have been. So until then, it's all up to the managers themselves to be disciplined, and I think we've seen some managers are very disciplined and some are not.

So that's unfortunately it's very hard to predict exactly. How they're going to react given the challenging spread environment we have right now.

I understand. I think in your prepared remarks you discussed loan spreads which are, the tightest they've been since the financial crisis, and that's obviously weighed on, spread or the arbitrage for CLO equity. With that in mind, how much more, refinancing risk or repricing risk, do you see embedded in your, portfolio?

Yes, so that's a great question. I think it sort of depends on the day by day where loans are trading, I think right now, the percentage of loans trading above par, which is basically a metric that we can use to. Estimate or project, what percent of loans would get repriced. That percentage is, fairly low. It's around, 15 to 20% of the market. It used to be about 60% a couple of weeks ago.

So there has been some volatility in the market as we've all seen through, due to AI and software names, and so that has reduced the percentage of loans trading above par. So as of now, I think the repricing activity is going to be fairly subdued. And if the new issue pipeline of loans materializes, which we are hearing there's a big pipeline and certain deals are coming to the market now, some larger ones.

So that I think will certainly, should put more pressure on secondary prices in the loan market to stay, at or below par, and that certainly would restrict repricing activity further. So we're, I mean, based on again all indications as of now, it feels that the repricing activity, has probably reached, a low point and hopefully spreads in these loan portfolios, will increase going forward, if the new issue pipeline materializes.

And lastly, at least from my perspective, you just mentioned AI. Well, when you talk to your managers, how are they approaching management of that risk and, what's their thesis of the potential impact on AI on their portfolios?

Yes, so I think it's that's obviously a very topical issue right now. It's it's, I feel it's name by name. You have to look at each credit and analyze the risk of, being impacted negatively by AI. I think where we are today is that the market, the loan market, as well as, equity and other markets, kind of had a knee jerk reaction and, every name in that subsector got sold off.

Despite so regardless of the credit quality of that particular company, so I think what we are seeing now is, the better managers are doing a lot of detailed analysis of the portfolio. They've been doing it for a while, obviously. But. I think we're hopeful that you know this sort of sell off of the entire sector creates some interesting investment opportunities where certain loans may have sold off too much and managers can finally trade their portfolio and build.

Parar by buying cheaper sort of low priced assets that have sold off in sympathy with sort of the sector news so I think it's going to come down to name by name analysis and I don't think we can just say the entire sector is bad. There will be some names for sure that will get materially impacted. And the work we're doing and the work our managers are doing is sort of looking at those names and identifying which ones are going to be the winners here and I think that is a welcome respite for CLO Equity because last year.

What we saw was, the names that were struggling, those loans, the prices went down, but everything else kind of stayed at par or above par in that environment. It was extremely difficult for people to build par or trade their portfolio because you couldn't, if you sold something, you couldn't buy something else to replace that lost par.

Now with more kind of broad based selling in certain sectors, I think that gives you this opportunity to be to risk manage the book better, and I think that's certainly I feel it's much better for C equity than the other way around. So that's that's all I would say. I think again the whole AI story is still in sort of early stages today and the impact is going to be more long-term than short-term. So we'll have to see how that plays out.

I understand that that's really interesting. I appreciate, taking my questions and, look forward to talking to you soon. Thank you.

Thanks, Micky.

Erik Zwick, Lucid Capital Markets LLC.

I wanted to start with a question looking at slide 10 of your deck, you quantify the potential estimated savings. From your investments that are either already out of their non-call period or coming to their out of their non-call period in the next five quarters is 28 basis points, and if I compare that to last quarter's slide, the amount was 41 basis points.

So curious one is that changed from 41 to 28 purely a reflection of the resets or refinances that you completed during the last period, or is there something else that has impacted that number as well?

Yes, good question. Yes, that is exactly correct that we completed 10, re-financings last year, the last quarter rather, and so those were the highest, cost of liability deals. So if you think about the portfolio, the deals that are callable, that were callable last quarter were the ones that were done two-years, prior, and at that time liability levels were even higher.

Than the subsequent quarter, so there has been a roll down in liability costs over time. So we tackled obviously the ones that were, last quarter ones, the ones that had the highest cost of capital, and those, so those savings have been achieved. And then now we're going down to the next lot which as you can see from here you know reaches about 200 basis points.

And then drops down from there so it's just a sort of roll down of that kind of the breakdown of the liability cost so it's solely because of that there's nothing else really, that's contributing to that change in number.

