Q4 2024 Ellington Credit Co Earnings Call

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Speaker Change: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company, 2020-24-4th quarter financial results conference call. Today's call is being recorded.

Speaker Change: At this time, all participants have been placed in 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 the star and one on your telephone keypad. You may remove yourself from the question queue at any time by pressing star and two.

Speaker Change: Lastly, if you should require operator assistance, please press star and zero. It is now my pleasure to turn the floor over to Oledine Chalet, Associate General Counsel. Sir, you may begin.

Aladin Chalet: Thank you. Before we begin, I'd like to remind everyone that this conference call may include four looked in statements within the meaning of the safe harbor provisions of the private security litigation reform act in 1995. These statements are not historical in nature and involve risks and uncertainties detailed but not annual and quarterly reports filed with the SEC.

Aladin Chalet: Actual Result to make differ materially from these statements so they should not be considered to be predictions of future events.

Speaker Change: Joining me today are Larry Penn, Chief Executive Officer of Ellington Credit Company, Mark Tecotzky, Co-Chief Investment Officer, Chris Smernoff, Chief Financial Officer, and Greg Borenstein, Head of Corporate Credit Ellington Management Group.

Speaker Change: Upon effectiveness of our recon's conversion, scheduled for April 1st, Greg and Mike Vannos, Ellington's founder and head of all portfolio management activities will officially be designated of Ernst Superfolio Managers.

Speaker Change: Our fourth quarter earnings conference call presentation is available on our website, EllingtonCredit.com Today's call will track that presentation and all statements and references to figures are qualified by the important notice and end notes in there in the presentation. With that, I'll turn it over to Larry.

Larry Penn: Thanks, Eladine, and good morning everyone. We appreciate your time and interest in Ellington Credit Company.

I'll start on slide three.

Larry Penn: I am pleased to report that on January 17th, shareholders approved our conversion to a closed-end fund and we are now on track to complete that conversion on April 1st, so in just a few more weeks.

Larry Penn: We have continued to expand our CLO portfolio in preparation for the conversion, and in the fourth quarter we grew the CLO portfolio by another 18% to $171 million.

Larry Penn: Most of this growth came in COLO equity trotches, where we currently see the most attractive opportunities.

Larry Penn: With CLO debt spreads tightening, the economics of both new and existing CLO equity investments are improving.

Larry Penn: Meanwhile, persistent pricing inefficiencies and heightened market volatility continue to create compelling relative value opportunities across the CLO market in both the US and Europe .

Larry Penn: Since year end, and including investment activity through Monday, the COO portfolio now stands at around $235 million.

Larry Penn: In the fourth quarter, we also added more agency RMBS, prioritizing highly liquid pools

Since those pools will be sold when we convert.

Larry Penn: Until our actual conversion date to a closed end fund, we need to keep buying more agency pools to balance out any growth in our CLO portfolio.

Larry Penn: So, as to maintain our exclusion from registration as an investment company under the 1940 Act.

Larry Penn: However, as we have been adding these liquid agency pools, we have also been adding short TBA positions.

Larry Penn: Short TVAs are a valuable risk management tool that heads interest rate risk of also mitigating exposure to higher interest rate volatility and widening agency pool yield spreads.

Larry Penn: As shown on slide 13, at year end, our net mortgage assets to equity ratio, which takes into account our net short, notional TBA position at year end, declined to 2.6 to 1, down from 3 to 1 on September 30th.

Larry Penn: This marked our lowest net mortgage assets to equity ratio for earn in at least a decade.

Larry Penn: and I'll highlight that it has declined much further since year end to nearly zero today, with our TVA short positions now nearly offsetting our long agency pool assets.

Larry Penn: We were fortunate to have added these short TBA positions when we did, given the recent spike in its trade volatility in the last few weeks.

Larry Penn: For the past year, when we've added agency pools, we've been prioritizing highly liquid sectors.

