Q3 2024 Ellington Credit Co Earnings Call
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Speaker Change: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company 2024 Third Quarter Financial Results Conference Call. Today's call is being recorded. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. At any time, if your question has been answered, you may remove yourself from the queue by pressing star 2.
Speaker Change: Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Aladin Chalet, Associate General Counsel. Sir, you may begin.
Aladin Chalet: Thank you. Before we begin, I would like to remind everyone that certain statements made during this conference call may constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are not historical in nature.
Aladin Chalet: As described under Item 1A of our Annual Report on Form 10-K and Part 2, Item 1A of our Quarterly Report on Form 10-Q, forward-looking statements are subject to a variety of risks and uncertainties that could cause a company's actual results to differ from its beliefs, expectations, estimates, and projections.
Aladin Chalet: Consequently, you should not rely on these forward-looking statements as predictions of future events.
Aladin Chalet: Unless otherwise noted, statements made during this conference call are made as of the date of this call. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Speaker Change: Joining me on the call today are Larry Penn, Chief Executive Officer of Allenteen Credit Company, Mark Tecotzky, our Co-Chief Investment Officer, and Chris Smernoff, our Chief Financial Officer.
Speaker Change: We are also again joined by Greg Borenstein, Head of Corporate Credit at Ellington Management Group. Following the completion of our conversion to a CLO closed-end fund, Greg, along with Ellington's founder Mike Ranos, will officially be designated as Earns 2 Portfolio Managers.
Speaker Change: Our third quarter earnings conference call presentation is available on our website, EllingtonCredit.com. Our comments this morning will follow that presentation.
Speaker Change: Please note that any references made on this call to figures in that presentation are qualified in their entirety by the notes at the back of the presentation.
Speaker Change: Any figures relating to the current status of the shareholder vote are made as of this morning.
Speaker Change: Such figures are subject to change based on a variety of factors.
Speaker Change: including the ability of shareholders to change or revoke their votes which they are entitled to do at any time prior to the annual meeting and our tabulator finalizing its report. As a reminder, during this call we'll sometimes refer to Ellington Credit Company by its NYSE ticker E-A-R-N or ERN for short.
Speaker Change: With that, I will now turn the call over to Larry.
Larry Penn: Thanks, Eledina. Good morning, everyone. We appreciate your time and interest in Ellington Credit Company.
Larry Penn: I'll start with an update on the shareholder vote related to our strategic transformation.
Larry Penn: As you've seen, we have postponed the annual shareholder meeting as we work to accumulate the required votes to approve the conversion of EARN to a Delaware closed-end fund.
Larry Penn: Shareholder support for the conversion has been overwhelmingly positive. Based on voting results as of this morning, the three conversion-related proposals have approval rates above 92% and over 95% if you don't include abstentions.
Larry Penn: However, in order to pass two of the three proposals, we need four votes from a majority of all shares outstanding, not just a votes cast. And as of this morning, we are still short of that threshold.
Larry Penn: On those proposals, we currently have about 10.5 million 4-votes, but we still need a little more than 2 million additional 4-votes in order for them to pass.
Larry Penn: I should note that these approval rates are unofficial and preliminary, and shareholders can change their vote at any time prior to the annual meeting.
Larry Penn: Both ISS and Glass-Lewis, the leading independent proxy advisory services, have unanimously recommended four votes on all the conversion-related proposals, as they recognize the benefits to earned shareholders of the conversion.
Larry Penn: On slide four, we highlight some of the anticipated benefits to shareholders of the transformation, which include better projected risk-adjusted returns over the long term and enhanced access to the capital markets, while also affording shareholders with the additional protections provided by the 1940 Act.
Furthermore,
Larry Penn: As a registered investment company, we would generally not be subject to corporate income tax.
with our current status as a taxable C Corp.
Larry Penn: We are subject to a small level of corporate income tax, but we will be subject to the full corporate tax level after our NOLs burn off.
