Q3 2025 Ellington Credit Co Earnings Call

Speaker #1: 1st, 2025 results conference call. Today's call will be recorded. 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.

Speaker #1: If you would like to ask a question at any 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 #1: Lastly, should you require Operator Assistance, please press star 0. It is now my pleasure to turn the floor over to Alaael-Deen Shilleh, Associate General Counsel.

Speaker #1: Please go ahead, sir.

Speaker #2: Thank you. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Speaker #2: These statements are not historical in nature and involve risks and uncertainties detailed in our registration statement on Form N2. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events.

Speaker #2: The fund undertakes no obligation to update these forward-looking statements. Joining me today are Larry Penn, Chief Executive Officer of Ellington Credit Co; Greg Borenstein, Portfolio Manager; and Chris Smernoff, Chief Financial Officer.

Speaker #2: Our earnings call 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 in End Notes at the back of the presentation.

Speaker #2: With that, I'll turn it over to Larry.

Speaker #3: Thanks, Alaael-Deen, and good morning, everyone. We appreciate your time and interest in Ellington Credit Co; which we often refer to by its New York Stock Exchange ticker.

Speaker #3: EARN, or EARN, please turn to slide 3. The fourth calendar quarter was the most challenging market environment for CLO equity since mid-2022. And before that, since the COVID crisis.

Speaker #3: Thanks to our active and disciplined portfolio management strategy, Ellington Credit was able to limit fund losses to approximately 9% of NAV, once again outperforming the overall peer set.

Speaker #3: The CLO equity market was impacted by many of the same factors in the leveraged loan market. Particularly, elevated credit dispersion and ongoing coupon spread compression.

Speaker #3: Those same factors that dominated performance in prior quarters. Put simply, weaker credits underperformed while stronger borrowers continued to refinance and reprice at tighter yield spreads.

Speaker #3: These factors continued to pressure leveraged loan prices and reduce excess interest across the vast majority of the CLO market. Together, these dynamics weighed heavily on CLO equity performance.

Speaker #3: Leading to lower projected cash flows and weaker mark-to-market valuations. With year-end technical selling, further compounding the weakness. As estimated by Nomuro Research, the median CLO equity return for the quarter was negative 9%.

Speaker #3: And for the full year, negative 14%. For Ellington Credit, our relative up in credit bias and active trading strategy helped mitigate these headwinds. CLO mezzanine debt tranches, which have been a focus of our investment activity in recent months, proved more resilient.

Speaker #3: And opportunistic trading contributed positively to results. As shown on slide 3, yield spreads did widen on CLO debt tranches. But the move was much more contained than the dislocation seen in CLO equity.

Speaker #3: Last year, following our conversion to a CLO closed-end fund on April 1st, and continuing through the fourth calendar quarter, we steadily increased our allocation to CLO mezzanine debt tranches, which we believed offered a compelling balance of yield and downside protection by virtue of their structural credit enhancement.

Speaker #3: Reflecting the strategic shift, approximately 70% of our CLO purchases during this nine-month period were mezzanine debt tranches. Meanwhile, we also identified select CLO equity opportunities in the secondary market, while generally avoiding new-issue CLO equity, where pricing dynamics were mostly unattractive.

Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero and a member of our team will be happy to help you. Please stand by. Your meeting is about to begin. Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company Fiscal Quarter Ended December 31, 2025 Results Conference Call. Today's call will be recorded. 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 any time, please press star one on your telephone keypad. At any time, if your question has been answered, you may remove yourself from the queue by pressing star two. Lastly, should you require operator assistance, please press star zero.

Speaker #3: In the fourth quarter, we also benefited, as we did throughout much of last year, from several mezzanine positions being redeemed at par that we had purchased at discounts, generating realized gains.

Speaker #3: Those redemptions, coupled with opportunistic trading, offset some of the portfolio growth from new mezzanine investment activity. Nevertheless, the proportion of debt in our CLO portfolio grew substantially, ending the year at just under 50%, up from roughly one-third at our April 1st conversion.

Speaker #3: Active trading once again played an important role in our relative outperformance. We executed 47 unique CLO trades during the quarter, excluding deal liquidations, and we actively managed our credit hedges.

Speaker #3: We redeployed our October interest payments and equity distributions into higher-quality de-leveraging mezzanine debt positions, while trimming higher dollar-priced longer spread duration mezzanine debt profiles, where we saw less favorable risk-reward.

Speaker #1: Please stand by. Your meeting is about to begin. Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Co Fiscal Quarter ended December 31st, 2025 results conference call.