Larry Penn: And so our agency pullbook, all it's always been liquid, is now as liquid as it's ever been.

Larry Penn: This portfolio rotation within our agency pool book, which really started over a full year ago, has been conducted in an orderly manner, with Mark Tecotzky and his team focusing on minimizing friction.

Larry Penn: At this point, with just a few weeks to go until the conversion, the emphasis in our pool position is not on relative value, but rather on liquidity, since those pools will be sold expeditiously after the conversion.

Larry Penn: We're no longer holding pools where we're betting on payoff expansion, but rather we're holding pools with low and stable payups.

Larry Penn: At December 31st, the average pay-up on our pools was just 20 basis points [inaudible]

Down from 101 basis points when you're prior.

Larry Penn: When we convert, we estimate that the sales of all these remaining agency pools, together with the covering of our TBA short positions, will have just a one penny effect on book value per share, which I consider minimal.

Larry Penn: Please turn now to slide four, where we'll take a look at the market backdrop.

Larry Penn: In the fourth quarter, strong credit fundamentals, robust demand for leverage loans, and capital inflows into floating rate loan funds supported the CLEO markets.

Larry Penn: As you can see here, Credit Spreads Titan, which drove record-high corporate loan issuance, although net CLO issuance remained low due to a flurry of CLO deals being refinanced

Larry Penn: C.L.O. as an in-dead, generally performed well in the quarter, capping off an extremely strong 2024, while cross-currents in the market again drove mixed results in C.L.O. equity, as portfolio manager Greg Borenstein will get into later on this call.

Now let's review Erdner's performance for the fourth quarter.

Please turn back on slide to slide three.

Arceolo Mezzani Deportfolio continued its excellent performance.

Larry Penn: With sequentially higher net interest income, helping support our adjusted distributable earnings, as well as net gains resulting from several opportunistic sales, tighter credit spreads, and redemptions of several of our discount season CLO Mezzanine Trosches.

Larry Penn: Our COLO equity investments also contributed significantly to our adjusted distributable earnings, and they also delivered positive results, albeit with more modest total returns.

Now, over to our agency mortgage portfolio.

Larry Penn: Interest rate and yield spread volatility mainly around the presidential election in November drove underperformance in the agency pool market.

Larry Penn: This led to a loss in our agency portfolio which in turn led to a small overall that loss for earned for the court.

Larry Penn: Again, we anticipate there will no longer have exposure to the agency pool markets shortly after we convert to a closed-end fund unable first.

Larry Penn: Importantly, the combination of portfolio growth and wide net interest margins on our CLOs continue to support adjusted distributable earnings, which, at $0.27 per share, again covered our dividends of $0.24 for the quarter.

Our debt-to-equity ratio remained below 3 to 1 at year end.

Larry Penn: and liquidity remained high, with cash plus unencumbered assets totaling $111 million or more than 50% of total equity.

Larry Penn: Of course, after we convert to a closed-end fund, our debt-to-equity ratios will be far lower.

Larry Penn: I'll now pass it over to Chris for a more detailed look at our financial results for the Corps. Chris?

Chris Smernoff: Thanks, Larry, and good morning everyone. Please turn to slide 6.

Chris Smernoff: For the fourth quarter, we reported a net loss of $0.7 per share and adjusted distributable earnings of $0.27 per share.

Chris Smernoff: Our overall net interest margin remains strong at 5.07% supported by our growing capital allocation

Chris Smernoff: On flight 7, you can see the net income breakdown by strategy, which was 10 cents per share from CLOs and negative 12 cents from an agency.

Chris Smernoff: In our COLO debt portfolio, net interest income grew quarter over quarter, and we also had net gains in our U.S.

and European deprofolios.

Chris Smernoff: Supported by several opportunistic sales, tighter credit spreads, and redemption of several of our discount season CELO-Mezzanine trotters.

Chris Smernoff: In our COLO equity portfolio, results were mostly positive with net interest income slightly exceeding net unrealized losses.