Larry Penn: Also, until we convert to a RIC, we also need to continue to hold a portfolio of agency MBS pools to maintain our exemption from the 1940 Act, and thus that keeps us from completing the full transition of our investment portfolio to corporate CLOs.
Larry Penn: To those who have voted already, thank you. And to those with unvoted proxies, please submit your vote as soon as possible.
Jason Weaver, Eric Hagen, Douglas Harter, Laurence Penn, Mark Tecotzky
Thank you.
Speaker Change: Please turn now to slide six of the earnings presentation for the market backdrop for the third quarter.
despite volatility spiking in early August.
Speaker Change: The CLO market in the third quarter continued to benefit from strengthening loan fundamentals and robust demand for leveraged loans.
Speaker Change: As you can see on this slide, leveraged loan default rates continue to decline in both U.S. and Europe, while prepayment rates continue to be elevated, particularly in the U.S.
Speaker Change: In terms of new CLO issuance, while tightening credit spreads and lower interest rates supported strong corporate loan issuance,
Speaker Change: Net CLO supply in the U.S. was actually negative overall for the quarter as a result of the combined impact of an elevated pace of refinancings and resets and as many seasoned CLOs were called.
Speaker Change: Also as depicted on slide six, the combination of strong loan fundamentals and positive market technicals during the quarter drove CLO mezzanine spreads tighter overall in both U.S. and European markets, while high-yield and IG credit indices tightened further as well.
Speaker Change: Similar to the prior quarter, performance for U.S. CLO Equity was somewhat mixed, which Greg will get into later on this call.
Speaker Change: Meanwhile, in the agency MBS market, with interest rates falling and the yield curve steepening in anticipation of the Fed's cut in September, agency MBS spreads tightened and the U.S. agency MBS index generated an excess return of 76 basis points for the quarter.
Speaker Change: I'll turn now to Ernst's third quarter results on slide 7.
Speaker Change: We had another quarter of excellent performance from our CLO debt portfolio.
Speaker Change: with robust loan prepayments triggering further deleveraging in our seasoned mezzanine positions and with low default rates boosting demand for junior mez tranches, which drove credit spreads tighter.
Speaker Change: We also enhance returns in our CLO debt portfolio through some opportunistic trading, and we further enhance returns by driving the liquidation of a CLO where we own discount mezzanine debt.
Speaker Change: In that case, the redemption proceeds you received upon the CLO's liquidation far exceeded the value of our MES debt position were it to have remained as a CLO tranche.
Speaker Change: Finally, we have positive results from our remaining RMBS investments and earns overall annualized economic return for the third quarter was 10.8%.
Speaker Change: As with prior quarters, our ongoing shift from agency MBS into CLOs continue to lower our leverage ratios.
Speaker Change: You can see on slide 7 that our debt-to-equity ratio declined to 2.5 to 1 at quarter end. Meanwhile, our cash plus unencumbered assets finished the quarter at a very healthy 121 and a half million dollars, which represented nearly two-thirds of our total equity.
Speaker Change: The wide net interest margins on our CLOs also enabled our adjusted distributable earnings to continue to cover our dividends during the third quarter despite our significantly lower leverage and even as we terminated in conjunction with selling agency pools several interest rate swap hedging positions that had been supporting ADE.
Speaker Change: As we had forecast on last quarter's call, our ADE did tick down in the third quarter as we terminated these swaps, but as we had also forecast, our ADE for the third quarter still exceeded our first quarter level of $0.27 per share and covered our third quarter dividends.
Speaker Change: With that, I'll now pass it over to Chris to review our financial results for the third quarter in more detail. Chris? Thank you, Larry, and good morning, everyone. Please turn to Slide 8 for a summary of Ellington Credit's third quarter financial results.
Chris Smernoff: Our debt-to-equity ratio, adjusted for unsettled trades, decreased to 2.5 times at September 30th compared to 3.7 times at June 30th.