Yes, I appreciate the confirmation there, and then just thinking about. Kind of the action you took with the dividend, and, it's clear to see that the yield, the effective yield has come down in the portfolio, that the GAAP NII has come down. However, when I look at the cash flows on a quarterly basis, they've continued to trend higher over the last few quarters.

So is there something that, has not been reflected in the actual cash flows yet that they're lagging kind of some of the larger portfolio dynamics as well, or how should I interpret that?

Yes, so I think the first part of the question, let's take a look at both of them separately. The first one is, yes, so the portfolio yields have come down and we've talked about why that's just because of the spread compression in the loan market and so our portfolio yield, which stands at 11% now, down from 12%, so suddenly, there is less income because of that GAAP income.

And so we have adjusted our dividend to reflect that. In terms of your question on higher cash flow, that's just because when we refinance those deals, there is, extra, additional sort of cash generated through the refinancing activity, and so that, that's really the reason why the cash flow is higher. We can certainly provide additional details to you separately, but that, that's that's not because of the yield. The yield has compressed, but there is cash flow because we've been refinancing these transactions.

Got you. Okay, so if you kind of, reached the end of your repricing and or, spreads widen that opportunity lessened potentially, that portion of the cash flows would go down and then, so I guess maybe what wasn't clear there to me was, the amount of, those cash flows coming from the refinancing has made that. Figure look you know more robust than maybe the kind of longer-term or can maybe the regular run rate of the cash flow the right interpretation.

Yes, it depends on the deal. I mean, if we do a refinancing of the deal, sometimes that is, excess cash flow that gets flushed out to the equity, so that's, but that's all part of, it's included in the price of the equity, but there is additional cash flow that gets released. When a deal gets refinanced and sometimes obviously when you refinance the deal, the go forward cash flows increase from the refinancing.

So that's kind of what we've been saying that the go forward yields will increase slowly, but on those deals that get refinanced, that cash flow goes up because you're paying less on the liability. So there's a combination of those factors.

Okay, thank you. And then just thinking a little bit about the NAV from here, and maybe trying to look at it from a couple of different perspectives. One, you seem, hopeful if not optimistic that the pace of, asset repricing, has been reduced at this point, which should alleviate some pressure there. Still have the opportunity that we've discussed to, restore some of the arbitrage opportunity by refinancing some of the liabilities.

And then also I think, last quarter you discussed, if in periods of market volatility you're able to become more active in the secondary market and make some attractive purchases, kind of putting that together, do you feel like, the near term pressure on the NAV. Has been lessened at this point and there's potentially opportunities to see that stabilize if not even improve at some point or is that still, hard to tell at this juncture?

Yes, I think so the, so there are two components here, right? There is the cash flow component which is dependent on the spread compression and what happens there, and we talked about that. The second component is the NAV itself. The NAV is the, is the price of the underlying equity positions we have in our portfolio, and that is dependent on, not just fundamentals.

But there are also technical factors there. In particular, kind of how much demand there is for CLO equity in the market. What we saw kind of towards the end of last quarter was that liquidity dried up. So if you, as you headed towards year end, there were fewer buyers of CLO equity, if you look at sort of dealer debts, they were also not buying.

So there's just less of a buyer base for CLO equity towards the end of last year, and that continued in January as well. And so that sort of, technical vacuum, if you will, resulted in NAB's continued to decrease. I think for that to change, obviously the cash flow increase through, spread increase in loans certainly will help.

But you also need just more buyers and people to be just more comfortable stepping back into the CLO equity space. And that is, we'll have to wait and see how that sort of changes, but we're hopeful that that will be the case at some point. I think people will think that zero equity is quite cheap. We believe it's cheap, but if everyone agrees with that, then more buyers step in, and that certainly would help improve the NA.

So but that's much more of a technical analysis, and it's hard to obviously control that. But I think what we're focused here is just making sure that the portfolio continues to do well. We continue to sort of refinance the deals that we can, risk manage the portfolio, and over time try to improve the cash flows inside these deals, and then the NAV and then the technicals of that will be dependent on the market. But you know we think CLO equity is fairly attractively priced in the secondary market today.

Thank you for taking my question today. That was very.

Helpful. Of course, thanks.

Timothy D'Agostino, Riley Securities.

Yeah, hi, thank you and good morning. Some great commentary before. I guess the one question on my end, and I don't know if you've provided in the past or if you can provide it, but could you just tell us a little bit, and provide some color on how the portfolio yield and spread has trended quarter to date or year-to-date, obviously, compressing in '25, but it would be great to maybe just get a directional idea of what you're seeing so far in 2026. Thank you

So I mean, We can talk about the, I mean, we talked about the loan spreads, how they're compressed in terms of the portfolio yield, the GAAP yield of our portfolio that reached so it was 12% the previous quarter got to 11%, and if you look at our January numbers, it's 11.4% right now, so it ticked up a little bit in January to 11.4%. A lot of that is to do with sort of the refinancing activity that we are undertaking in the portfolio. So I don't know if that was your question, but that's in the slide deck we. He posted this morning. Okay, great.