Chris Smernoff: Meanwhile, the agency's strategy generated a net loss for the quarter as rising interest rates and intra-quarter volatility drove under performance of our agency RMBS relative to hedging instruments market-wide.

Chris Smernoff: Finally, our non-agency R&BS portfolio generated positive results driven by net interest income and profitable sales.

Chris Smernoff: We saw effectively all of our remaining non-agency RNBS and interest-only securities during the quarter at net gains.

Chris Smernoff: With an overall net loss for the quarter, we accrued a small income tax benefit.

Chris Smernoff: After our conversion to a closed end fund slash Rick Next Month, we will generally not be subject to corporate income tax.

Chris Smernoff: At December 31st, our book value for sharing was $6.53 and combined cash and unencumbered assets totaled $111 million.

Our economic return for the quarter was negative 1.2%.

Chris Smernoff: Our debt to equity ratio adjusted for unsettled trades increased to 2.9 times from 2.5 times at 10.30 [inaudible]

Chris Smernoff: Over the same period, our net mortgage assets to equity ratio decreased to 2.6 times from three times driven by a net short, notional TBA position at your end in contrast to a not long notional TBA position at the end of the third quarter as well as higher

Chris Smernoff: Flight 10 shows our COLO portfolio increasing by 18% to $171 million at year end, and capital allocated to COLO's expanding to 72% from 58% at September 30th.

Chris Smernoff: At December 31st, CLO equity comprised 58% of our total CLO holdings up from 52% and European CLO investments constituted 14% of our total CLO holdings down from 17%.

Chris Smernoff: On Slide 11, we show the agency RNBS holdings increased by 11% to 512 million dollars at year end.

Chris Smernoff: Slide 12 details are interest rate hedging portfolio, and slide 13, our net RNBS Exposure, where you can see the net short, notional TBA position at December 31, which has grown significantly

Chris Smernoff: On Site 14, we illustrate that nearly all the loans underlying our sea level portfolio are floating rate, and as such, have much lower interest rate derasions than agency RNBS.

Chris Smernoff: We also maintained modest credit hedge and foreign currency hedge portfolios at your end related to our

With that, I'll pass it over to Greg.

Thanks, Chris. It's nice to speak with everyone today.

Speaker Change: Overall, we saw strong performance in the CLO portfolio for the fourth quarter. Our CLO meds positions did particularly well. Spread tightening provided in the tailwind, and we were able to enhance our total return with some opportunistic sales and a few deal calls.

Chris Smernoff: D.L.O. equity generally held in, aided by a benign credit environment and continued strength in the leverage loan prices.

Chris Smernoff: However, similar to the prior quarter, the high prepayment rates in the loan market combined with loan coupon spread compression did lead to muted returns in some areas of the steel equity market and in our portfolio as well.

Chris Smernoff: With the majority of the refinance loans previously trading above par, that refinancing activity, coupled with some credit losses from lower-quality loans underlong COLO portfolios, weighed slightly on equity nabs in the market.

Chris Smernoff: Further, coupon spread compression and newly refinanced loans caused a decrease in net interest margins for many CLOs, and thus a decrease in net interest distributions to the equity tranches for the equity tranches in those CLOs.

These asset-level dynamics created headwinds for CLO equity investment.

Chris Smernoff: This said, some of these headwinds were offset by refinancing and resetting COLO liabilities at tighter coupons, which improved net interest margins for many

Chris Smernoff: We often talk about cross-currents and COO equity, and these are prime examples.

Chris Smernoff: Even some deals that did not benefit from their liabilities tightening did experience price appreciation as the option to refinance going forward gain value.

These dynamics can also present us with trading opportunities.

Chris Smernoff: We do expect the repricing wave to relent as 2025 progresses.

Chris Smernoff: For the universe of loans backing U.S. broadly syndicated CLOs, we have already seen the percentage trading at a premium declined from 63% at the end of January to 32% at the end of February and this percentage has declined even further in March.