Chris Smernoff: The decline was driven by higher shareholders' equity and the less leverage we employ on our growing CLO investment portfolio, as compared to the leverage we employ on our legacy agency MBS portfolio.
Chris Smernoff: Similarly, our net mortgage assets-to-equity ratio decreased over the same period to three times from four times.
Chris Smernoff: Our overall net interest margin increased to 5.22% from 4.24% in the prior quarter, which reflects a higher allocation of capital to the credit strategy and a higher NIM on our agency portfolio, driven by higher asset yields and a lower cost of funds.
Despite the overall increase.
Chris Smernoff: The net interest margin on our credit portfolio actually declined sequentially, finishing more in line with our first quarter NIM.
Chris Smernoff: As we highlighted last quarter, the higher NIM in the second quarter had been the result of accelerated prepayments on the loans underlying several discounted CLO positions, which resulted in high payoff activity and high asset yields for those CLO positions.
Chris Smernoff: Pre-payment activity was less significant in the third quarter in our CLOMEDS portfolio, which drove asset yields and NIM in the credit portfolio more in line with our first quarter results.
Chris Smernoff: In the third quarter, we continue to benefit from positive carry on our interest rate swaps, where we receive a higher floating rate and pay a lower fixed rate.
Chris Smernoff: But as Larry mentioned, the impact of this benefit declined in Q3 as some of these swaps expired and as we sold down the agency portfolio and took off the associated hedges.
Chris Smernoff: The combination of lower leverage and the swap terminations drove the sequential decline in our ADE. Despite the decline, our adjusted distributable earnings continue to exceed our dividends paid in the third quarter.
Chris Smernoff: Slide 9 shows the attribution of income by strategy. In the third quarter, the CLO strategy generated 12 cents per share of portfolio income driven by strong net interest income, which increased sequentially with the larger CLO portfolio.
Chris Smernoff: Further, net gains on our U.S. and European CLO debt portfolios were supported by both opportunistic sales and tighter credit spreads on health positions.
Chris Smernoff: We also benefited from positive performance from our U.S. and European CLO equity portfolios where net interest income exceeded net realized and unrealized losses.
Chris Smernoff: The net realized and unrealized losses in CLO equity were primarily the result of dollar price and name compression on the corporate loan assets underlying our CLOs.
Chris Smernoff: partially offset by the positive impact of opportunistic trading and the two deal refinancings that Larry mentioned.
Chris Smernoff: Meanwhile, our agency strategy performed well in the third quarter, generating 18 cents per share of portfolio income.
Chris Smernoff: In the quarter, interest rates fell, the yield curve steepened, and agency MBS spreads tightened as the market anticipated the beginning of the Federal Reserve's interest rate cutting cycle.
Chris Smernoff: In September, the Federal Reserve reduced the target range for the federal funds rate by 50 basis points and also released updated economic projections that implied another 50 basis points of interest rate cuts later in 2024, although that expectation is no longer shared by the market.
Chris Smernoff: Tighter yield spreads drove net gains on our agency RMBS which exceeded net losses on our interest rate hedges driven by declining interest rates.
Chris Smernoff: Our non-agency portfolio generated positive results for the quarter as well, driven by net interest income and net gains associated with several profitable sales.
Chris Smernoff: As a reminder, in connection with our strategic transformation, we revoked our REIT election effective January 1st of this year, and we are currently operating as a taxable C Corp.
Chris Smernoff: We came into the year with substantial net operating loss carried forward, and in the third quarter we used a portion of those to offset the majority of our federal taxable income, and we intend to continue to do so for so long as we operate as a C-Corp.
Chris Smernoff: For the third quarter, we accrued an income tax expense of $463,000, which represents the net tax liability accrued on our taxable income after the NOL offset.
Chris Smernoff: Due to federal and state restrictions on NOL utilization, we cannot offset 100% of our taxable income.