Thank you so much. I must have missed that. I appreciate you.

Taking the question today. Of course, thanks.

(Operator Instructions) Gaurav Mehta, Alliance Global Partners.

Yes, thank you. Good morning. I wanted to ask you on the three CLO investments that you, made in the primary new issue market, specifically on the 9.3% yield, it seems like it's lower than last three quarters. Can you provide some details on the yield and, what kind of yields you're seeing in the primary market?

Yes, Gav, a great question there. So the three investments we made last quarter, there were two components to the to the yield. There is the warehouse income, and then there is the actual yield on the equity portion itself. So, for us, at the end of the day we look at the overall combined yield that we can earn on those investments. And so it's a combination of the warehouse income as well as the running yield.

So when you combine those two things together, the yields that we're buying those equity positions at were pretty strong, sort of mid-teens type of yield. So that's why there's a bifurcation. There's warehouse income and the 9.8% yield on the on the investments themselves. So we look at it as a package and so those look pretty attractive. In terms of the overall new issue kind of activity, it's an interesting dynamic there.

I think we've been saying it that new issue equity hasn't looked that interesting all of last year and continues to look, less attractive compared to secondary today. And you can see that in our stats. If you look at our stats in terms of how many new issued deals we're buying in 2024, our investments were split more 80% new issue, 20% secondary.

Last year that split went to around 50/50, and a lot of that was driven in the first half of last year. And then sort of as we reached the second half of last year and now this year, the new issue activity has been very subdued. To the extent we find a new deal that looks attractive on an overall package basis, we will certainly evaluate it, and we are doing a lot of that right now, but I think right now we still find secondary equity to be, very attractive relative to the new issue.

All right, thanks for that, color. I also wanted to follow-up on the 11.4% yield that you reported in January. I think you mentioned part of that is driven by the refinancing in your portfolio. And does that reflect the 52 basis points, that you reported in the slide deck, like complete 52 basis points, or there's more, refinancing to come that could help the yields.

Sorry, let me see, 52 basis points, which 52 basis points are you referring to?

I think on the slide deck, number 10, it says 52 basis points savings expected in 1 to 26, and I think in your remarks you said that 11.4% was partly due to refinancing. So I guess my question is that 11.4%, does that reflect the complete 52 basis points, or that's partial, and there could be more, improvement in the yield because of refinancing in this quarter?

Yes, so that's right. So I think that, so the way. The yield works is that you know you will get some credit for deals that are, callable immediately and to the extent, as you roll forward you start to get credit for the next few months of deals and then you but you don't get credit for the deals in the subsequent quarters so some of that is reflected in the 11.4%, but there will be some more increase from that.

But then the second. Quarter deals are going to get closer to non call period and then you start to get benefit from those deals as well as long as we can complete those refinancings as long as the liability market stays where it is right now, then those will also get, pulled up into our yield and that should help the yield as well.

So since we can't refinance all teams at the time, we are doing obviously quarter by quarter, so the most immediate quarter, some of it gets reflected in the yield, as we start doing them, but then the rest of them, will get reflected over time.

Okay, thanks. My next question is on the dividend, the $0.20 monthly rate. I was wondering if you could, maybe provide some more color on how you got to that number and do you expect that dividend to be covered by NII at some point?

Yes, so the, as we said earlier, the board decided to set the dividend level at $0.20 per month based on, kind of our current yield of the portfolio, but also the expectation for of where the yields are going to go, right? That depends on sort of how much refinancing activity we can do, where, what's happening in the loan market, the loan spreads going forward.

It also depends on sort of what sort of, repositioning we can do in the portfolio to improve our yields, so we feel that based on that $0.20 is a prudent number to have, and yes, we, the goal here is to be able to cover that over time. And obviously right now, with the yield at 11.4, we're not covered today, but that's the goal based on the based on portfolio rotation, the market changes, the expectation is for us to be able to cover that.

Alright, my last question on the leverage your debt to assets, at 39%, is that close to where you, want your leverage to be, or how should we expect about your leverage in '26?

Yes, so I think the leverage ratio of 39%, we're, it's fine right now. We're going to evaluate that and see, kind of, again depending on our view on where our NAV is going to go, our view on what's happening into the cash flows, we're constantly monitoring that leverage issue we feel comfortable with it right now.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.

Thank you everyone.