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company Fiscal Quarter Ended December 31, 2025 Results Conference Call. Today's call will be recorded. 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 any time, please press star one on your telephone keypad. At any time, if your question has been answered, you may remove yourself from the queue by pressing star two. Lastly, should you require operator assistance, please press star zero.

Speaker #3: We also took advantage of notable spread concessions in the new-issue debt market to add double D-rated tranches at significantly higher yields. On the equity side, we remained selective stealing clear of more levered and lower-quality profiles.

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.

Speaker #3: This active approach allowed us to mitigate downside pressure, harvest gains opportunistically, and reposition the portfolio for better risk-adjusted returns. The real-time information that comes with this level of trading activity is especially valuable in these high-volatility market environments.

if you would like to ask a question at any 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.

Operator: It is now my pleasure to turn the floor over to Alaael-Deen Shilleh, Associate General Counsel. Please go ahead, sir.

Operator: It is now my pleasure to turn the floor over to Alaael-Deen Shilleh, Associate General Counsel. Please go ahead, sir.

Please press star zero.

Speaker #3: On slide 6, you can see that we actually recorded positive realized gains in each subsector for the quarter. All that said, as previously reported in our monthly NAV updates, the magnitude of the market-wide decline in CLO equity valuations led to a drop in the fund's NAV, and therefore a net quarterly loss overall.

Alaael-Deen Shilleh: Thank you. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical in nature and involve risks and uncertainties detailed in our registration statement on Form N-2. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The fund undertakes no obligation to update these forward-looking statements. Joining me today are Larry Penn, Chief Executive Officer of Ellington Credit Company; Greg Bornstein, Portfolio Manager; and Chris Mernoff, Chief Financial Officer. Our earnings conference call presentation is available on our website, ellingtoncredit.com.

Alaael-Deen I. Shilleh: Thank you. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical in nature and involve risks and uncertainties detailed in our registration statement on Form N-2. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The fund undertakes no obligation to update these forward-looking statements. Joining me today are Larry Penn, Chief Executive Officer of Ellington Credit Company; Greg Bornstein, Portfolio Manager; and Chris Mernoff, Chief Financial Officer. Our earnings conference call presentation is available on our website, ellingtoncredit.com.

It is now my pleasure to turn the floor over to Aladin Scholl a associate, general counsel. Please go ahead sir.

Thank you.

Before we begin, I would like to remind everyone that this conference called may include forward-looking statements within the meaning of the Safe Harbor, provisions of the private Securities. Litigation Reform, Act of 1995,

Speaker #3: Not all losses are created equal, however. While price declines emanating from underlying loan losses and from refinancing and repricings of premium loans are irreversible, a portion of the decline in our quarterly NAV was driven by credit spread widening rather than realized credit impairment or fundamental deterioration.

These statements are not historical in nature and involve risks and uncertainties detailed in our registration statement on Foreman 2, actual results May differ materially from these statements. So they should not be considered to be predictions of future events.

The fund undertakes. No obligation to update these 4 looking statements.

Speaker #3: As a result, a portion of these mark-to-market losses could reverse, if and when market conditions normalize. Now, please turn to slide 10 for an overview of our credit hedges, which we increased significantly during the fourth quarter.

Joining me today are Larry Penn Chief Executive Officer of balance to try to accompany Greg borenstein, portfolio manager, and Christopher off Chief Financial Officer. Our earnings call

Alaael-Deen Shilleh: Today's call will track that presentation, and all statements and references to figures are qualified by the important notice in endnotes at the back of the presentation. With that, I'll turn it over to Larry.

Alaael-Deen I. Shilleh: Today's call will track that presentation, and all statements and references to figures are qualified by the important notice in endnotes at the back of the presentation. With that, I'll turn it over to Larry.

Speaker #3: With corporate credit spreads remaining tight relative to CLO efficiently and at attractive levels. As shown on slide 10, we increased our credit hedge portfolio to roughly 1705 million dollars of high-yield CDX bond equivalents by year-end.

Laurence Penn: Thanks, Alaeddine. Good morning, everyone. We appreciate your time and interest in Ellington Credit Company, which we often refer to by its New York Stock Exchange ticker, E-A-R-N or Earn. Please turn to slide 3. The Q4 was the most challenging market environment for CLO equity since mid-2022, and before that, since the COVID crisis. Thanks to our active and disciplined portfolio management strategy, Ellington Credit was able to limit fund losses to approximately 9% of NAV, once again outperforming the overall peer set. The CLO equity market was impacted by many of the same factors in the leveraged loan market, particularly elevated credit dispersion and ongoing coupon spread compression. Those same factors that dominated performance in prior quarters. Put simply, weaker credits underperformed while stronger borrowers continued to refinance and reprice at tighter yield spreads.