Chris Smernoff: Our utilization of NOLs reduced our effective tax rate from what would have been about 28% to about 7.8% for the quarter. Please note that we are not booking a deferred tax asset on our balance sheet related to the NOLs.
So our reported buck value remains fully tangible.
Chris Smernoff: After the conversion to a closed-end fund slash RIC, we generally will not be subject to corporate income tax.
Chris Smernoff: Please turn now to our balance sheet on slide 10. Book value per share was $6.85 at September 30th compared to $6.91 at June 30th.
Chris Smernoff: including the 24 cents per share of dividends in the quarter, our economic return for the quarter was 2.6% or 10.8% annualized with compounding.
Chris Smernoff: We ended the quarter with $121.5 million of cash and unencumbered assets.
Chris Smernoff: Next, please turn to slide 11 for a summary of our portfolio holdings.
Chris Smernoff: Our CLO portfolio increased to $144.5 million at September 30th as compared to $85 million at June 30th.
Chris Smernoff: At September 30th, CLO equity comprised 52% of our total CLO holdings, up from 47% at June 30th.
Chris Smernoff: Meanwhile, European CLO investments comprise 70% of our total CLO holdings as September 30th, consistent with the prior quarter.
Chris Smernoff: Our capital allocation to CLOs increased to 50% at September 30th from 45% at June 30th.
Chris Smernoff: Meanwhile, the size of our agency RMBS portfolio decreased to 462 million compared to 531 million at June 30th. And as you can see on slide 12, we are entirely out of 15-year pools.
Chris Smernoff: Costs to liquidate our agency RMBS continue to be low and our remaining agency RMBS portfolio is very liquid.
Chris Smernoff: Our aggregate holdings of interest-only securities and non-agency RMBS decreased as well to less than $12 million.
Chris Smernoff: On slide 13, we provide details of our interest rate hedging portfolio.
Chris Smernoff: During the quarter, we continue to hedge interest rate risk primarily through the use of interest rate swaps.
Chris Smernoff: As shown on slide 14, we again ended the quarter with a net lung TBA position, both on a notional basis and as measured by 10-year equivalence.
Chris Smernoff: On slide 15, you can see that nearly all the loans underlying our CLO portfolio are floating rate and as such have much lower interest rate duration.
Chris Smernoff: We also selectively hedged the credit risk of our corporate, CLO, and non-agency RMBS investments. As of September 30, 2024, our credit hedge portfolio was relatively small.
Chris Smernoff: Finally, general and administrative expenses were higher quarter over quarter due to expenses incurred related to this strategic transformation.
Chris Smernoff: Management fees were also higher quarter over quarter driven by higher shareholders equity at quarter end.
I will now turn the presentation over to Greg.
Thanks, Chris.
Greg Borenstein: It's a pleasure speaking to everyone again today. As Larry mentioned, performance of our CLOs in Q3 was led foremost by our debt portfolio, where tightening MES spreads offered opportunities to monetize gains and also drove positive price action on assets that we continue to hold.
Greg Borenstein: As the market has continued to tighten, we have looked at trade out of debt positions where we think the total return upside is largely played out.
Greg Borenstein: We are still selectively finding opportunities in MES paper, but some of the low-hanging fruit is gone, and we are very focused on appropriate risk-adjusted returns and avoiding reaching for yield by taking on undue risks.
Greg Borenstein: Overall, in the market, the performance of CL Equity was more of a mixed bag, as tightening credit spreads on both leveraged loans on the asset side and CLO debt tranches on the liability side produced some more nuanced results.
Greg Borenstein: On one hand, tightening debt spreads allowed some deals to refinance or reset their debt, including extending their reinvestment periods.
Greg Borenstein: and that drove strong returns for many CLO equity profiles and deals with better performing portfolios and higher debt costs.