Chris Smernoff: Meanwhile in Europe , many of these dynamics also exist but to a lesser degree.

Chris Smernoff: As a result, our COLO equity in Europe has strong returns in Q4 outperforming our COLO equity in the US. I think that's a good example of the power of diversification.

Chris Smernoff: There was also far less yellow capital marks activity in Europe in 2024, and credits have generally not tightened as much.

Chris Smernoff: As we move forward in 2025, credit spread tightening and monetization of discount debt conscious have seen this increasingly shift the portfolio to COLO equity.

Chris Smernoff: Despite year-to-date declines, interest rates remain relatively elevated, and that continues to drive the man for floating-right loans and silo debt tranches.

Chris Smernoff: However, we remain cautious given potential longer term fundamental stresses on corporate borrowers.

Chris Smernoff: We expect to see more opportunities in equity as the deluge of issuance is creating both ample supply and also pricing inefficiencies.

Chris Smernoff: We continue to focus on maintaining sufficient liquidity to enable us to remain nimble and tactfully ship to new opportunities as we see them.

In recent days, credit market volatility has surged once again.

Chris Smernoff: Outside of last August flash crash and the sharp interest rate selloff triggered by inflation concerns a few months prior, implied volatility and the CDX high-yield index recently reached the highest level since late 2023.

Chris Smernoff: As is often the case, heightened volatility brings greater market inefficiencies and a more dynamic trading environment.

Chris Smernoff: As a result, we are seeing an expanding opportunity set in silos as we deploy new capital.

Chris Smernoff: While this volatility has widened credit spreads in certain areas, creating a potential headwind to book value.

Chris Smernoff: Our COLO equity positions are generally well positioned to capitalize on the shifting landscape.

Chris Smernoff: The risk of loan coupons' break compression has eased significantly as the smaller portion of the loan market is now trading above par.

Chris Smernoff: The structural shift benefits our COLO equity holdings which are concentrated in profiles with locked in liabilities and extended reinvestment periods.

Chris Smernoff: The current market conditions align well with our expertise in active trading and relative value assessment, reinforcing our ability to capitalize on market inefficiencies and drive strong risk adjusted returns.

Chris Smernoff: Also, keep in mind that we will have lots of dry patterns to deploy once we saw off our remaining agency mortgage pools. So our anticipated April 1st conversion date may prove to be well timed.

Chris Smernoff: Now, I'll turn it over to Mark to discuss the agency's strategy.

Thanks, Greg!

Chris Smernoff: We had a small loss in our ADNCM BS portfolio for the fourth quarter. That was largely a result of very high levels of interest rate volatility and general underperformance of ADNCM BS versus hedging instruments.

Chris Smernoff: I'd like to highlight how we've changed the composition of our hedging portfolio since your end.

Larry Penn: As Larry mentioned, we have substantially de-raced our agency MBS portfolio recently by significantly increasing our short TBA hedging position.

Chris Smernoff: Today, our short TBA position essentially offsets all of our ADNCMBS basis exposure.

Chris Smernoff: So, if we were to update the bar chart on slide 13 as of today, you would see a TBA short offsetting almost all of our long pool exposure.

Chris Smernoff: With this positioning, we are keeping our pool investments in place for 1940 act compliance reasons up until conversion, but we're also significantly limiting our overall exposure to the agency sector.

Chris Smernoff: I am pleased with how we were positioned at your end which enabled us to generate strong profitability in our MBS portfolio in January .

Chris Smernoff: I am also pleased that we increased our TBA hedges earlier this quarter, especially in light of the volatility we've seen so far in March.

Chris Smernoff: The last step following the conversion will be to sell our pools and buy back to TBA shorts. At which point we will no longer have any MBS related positions. Now back to Larry.

Thanks, Mark.