Larry Penn: Thanks, Alaeddine. Good morning, everyone. We appreciate your time and interest in Ellington Credit Company, which we often refer to by its New York Stock Exchange ticker, E-A-R-N or Earn. Please turn to slide 3. The Q4 was the most challenging market environment for CLO equity since mid-2022, and before that, since the COVID crisis. Thanks to our active and disciplined portfolio management strategy, Ellington Credit was able to limit fund losses to approximately 9% of NAV, once again outperforming the overall peer set. The CLO equity market was impacted by many of the same factors in the leveraged loan market, particularly elevated credit dispersion and ongoing coupon spread compression. Those same factors that dominated performance in prior quarters. Put simply, weaker credits underperformed while stronger borrowers continued to refinance and reprice at tighter yield spreads.

our earnings conference. Call presentation is available on our website ellington.com. Today's call Will track that presentation and all statements in references to figures, are qualified by the important notice in end notes. At the back of the presentation with that, I'll turn it over to Larry.

Thanks Aladin and good morning, everyone.

We appreciate your time and interest in. Ellington Credit Company.

Speaker #3: That's approximately 90% of our NAV, so these hedges represent a very significant level of protection. Credit markets have had no shortage of headlines to digest.

Which we often refer to by its New York Stock Exchange ticker.

E a r n or n.

Please turn to slide 3.

Speaker #3: From the collapses of Tricolor and First Brands, to growing concern over software sector borrowers facing AI-driven disruption. In short, while the fourth quarter was challenging for CLOs broadly, our disciplined and active portfolio management cushioned the impact, drove earns relative outperformance, and positioned us to play offense in what we believe is an increasingly opportunity-rich investment environment as we move forward into 2026.

The fourth calendar quarter was the most challenging Market environment for Co Equity since mid 2022.

And before that, since the co crisis,

Thanks to our active and disciplined portfolio management strategy, Ellington Credit was able to limit fund losses to approximately 9% of NAV, once again outperforming the overall peer set.

Speaker #3: I'll now turn it over to Chris to discuss the financial results in more detail. Chris?

The equity market was impacted by many of the same factors as the leverage loan market.

Speaker #2: Thanks, Larry, and good morning, everyone. Please turn to slide 4 for the fourth calendar quarter, we reported a gap net loss of 56 cents per share.

Particularly elevated credit dispersion and ongoing coupon spread compression.

Those same factors that dominated performance in Prior quarters.

Speaker #2: On slide 6, you can see a breakout of portfolio net income by CLO subsector. Significant mark-to-market losses on CLO equity drove our net loss for the quarter while CLO mezzanine debt held up better by comparison.

Laurence Penn: These factors continued to pressure leveraged loan prices and reduce excess interest across the vast majority of the CLO market. Together, these dynamics weighed heavily on CLO equity performance, leading to lower projected cash flows and weaker mark-to-market valuations, with year-end technical selling further compounding the weakness. As estimated by Nomura Research, the median CLO equity return for the quarter was negative 9%, for the full year, negative 14%. For Ellington Credit, our relative up in credit bias and active trading strategy helped mitigate these headwinds. CLO mezzanine debt tranches, which have been a focus of our investment activity in recent months, proved more resilient. Opportunistic trading contributed positively to results. As shown on slide 3, yield spreads did widen on CLO debt tranches. The move was much more contained than the dislocation seen in CLO equity.

Larry Penn: These factors continued to pressure leveraged loan prices and reduce excess interest across the vast majority of the CLO market. Together, these dynamics weighed heavily on CLO equity performance, leading to lower projected cash flows and weaker mark-to-market valuations, with year-end technical selling further compounding the weakness. As estimated by Nomura Research, the median CLO equity return for the quarter was negative 9%, for the full year, negative 14%. For Ellington Credit, our relative up in credit bias and active trading strategy helped mitigate these headwinds. CLO mezzanine debt tranches, which have been a focus of our investment activity in recent months, proved more resilient. Opportunistic trading contributed positively to results. As shown on slide 3, yield spreads did widen on CLO debt tranches. The move was much more contained than the dislocation seen in CLO equity.

Put simply, weaker credits underperformed, while stronger borrowers continue to refinance and reprice at tighter yield spreads.

These factors continue to pressure leveraged loan prices and reduce excess interest. Across the vast majority of the co Market.