On the other hand,
Greg Borenstein: Higher prepayment speeds in the loan market led to both price declines for loans trading above par
Greg Borenstein: and compression in loan floating rate spreads, as large volumes of loans trading at premiums to par were refinanced at par and replaced with lower spread loans.
Greg Borenstein: These effects triggered mark-to-market losses in some CLO equity profiles as both their interest payments, due to lower excess interest in the CLO, and underlying asset values declined in tandem.
Greg Borenstein: We saw a similar dynamic play out in Europe, although with slower prepayment speeds, the negative impact of the prepayment
Premium loans was less pronounced.
Greg Borenstein: As we look to the remainder of the year, we currently see better relative value and ample opportunities in CLO equity.
Greg Borenstein: where tighter debt spreads are improving economics for both new and existing deals.
Greg Borenstein: Early signs post-election are showing general spread tightening in the credit markets.
Greg Borenstein: which, accompanied with higher rates, have continued to improve demand for floating rate CLO liabilities.
Greg Borenstein: In addition, continued heavy issuance in the CLO market is creating inefficiencies and relative value opportunities in both CLO debt and equity.
Ern: Given our strong systems and deep experience in both primary and secondary markets, Ern is well positioned to capitalize on these inefficiencies.
With that, I turn the presentation over to Mark.
Thanks, Greg.
Mark Tecotzky: Q3 was generally a strong quarter for spread products. Both CLO debt and agency MBS performed well relative to benchmarks as the Fed kicked off its interest rate cutting cycle in September.
Mark Tecotzky: Looking at agency prepayments, we have been predicting that newly issued, non-call protected pools could have elevated prepayment rates if they get in the money, and that is exactly what happened in the third quarter when rates fell.
Mark Tecotzky: We saw CPRs north of 60 for certain Fannie Mae pools with mid 7's whack.
Mark Tecotzky: Fortunately for EARN, we have largely protected our agency portfolio from that type of exposure.
Mark Tecotzky: Looking back over the past 12 months, I am really happy that we were able to put so much money to work in the CLO market at wider spreads than current levels.
Mark Tecotzky: In the third quarter, we stayed invested in our core holdings of agency MBS while also selling down that portfolio as needed to free up cash for additional CLO purchases.
Mark Tecotzky: By quarter end, nearly 60% of our capital was allocated to CLOs.
Mark Tecotzky: However, until we complete EARN's conversion to a RIC, I'll note that our ability to increase our CLO capital allocation much above that 60% level is limited by the requirement to stay exempt from the 1940 Act, which requires us to maintain that core portfolio of agency pools.
Mark Tecotzky: So from here, we will stay largely invested in the current MBS portfolio until the conversion occurs, capturing the available agency NIM, and will only really be net selling MBS to add CLOs to the extent we have room.
Mark Tecotzky: Meanwhile, we've continued to make our agency MBS portfolio incrementally more liquid, and once we obtain the requisite approvals for the conversion, we will sell down our remaining agency MBS portfolio and complete the rotation to CLOs.
Mark Tecotzky: We've seen long-term interest rates, including mortgage rates, rise substantially since quarter end. That has had a chilling effect on origination volumes, which are also poised for the typical seasonal slowdowns.
Mark Tecotzky: In addition, the third quarter brought the first Fed rate cut in four years, and we just had another cut last week. So we should soon see our first non-inverted yield curve in a while.
Speaker Change: All these factors should increase demand for MBS from banks and CMO arbitrageurs, and create a favorable supply-demand technical for agency MBS going into year-end. Now back to Larry.
Thanks, Mark.
Larry Penn: I'm pleased with the continued ramp-up and strong performance of the CLO strategy in EARN and how we've pivoted our CLO portfolio composition as the market opportunity has evolved.
Larry Penn: I'm particularly pleased with the active approach we've taken to enhance our returns.
All these steps have added alpha to our results.