Chris Smernoff: These past 15 or so months have been extraordinary for Ellington Credit Company.

Chris Smernoff: As we undertook the highly complex task of converting from a mortgage REIT to a COLO focused closed-end fund

Chris Smernoff: Achieving this breakthrough was only possible through extensive planning and collaborative efforts since late 2023, involving our board, our management team and our expert advisors.

Chris Smernoff: Above all else, it was extremely rewarding to see the overriding support that our shareholders showed all along the way.

Chris Smernoff: Over the course of 2024, we transformed our portfolio by increasing our capital allocation to CLOs, from just 11% on January 1st to 72% by year end, achieved through a tenfold expansion of our CLO holdings.

Chris Smernoff: A careful but steady reduction of our agency RNBS portfolio and a deliberate rotation of our agency RNBS portfolio into extremely liquid sectors.

Chris Smernoff: There's strategic timing of pool sales by Ellington's MBS portfolio management team, overseen by Mark Tecotzky, combined with the success of Greg Borenstein's team in sourcing attractive

Chris Smernoff: Allow us to minimize bad <expletive> costs and efficiently add CLOs without disrupting earnings along the way.

Chris Smernoff: This smooth transition not only supported our earnings and boosted our net interest margin in 2024.

But it also reduced our overall leverage and hedging requirements.

and the market took notice of all of these metrics.

Chris Smernoff: Our stock, which began the year trading at a discounted book value per share, finished 2024 at a premium, helping generate a 24.6% total return for our shareholders.

Chris Smernoff: Each step or the way, our risk, operations, and accounting teams worked in harmony, adjusting hedges dynamically, optimizing financing, and ensuring continued 1940 act compliance, or to facilitate the rotation.

with the close-danced on conversion approved.

Chris Smernoff: We expect to effectuate the transition on April 1st, finally selling our remaining agency RNBS pools.

Chris Smernoff: Looking forward post-conversion, we project that we'll be starting the second quarter with a COO portfolio not much larger than our total equity base.

Chris Smernoff: But of course, we plan to add some leverage from there, consistent with the constraints applicable to closed-end funds.

Chris Smernoff: We will be focused on balancing a swift ramp up with careful asset selection, and we expect to have a fully ramped silo portfolio around mid-year.

We are excited about the new opportunities that lie ahead.

The conversion marks a momentous event for the company.

Chris Smernoff: Positioning us to drive strong earnings and unlock greater value for shareholders over the long term.

Chris Smernoff: As outlined on slide 5, we anticipate improved risk adjusted returns, enhanced access to capital markets, and greater tax efficiencies as a CLL closed-end fund.

Speaker Change: Finally, as Greg mentioned, recent market volatility in the credit markets, AB generating a wave of compelling investment opportunities.

Speaker Change: which would set the stage for a robust deployment environment following our conversion.

Speaker Change: Now let's open the floor to Q&A. Operator, please go ahead.

Speaker Change: Absolutely. At this time, if you'd like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind, if you'd like to remove yourself from the question key, you can do so by pressing star and two.

Speaker Change: We'll take our first question from Doug Harter with UBS. Please go ahead. Your line is open.

Doug Harder: Thanks. I was hoping you could help size the amount of capital that gets freed up April 1 when you're able to sell the agency portfolio. You know, should we think about that as the other 28 percent that's not in CLOs, or is there a portion that's kind of held back for liquidity, so if you could just help us frame that.

Doug Harder: No, you got to write, hey Doug, thanks. Yeah, no, you got to write, I think 28% is a very reasonable estimate. Obviously, we've got a few weeks to go before the end of the quarter, but absolutely, I think that's the right way to look at it. And, you know, that timing could end up being, it looks like it's being very fortunate, right? Because...

Doug Harder: with all the volatility, equity markets, credit markets. It looks like we're going to potentially have some very good entry points.

Doug Harder: and deploy that what will be fresh capital shortly after beginning of the quarter. So yeah, it will be appropriately patient. I said earlier that I estimate that it will be fully ramped by...