Speaker #2: In the US leveraged loan market, performance diverged sharply by credit quality during the quarter. Lower-rated triple C loans came under significant pressure from liquidation activity and rising defaults while premium-priced loans continued to refinance at par.

Together, these Dynamics, weighed heavily on clo Equity performance leading to lower projected, cash flows and weaker mark-to-market valuations with year-end technical selling.

Further compounding the weakness.

Speaker #2: Against that backdrop, CLO debt spreads widened and CLO equity bore the brunt of the weakness as spread compression and credit deterioration among weaker loans drove simultaneous declines in both excess interest and underlying asset values.

As estimated by numero research, the median clo Equity return for the quarter was -9% and for the full year -4%.

for Ellington credit, our relative up in credit bias and active trading strategy helped, mitigate these headwinds

Speaker #2: Higher-quality seasoned mezzanine tranches proved more resolent. In Europe, the story was more nuanced, as loans underperformed their US counterparts while CLO debt tranche spreads for the most part held up better by comparison.

CO mezzanine detaches, which have been a focus of our investment activity in recent months, proved more resilient,

Opportunistic trading contributed positively to results.

Laurence Penn: Last year, following our conversion to a CLO closed-end fund on 1 April and continuing through the Q4, we steadily increased our allocation to CLO mezzanine debt tranches, which we believed offered a compelling balance of yield and downside protection by virtue of their structural credit enhancement. Reflecting this strategic shift, approximately 70% of our CLO purchases during this 9-month period were mezzanine debt tranches. Meanwhile, we also identified select CLO equity opportunities in the secondary market while generally avoiding new issue CLO equity, where pricing dynamics were mostly unattractive. In the Q4, we also benefited, as we did throughout much of last year, from several mezzanine positions being redeemed at par that we had purchased at discounts, generating realized gains. Those redemptions, coupled with opportunistic trading, offset some of the portfolio growth from new mezzanine investment activity.

Larry Penn: Last year, following our conversion to a CLO closed-end fund on 1 April and continuing through the Q4, we steadily increased our allocation to CLO mezzanine debt tranches, which we believed offered a compelling balance of yield and downside protection by virtue of their structural credit enhancement. Reflecting this strategic shift, approximately 70% of our CLO purchases during this 9-month period were mezzanine debt tranches. Meanwhile, we also identified select CLO equity opportunities in the secondary market while generally avoiding new issue CLO equity, where pricing dynamics were mostly unattractive. In the Q4, we also benefited, as we did throughout much of last year, from several mezzanine positions being redeemed at par that we had purchased at discounts, generating realized gains. Those redemptions, coupled with opportunistic trading, offset some of the portfolio growth from new mezzanine investment activity.

As shown on slide 3, yield spreads did widen on Co debt charges, but the move was much more contained than the dislocation seen in CL equity.

Speaker #2: Within our CLO mezzanine debt portfolio, net interest income and trading gains together with the positive impact of deal calls of positions owned at discounts to par all set the majority of mark-to-market write-downs.

Last year following our conversion to a CO closed end fund on April 1st and continuing through the fourth calendar quarter. We steadily increased our allocation to see a low mezzanine detoxes.

Speaker #2: Credit hedges were also a drag on results, reflecting strong performance in the broader credit and equity markets during the period. Net interest income declined by 2 cents sequentially to 21 cents per share for the quarter driven by lower asset yields and portfolio turnover.

which we believed offered a compelling balance of yields and downside protection by virtue of their structural credit enhancement.

Reflecting the Strategic shift.

Approximately 70% of our CEO purchases during this 9-month, period were mezzanine detoxes.

Meanwhile.

Speaker #2: The weighted average gap yield for the quarter on our CLO portfolio was 13.7%, down from 15.5% in the prior quarter. Slide 7 illustrates a modest sequential decline in the size of our overall CLO portfolio.

we also identified select Co Equity opportunities in the secondary Market while generally avoiding new issue, Co Equity, where pricing Dynamics were mostly unattractive,

Speaker #2: During the quarter, we made new purchases totaling 66 million dollars, 60% in CLO debt, and 40% in CLO equity, and we sold 19 million dollars of CLOs consistent with our active trading approach.

In the fourth quarter, we also benefited, as we did throughout much of last year, from several mezzanine positions being redeemed at par that we had purchased at discounts, generating realized gains.