Larry Penn: So far in the fourth quarter, we've continued to see the benefits of the portfolio rotation away from agency MBS and towards CLOs, with CLOs returning positive returns in October, even as volatility and interest rates rose.
Larry Penn: Those market movements drove agency spreads quite a bit wider in October, but they've somewhat retightened in November post-election.
We very much look forward to completing our RIC conversion.
Larry Penn: I strongly believe that our strategic transformation will generate superior risk-adjusted returns for Ellington Credit shareholders.
Larry Penn: If you haven't voted yet, please do so. And as always, we are happy to answer any questions.
Larry Penn: I continue to be encouraged by how positive our conversations with investors and analysts have been following the announcement of the transformation earlier this year.
Speaker Change: With that, we'll now open the call to questions. Operator, please go ahead.
Speaker Change: Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star and two. And we will pause for a moment to allow questions to queue.
Speaker Change: And we will take our first question from Kristen Love with Piper Sandler. Please go ahead.
Speaker Change: Hi, this is Brad Capuzion for Crispin. Just kind of high-level, can you speak on the credit quality in the CLL book and how you expect that to trend over time? What are your delinquency and loss expectations as well as risk-adjusted returns?
Sure, I think overall
If we go through, for example,
Speaker Change: It's scenario dependent. A very high rate environment for a long time that will clearly stress
Speaker Change: corporate credit in some of these companies' ability to, you know, be able to service their debt. I think in general you see the current trailing 12-month default rate is below 1% historically. It may sit, you know, to north above that.
Speaker Change: If you take a look at COVID, this got to at the peak.
you know, a little over four percent. And so.
Speaker Change: That gives you a sense of some of the things that we've seen in both benign and stressed environments.
Speaker Change: We don't have a crystal ball, but I would say that
Speaker Change: You could certainly see them elevate from where we are now into that more, you know, traditional average
If we stay in a high-rate environment
Speaker Change: and how we think about the credit quality. I think overall, if things get tighter in the market and spreads are tighter, it allows more companies to have access to financing and perhaps you see
Speaker Change: Looser documentation which is something we look at. If things start to get more stressed you're going to see the market
Speaker Change: be a little bit more buyer-friendly with, you know, perhaps tighter language, more covenants, and only better quality companies coming to market. And so it's a little bit of balance in terms of how we see that progressing.
if that answers it.
Speaker Change: Yeah I appreciate the commentary and then just the last question for me
Speaker Change: How are you guys thinking about the dividend, especially as you rotate more capital and the CLOs and leverage continues to tick down?
Thanks for watching. I'm Greg Scarlatoiu. I'll see you later.
Yeah, well, as we rotated...
Speaker Change: I could take that. As we're rotating into CLOs, yes, the leverage is ticking down, but our net interest margin is going up quite quickly.
Speaker Change: And as I mentioned, our adjusted distributive earnings for the third quarter were in line, maybe even a penny higher than they were back in the fourth quarter.
Speaker Change: We don't see, you know, at this point, you know, we see good support for the dividend through our adjusted distributable earnings and we've already rotated, you know, gone from basically
Speaker Change: 0%. If you go back a little over a year of CLOs to now, I think, as we mentioned before, you know, over half of our capital.
Speaker Change: is risk capital is now in CLO. So, less leverage but greater net interest margin and the two seem to be balancing out pretty well. So, our dividend is still well supported as we continue this rotation.
Awesome. I appreciate it. Thank you.
Speaker Change: Thank you. And we will take our next question from Douglas Harder with UBS. Please go ahead.
Thanks.
Speaker Change: You guys were active in raising capital through the ATM during the quarter. Can you talk about your continued appetite to do that?
Speaker Change: I mean, Chris, do you want to talk about, you know, kind of our execution there in terms of, you know, was there any dilution? Sure. Yeah. During the quarter, there was four cents of dilution. You know, we also expect that.
you know...