Doug Harder: Mid-Year, and I still think that's probably about right. But, you know, in terms of how quickly we get there, how quickly we want to pounce on the opportunities that may be there at the beginning of the quarter, we'll see. But it could be very exciting the timing here.

Doug Harder: And I guess just on the recent market volatility, you know, just any way to frame, you know, kind of how different parts of the COO market have reacted and where returns might be today versus, you know, call it three months ago.

Greg? I'm happy to take that one, it's Greg.

Doug Harder: You've certainly seen things react and move back. It depends upon the capital structure. I think that you've seen triple A's, not that we're holding any of those in here. You know, move back about 50 cents.

Doug Harder: But these types of things come through and affect the overall ARB and the scaradizations I think that you've seen equity, you know, generally down, you know, several points even for cleaner, you know, stronger profiles.

You know, Maz, it's really managed to dependant, but um...

Doug Harder: You've certainly seen things ease off and back up even for the better quality names and then obviously the...

Doug Harder: The tearing has become a little bit more pronounced, but you know the market's been functional and trading and so...

It's been pretty transparent what's happened.

Doug Harder: And I guess how much, obviously, it's still early and there's a lot of uncertainty, but how much of like the change in equity prices do you think is, you know, is it increasing maybe expected losses versus, you know, just a kind of increased or widening of the discount rate?

I think...

Doug Harder: It's probably more the latter. I think there's certainly some concerns, right? If you talk about...

Doug Harder: The fundamental side, Tarris will create winners and losers and if you create a series of losers in a portion of...

Doug Harder: The corporate market, will that hurt the potential of the fundamentals of some of these companies? So that's certainly a concern about what could be happening.

Doug Harder: In a portion of the low market, that being said, I think you're seeing a technical push on the rate side of the market if we're looking at growth flowing and potentially cuts.

Doug Harder: The demand for floating rate instruments you've started to see potentially could be lessening. You've seen NAVs, for example, on equity, start to back up a little bit as loan prices drop and as floating rate demand maybe eases that will filter its way through to in terms of the spread widening.

Thank you.

Doug Harder: We could get into a lot of different dynamics, I think as we've mentioned sort of.

Doug Harder: Through earnings and on the call, the low market had a negative convexity problem where...

Doug Harder: You had spread compression because things were so strong and above par and refinancing.

Doug Harder: Well, prices will drop off and widen. You'll also see prepayments slow down and so...

Doug Harder: These are some of the dynamics that play which, depending on...

Doug Harder: Deteration and the structure of the CLO deal, it really to separate out how it will affect different deals and different branches.

Great. Appreciate the answers. Hey, Doug. Hey, Doug.

Larry Penn: Hi, it's Larry. Yeah, I just wanted to maybe add a little more color along the lines of your question. So, you know, you can call this a little informal guidance here. So, you know, the first quarter.

Larry Penn: We, you know, we're going to have that 28% as of, you know, roughly as of...

Larry Penn: As a year end, we're still going to have that mortgage portfolio through the entire quarter.

Larry Penn: and so I think in terms of if you're thinking in terms of our adjusted distributed learnings.

Larry Penn: We were 27 cents in the fourth quarter. I think there's no reason for us to think at this point that it's going to be much different from that in the first quarter. So I think that would be considered reasonable, reasonable guidance. But now in the second quarter, as you pointed out, we're going to be...

Larry Penn: Basically converting all that adjusted to trivial learnings that were coming out of our...

Larry Penn: Mortgage portfolio into cash, and then we're going to methodically, we'll see, it may be slow, it may be fast, but

Larry Penn: Deploy that into CLOs, which as you can see on numbers here.

854 basis point net interest margin.

Larry Penn: You know, on credit, you know, these are very wide-ended smarts, right? So, but nevertheless, right, having that 28% ish of the portfolio, undeployed and being in the quarter, we're definitely not going to be able to...