Laurence Penn: Nevertheless, the proportion of debt in our CLO portfolio grew substantially, ending the year at just under 50%, up from roughly one-third at our 1 April conversion. Active trading once again played an important role in our relative outperformance. We executed 47 unique CLO trades during the quarter, excluding deal liquidations, and we actively managed our credit hedges. We redeployed our October interest payments and equity distributions into higher quality de-leveraging mezzanine debt positions while trimming higher dollar priced, longer spread duration mezzanine debt profiles where we saw less favorable risk reward. We also took advantage of notable spread concessions in the new issue debt market to add double D-rated tranches at significantly higher yields. On the equity side, we remained selective, steering clear of more levered and lower quality profiles.

Larry Penn: Nevertheless, the proportion of debt in our CLO portfolio grew substantially, ending the year at just under 50%, up from roughly one-third at our 1 April conversion. Active trading once again played an important role in our relative outperformance. We executed 47 unique CLO trades during the quarter, excluding deal liquidations, and we actively managed our credit hedges. We redeployed our October interest payments and equity distributions into higher quality de-leveraging mezzanine debt positions while trimming higher dollar priced, longer spread duration mezzanine debt profiles where we saw less favorable risk reward. We also took advantage of notable spread concessions in the new issue debt market to add double D-rated tranches at significantly higher yields. On the equity side, we remained selective, steering clear of more levered and lower quality profiles.

Those redemptions, coupled with opportunistic trading, offset some of the portfolio growth from new mezzanine investment activity.

Speaker #2: At December 31st, CLO equity represented 52% of total CLO holdings, roughly unchanged from the prior quarter, while CLO while European CLO investments accounted for 12%, down from 14% at September 30th.

Nevertheless, the proportion of debt in our Co portfolio, grew substantially ending the year at just under 50% up from roughly 1/3 at our April 1st conversion.

Speaker #2: Slide 8 provides an overview of the corporate loans underlying our CLO investments. The collateral remains predominantly first lien floating rate leveraged loans representing roughly 95% of the underlying assets.

Active trading, once again, played an important role in our relative outperformance.

We executed, 47 unique Co trades during the quarter, excluding deal liquidations and we actively managed our credit hedges.

Speaker #2: Our industry exposure is well diversified, led by technology, financial services, and healthcare, with no single sector exceeding 11%. Loan maturities are spread over several years with the largest concentrations in 2028 and 2031, and low concentrations of near-term maturities producing a weighted average loan maturity of 4.3 years.

Higher quality deleveraging mezzanine debt positions, while trimming higher dollar priced longer spread duration, mezzanine debt profiles where we saw less favorable risk reward.

We also took advantage of notable spread concessions in the new issue debt market to add double-B, B-rated tranches at significantly higher yields.

Laurence Penn: This active approach allowed us to mitigate downside pressure, harvest gains opportunistically, and reposition the portfolio for better risk-adjusted returns. The real-time information that comes with this level of trading activity is especially valuable in these high volatility market environments. On slide 6, you can see that we actually recorded positive realized gains in each sub-sector for the quarter. All that said, as previously reported in our monthly NAV updates, the magnitude of the market-wide decline in CLO equity valuations led to a drop in the fund's NAV and therefore a net quarterly loss overall. Not all losses are created equal, however. While price declines emanating from underlying loan losses and from refinancing and repricing of premium loans are irreversible, a portion of the decline in our quarterly NAV was driven by credit spread widening rather than realized credit impairment or fundamental deterioration.

Larry Penn: This active approach allowed us to mitigate downside pressure, harvest gains opportunistically, and reposition the portfolio for better risk-adjusted returns. The real-time information that comes with this level of trading activity is especially valuable in these high volatility market environments. On slide 6, you can see that we actually recorded positive realized gains in each sub-sector for the quarter. All that said, as previously reported in our monthly NAV updates, the magnitude of the market-wide decline in CLO equity valuations led to a drop in the fund's NAV and therefore a net quarterly loss overall. Not all losses are created equal, however. While price declines emanating from underlying loan losses and from refinancing and repricing of premium loans are irreversible, a portion of the decline in our quarterly NAV was driven by credit spread widening rather than realized credit impairment or fundamental deterioration.

Speaker #2: Facility sizes skew towards larger borrowers with 44% in facilities over 1.5 billion dollars and a weighted average size of 1.6 billion dollars, which supports liquidity.

On the equity side, we remain selective stealing clear of more levered and lower quality profiles.

this active approach allowed us to mitigate downside pressure Harvest, gains opportunistically, and reposition the portfolio for better risk adjusted returns

Speaker #2: Slide 9 provides further detail on our underlying loan collateral. Slide 10 presents a snapshot of our credit hedges as of year-end. As Larry noted, we further increased our corporate credit hedges during the quarter with that portfolio equal to roughly 90% of our net asset value as of December 31st.