Speaker Change: that, you know, that slight dilution, you know, will reflect in better, you know, GNA ratios going forward.
Speaker Change: Right, so that'll be at those levels, you know, it's very accretive to earnings because we raised, you know, a fair amount of capital. So I would say, you know, look, our stock price now is not in a place where we would tap the ATM.
Speaker Change: When we were trading much higher in the third quarter, we took advantage of it and so it's going to be very price dependent at this point and if we're raising capital as we did, net
Speaker Change: very close to book. That is, you know, given that we're a small company and that we do have fixed expenses, I mean it's, I think it's a no-brainer.
Thank you.
Speaker Change: Thank you. And we will take our next question from Jason Weaver with Jones Trading. Please go ahead.
Hey guys, thanks for taking my question
Speaker Change: Maybe one for Greg, just on the visibility. I think you touched on this and you prepared more marks. Would you expect the strong issuance trend to remain in place if pricing remains as supportive? Any sort of nuance or cadence implications over the next few quarters ahead that you can suss out?
Speaker Change: So, I think on the trend we're heading and what we see in the market right now, this was a very large issuance year.
Speaker Change: You saw a lot of resets. I think you will continue to see that. Taking a step back,
Speaker Change: AAAs have come in, they're starting to get close to levels that were close to the post-financial crisis types.
Speaker Change: I think with demand for floating rate products especially from maybe some traditional places that didn't wait
Speaker Change: CLOs as much. I think with what happened in 2022, you see places very focused on rate duration with perhaps, you know, where that is headed.
that in addition to
Speaker Change: the growth of the CLO ETF space at the top of the capital structure.
This should keep putting demand pressure on CILA liabilities.
Speaker Change: As that happens, as deals will exit their non-call, you will see the equity investors which control the option continue.
Speaker Change: to come to market, and you may also see actual new issuance deals continue to pick up. With loan creation also turning back on, that was a bit of a...
Speaker Change: That's sort of what slowed things down last year. It was hard for people to simply source the loans. That's why it was a lot of recycling or resetting, if you will, but just talking to a lot of the banks that we work with and actually bank these transactions.
you know, reset their liabilities.
Speaker Change: Got it, thanks for that. And then maybe related to it exactly, you know, assuming today, if you had certainty about the shareholder vote being supportive, to liquidate the agency portfolio seems relatively straightforward, but what does the timeline look like to move that capital into new CLO equity?
Speaker Change: Sure, so I think we're obviously watching it carefully, and so as we see the probability increase there.
Speaker Change: Behave accordingly in terms of how much drive-out we want to keep in terms of...
Speaker Change: Leading into that a little bit. I think that overall...
—umm—
Speaker Change: if things were dislocated, that would obviously present a real opportunity and we could go into secondary and purchase Q-sips pretty quickly. You know, that said, I think with, you know, Earn is left in a very diversified place right now and so we're fortunate to not be too worried about concentration risk.
Speaker Change: and so I think that if we start to see that move forward as noted in the prepared remarks, we really see the value in a new issue and so I think we would simply be more active with where we see that opportunity coming in a new issue and sort of setting up those types of transactions to rotate the rest of the portfolio and get going on that and as we said, it's very, very busy and so with all the banks working on deals and all the volumes coming out and so on.
Speaker Change: I think we would just lean into that. I'll lean into it more.
Speaker Change: of CLO Investments up from $85 million a quarter before and that's without, you know, having the push of the shareholder vote already done and sort of ready as you said to liquidate the remaining pools and reinvest.
Speaker Change: So, in one quarter, that's 60 million, and that's without pedal to the metal, and our equity capital, as you can see, is under 200 million, so we could be, we could be,
invested
certainly in a quarter or less.
equal to our total capital base or total equity base.
Speaker Change: And I think we could do it even faster now, of course, we want to have some leverage in the portfolio So I think I think 90 days is a very reasonable target But of course, we're not there yet. We need the votes
each party.
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