Larry Penn: Investments in the portfolio that will probably miss by a few pennies versus the given end in the second quarter. I just wanted to add that color.

and Mark Tecotzky. Thank you.

Larry Penn: But the third quarter, I think, but the third quarter, there's no reason to believe why we won't be, you know, back covering to that.

Thank you

will.

Let's take our next question from...

Matthew Erdner, with Jones Trading. Please go ahead your line.

is open.

Speaker Change: Hey guys, thanks for taking the question and congrats on the upcoming conversion. So when you think about the liquidity that you guys are going to get and how to deploy it, you mentioned the shift a little more into equity this quarter from the debt on the CLO side. How do you view those opportunities? I know you want to remain diversified there, but I guess given the environment right now, would you kind of lean towards that equity side over the debt side?

I think it's in the it's Greg.

Speaker Change: We had, when we first started buying a CLO's in late 2023, we were buying a lot of meds positions. It was more heavily in meds and it was in real discounts.

as time went on.

Speaker Change: Those positions sort of drifted up towards Par, we shifted more into equity, and then eventually more into specifically new issue equity sort of creating opportunities there. If the market becomes more dislocated and continues to sell off more.

Speaker Change: New issue markets may be tougher. You will see more and more of the sourcing come from secondary. I mean we are very comfortable. Historically

Speaker Change: and creating more and doing it in the secondary market. In terms of if we start to shift back towards MS, I think you would see that if more stress sort of came into the market. I think the

Um, you know...

Speaker Change: Not overly pronounced to this point, or I think it would shhh.

Speaker Change: You know, caused me to say that we would expect, you know, more double these times for the portfolio relative to equity than we maybe otherwise would have, you know, claimed a month or two ago.

But overall, it's something that...

Speaker Change: becomes probably an increased probability, you know, with more stress looking at these opportunities in secondary. You know, the other thing to consider too is...

Speaker Change: If this is coming because REITs are being cut, that obviously will affect coupons on them as well, right? And so it's something else to consider how the widening occurs.

Speaker Change: Yeah, I got it, that makes sense, and that's helpful there. And then, you know, I guess kind of as a fall up to that, you know, say look at the end of 2Q3Q in terms of leverage, you know, I guess what are you guys able to work with? And you know, is there a target range that you guys, you know, are expecting the kind of, you know, I guess sit in once you're fully invested in CLOs? Yeah, yeah, yeah, yeah, yeah, yeah.

Speaker Change: Sorry, could you repeat that? I couldn't catch that. Sorry about that, leverage. You know, once you're fully invested in CLOs, is there a range that you want to sit in? And I guess what's the upper bound of your limitations given as an investment company there?

Right. Okay. So, um...

Speaker Change: So, it's a little nuance, the answer. I would say that half a turn of leverage is a reasonable

Speaker Change: and I would also say that looking forward, again, this is really looking forward, past the second quarter, maybe at some point in the third quarter, we could consider doing a debt deal.

Speaker Change: You know, one other advantage, you know, I mentioned access to the capital markets, being better as a close-down fund. So, when close-down funds tap the unsecured note market, they get better financing, then for example, mortgage rates have done. So, yeah, so really looking forward...

We could even go higher than that. We...

Speaker Change: Plan to be what's called the fully compliant derivatives user, and I want to get it to all the details there, but that gives us a little more flexibility on leverage than some other 1940 act companies, but I think just

Speaker Change: Out of the gate, I think half a turn of leverage is kind of a reasonable benchmark to think of. So for, you know, every say

Speaker Change: 100 million of common equity, think of 150 million worth of COOs.

Yeah, that's very helpful. Thank you guys.

Speaker Change: And that was our final question for today. We thank you for participating in the Ellington Credit Company 2020-2024 Fourth Quarter Financial Results Conference call. You may disconnect your line at the time and have a wonderful day.

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