The real-time information that comes with this level of trading activity is especially valuable in these high-volatility market environments.

On slide 6, you can see that we actually recorded positive realized gains in each sub-sector for the quarter.

Speaker #2: We also maintained a foreign currency hedge portfolio to manage exposure from our European CLO investments. Turning to slide 11, at December 31st, our NAV was $5.19 per share and cash-to-cash equivalents totaled 24.3 million dollars.

All that said, as previously reported in our monthly NAV updates, the magnitude of the market-wide decline in Co Equity valuations led to a drop in the fund's NAV and therefore a net quarterly loss overall.

Not all losses are created equal. However,

Speaker #2: Our net asset value based total return for the quarter was -9.1%. With that, I'll pass it over to Greg to discuss the CLO market environment, our portfolio positioning, and our outlook.

Laurence Penn: As a result, a portion of these mark-to-market losses could reverse if and when market conditions normalize. Now please turn to slide 10 for an overview of our credit hedges, which we increased significantly during Q4. With corporate credit spreads remaining tight relative to CLO spreads, we were able to add this protection efficiently and at attractive levels. As shown on slide 10, we increased our credit hedge portfolio to roughly $175 million of high-yield CDX bond equivalents by year-end. That's approximately 90% of our NAV, so these hedges represent a very significant level of protection. Credit markets have had no shortage of headlines to digest, from the collapses of Tricolor and First Brands to growing concern over software sector borrowers facing AI-driven disruption.

Larry Penn: As a result, a portion of these mark-to-market losses could reverse if and when market conditions normalize. Now please turn to slide 10 for an overview of our credit hedges, which we increased significantly during Q4. With corporate credit spreads remaining tight relative to CLO spreads, we were able to add this protection efficiently and at attractive levels. As shown on slide 10, we increased our credit hedge portfolio to roughly $175 million of high-yield CDX bond equivalents by year-end. That's approximately 90% of our NAV, so these hedges represent a very significant level of protection. Credit markets have had no shortage of headlines to digest, from the collapses of Tricolor and First Brands to growing concern over software sector borrowers facing AI-driven disruption.

While price declines emanating from underlying loan losses and from refinancing and repricing of premium loans are irreversible, a portion of the decline in our quarterly NAV was driven by credit spread widening rather than realized credit impairment or fundamental deterioration.

As a result, a portion of these mark-to-market losses could reverse if and when market conditions normalize.

Speaker #2: Greg?

Speaker #3: Thanks, Chris. It's a pleasure to speak with everyone today. Overall, calendar Q4 was challenging for junior CLO tranches, especially CLO equity. Many of the themes that weighed on CLO equity through 2025 continued and even accelerated in Q4.

Now, please turn to slide 10 for an overview of our credit hedges, which we increased significantly during the fourth quarter.

With corporate credit, spreads remaining tight relative to CL spreads. We were able to add this protection efficiently and that attractive levels.

Speaker #3: Further hurting performance. While CLO mezzanine tranches also saw muted returns, they outperformed CLO equity and earns increased allocation to mez benefited the fund and helped mitigate some losses.

Slow as shown on slide 10. We increased our credit hedge portfolio to roughly 170 million. S 175 million of high. Yield CDX, Bond equivalents by year end.

Speaker #3: Further, the weakness in CLO equity was more pronounced in the new issue space than in the secondary market. And once again, earns stayed away from participating in new issue equity transactions during the quarter.

That's approximately 90% of our nav. So these Hedges represent a very significant level of protection.

Speaker #3: We've only participated in one new issue equity transaction in the 11-months following our conversion. Calendar Q4 was one of the most difficult quarters for CLO equity in recent memory.

Laurence Penn: In short, while the Q4 was challenging for CLOs broadly, our discipline and active portfolio management cushioned the impact, drove EARN relative outperformance, and positioned us to play offense in what we believe is an increasingly opportunity-rich investment environment as we move forward into 2026. I'll now turn it over to Chris to discuss the financial results in more detail. Chris?

Larry Penn: In short, while the Q4 was challenging for CLOs broadly, our discipline and active portfolio management cushioned the impact, drove EARN relative outperformance, and positioned us to play offense in what we believe is an increasingly opportunity-rich investment environment as we move forward into 2026. I'll now turn it over to Chris to discuss the financial results in more detail. Chris?

Credit markets have had no shortage of headlines to digest from the collapses of tricolor. And first Brands to Growing concern over software, sector borrowers facing Aid, driven disruption.

Speaker #3: Continued dispersion weighed heavily on performance as fundamental issues in lower-quality credits paired with continued coupon spread compression and better-quality credits pressured both interest cash flows and NAV valuations.

In short, while the fourth quarter was challenging for SEOs broadly, our disciplined and active portfolio management cushioned the impact, drove earnings, relative app performance, and positioned us to play offense through what we believe is an increasingly opportunity-rich investment environment as we move forward into 2026.

Christopher Smernoff: Thanks, Larry, and good morning, everyone. Please turn to slide 4. For the Q4 calendar quarter, we reported a GAAP net loss of $0.56 per share. On slide 6, you can see a breakout of portfolio net income by CLO sub-sector. Significant mark-to-market losses on CLO equity drove our net loss for the quarter, while CLO mezzanine debt held up better by comparison. In the US leverage loan market, performance diverged sharply by credit quality during the quarter. Lower-rated CCC loans came under significant pressure from elevated CLO reset and liquidation activity and rising defaults, while premium priced loans continued to refinance at par. Against that backdrop, CLO debt spreads widened and CLO equity bore the brunt of the weakness as spread compression and credit deterioration among weaker loans drove simultaneous declines in both excess interest and underlying asset values. Higher quality seasoned mezzanine tranches proved more resilient.

Chris Smernoff: Thanks, Larry, and good morning, everyone. Please turn to slide 4. For the Q4 calendar quarter, we reported a GAAP net loss of $0.56 per share. On slide 6, you can see a breakout of portfolio net income by CLO sub-sector. Significant mark-to-market losses on CLO equity drove our net loss for the quarter, while CLO mezzanine debt held up better by comparison. In the US leverage loan market, performance diverged sharply by credit quality during the quarter. Lower-rated CCC loans came under significant pressure from elevated CLO reset and liquidation activity and rising defaults, while premium priced loans continued to refinance at par. Against that backdrop, CLO debt spreads widened and CLO equity bore the brunt of the weakness as spread compression and credit deterioration among weaker loans drove simultaneous declines in both excess interest and underlying asset values. Higher quality seasoned mezzanine tranches proved more resilient.

I'll now turn it over to Chris to discuss the financial results in more detail. Chris.

Thanks Larry and good morning, everyone.

Speaker #3: In addition, because CLO liabilities generally have longer non-call periods than the underlying loans, CLO managers had limited ability to refinance or reset debt tranches at lower financing costs.

Please turn this slide for.

For the fourth calendar quarter. We reported a gaap. Net loss of 56 cents per share.

On site 6, you can see a breakout of portfolio net income by Co sub-sector.

Speaker #3: As a result, CLOs were largely unable to capture the benefit of lower rates at the liability level, which could otherwise have helped offset the effects of coupon spread compression on equity cash flows.

Significant Mark to Market losses on Co Equity, drove our net loss for the quarter while Co mezzanine debt held up better by comparison.

Speaker #3: That said, entering 2026, more than 40% of earned US CLO portfolio consists of deals scheduled to exit their non-call periods As these deals become refinanceable, liability refinancings and resets at tighter spreads could help mitigate the drag from coupon spread compression should the market conditions permit.

In the US, leverage loan market performance. Diverge sharply, by credit quality during the quarter.

lower rated Triple C loans, came under significant pressure from elevated cello reset and liquidation activity and Rising defaults while premium price loans, continue to refinance at par

Speaker #3: In the fourth quarter, CLO new issue volumes were constrained by a weak arbitrage and, as noted, continued to avoid new issue equity. There has increased attention on the impact of manager-controlled captive funds on new issue pricing dynamics.

Against that backdrop, Zillow debt spreads widened and Silo equity bore the brunt of the weakness, as spread compression and credit deterioration among weaker loans drove simultaneous declines in both excess interest and underlying asset values.

Christopher Smernoff: In Europe, the story was more nuanced, as loans underperformed their US counterparts, while CLO debt tranche spreads for the most part held up better by comparison. Within our CLO mezzanine debt portfolio, net interest income and trading gains, together with the positive impact of deal calls of positions owned at discounts to par, offset the majority of mark-to-market write-downs. Credit hedges were also a drag on results, reflecting strong performance in the broader credit and equity markets during the period. Net interest income declined by $0.02 sequentially to $0.21 per share for the quarter, driven by lower asset yields and portfolio turnover. The weighted average GAAP yield for the quarter on our CLO portfolio was 13.7%, down from 15.5% in the prior quarter. Slide 7 illustrates a modest sequential decline in the size of our overall CLO portfolio.

Chris Smernoff: In Europe, the story was more nuanced, as loans underperformed their US counterparts, while CLO debt tranche spreads for the most part held up better by comparison. Within our CLO mezzanine debt portfolio, net interest income and trading gains, together with the positive impact of deal calls of positions owned at discounts to par, offset the majority of mark-to-market write-downs. Credit hedges were also a drag on results, reflecting strong performance in the broader credit and equity markets during the period. Net interest income declined by $0.02 sequentially to $0.21 per share for the quarter, driven by lower asset yields and portfolio turnover. The weighted average GAAP yield for the quarter on our CLO portfolio was 13.7%, down from 15.5% in the prior quarter. Slide 7 illustrates a modest sequential decline in the size of our overall CLO portfolio.

Higher quality, seasoned mezzanine.

Speaker #3: While that discussion has merit, we believe there are also significant structural and technical factors that warrant caution on new issue equity. We have seen more attractive opportunities in secondary trading, which continues to play to Ellington's strength as an active trader.

In Europe, the story was more nuanced as loans. Underperformed, their us counterparts, while cllo detron spreads, for the most part held up better by comparison.

Speaker #3: The Board Nation levels and structural protections remain paramount in guarding against continued idiosyncratic and sector-specific credit issues. We continue to favor defensive CLO mezzanine positions which greatly outperformed equity on the quarter.

Within our CEO mezzanine debt portfolio, net interest income and trading gains together, with the positive impact of deal calls and positions owned at discounts to par, all set the majority of mark-to-market write-downs.

Credit hedges were also a drag on results, reflecting strong performance in the broader credit and equity markets during the period.

Speaker #3: Mezzanine debt is far less vulnerable to coupon spread compression than equity. That said, following the recent drop in loan prices, only about 15% of the universe were priced above par as of the end of February.

Net interest income declined by $0.02 sequentially to $0.21 per share for the quarter, driven by lower asset yields and portfolio turnover.

The weighted average Gap yield to the quarter on. Our Co portfolio was 13.7% down from 15.5% in the prior quarter.

Speaker #3: Prepayment risk on CLO equity has definitely abated. That 15% level is down from 57% coming into the year and marks the lowest level since last April's tariff shocks.

Christopher Smernoff: During the quarter, we made new purchases totaling $66 million, 60% in CLO debt and 40% in CLO equity. We sold $19 million of CLOs, consistent with our active trading approach. At 31 December, CLO equity represented 52% of total CLO holdings, roughly unchanged from the prior quarter, while European CLO investments accounted for 12%, down from 14% at 30 September. Slide 8 provides an overview of the corporate loans underlying our CLO investments. The collateral remains predominantly first lien, floating rate leverage loans, representing roughly 95% of the underlying assets. Our industry exposure is well diversified, led by technology, financial services, and healthcare, with no single sector exceeding 11%.

Chris Smernoff: During the quarter, we made new purchases totaling $66 million, 60% in CLO debt and 40% in CLO equity. We sold $19 million of CLOs, consistent with our active trading approach. At 31 December, CLO equity represented 52% of total CLO holdings, roughly unchanged from the prior quarter, while European CLO investments accounted for 12%, down from 14% at 30 September. Slide 8 provides an overview of the corporate loans underlying our CLO investments. The collateral remains predominantly first lien, floating rate leverage loans, representing roughly 95% of the underlying assets. Our industry exposure is well diversified, led by technology, financial services, and healthcare, with no single sector exceeding 11%.

Slide 7 illustrates a modest sequential decline in the size of our overall Co portfolio.

Speaker #3: Given our active trading approach, and relative value framework, we continually reassess our mez to equity weighting as the opportunity set evolves. In Europe, spreads widened less than on debt tranches relative to the US.

60% in clo debt and 40% in clo equity and we sold 19 million of Coos consistent with our active trading approach.

Speaker #3: You can see that on slide 3. And we were able to monetize gains and rotate capital, reducing our overall European exposure as a result.

At December 31st, CEO Equity represented, 52% of total CEO Holdings. Roughly unchanged from the prior quarter. While CEO while European Co Investments accounted for 12% down from 14% at September 30th.

Speaker #3: While similar credit dispersion dynamics emerged, during the fourth quarter, CLO equity in Europe avoided the same degree of spread compression seen in the US.

Flight 8 provides an overview of the corporate loan, underlying our Co Investments.

Speaker #3: So far in 2026, CLO equity and mezzanine to a lesser degree has continued to underperform. With weakness spreading into broader markets, amid concerns around software and AI-related credits.

The collateral remains predominantly. First lean floating rate, leveraged loans, representing, roughly. 95% of the underlying assets.

Christopher Smernoff: Loan maturities are spread over several years, with the largest concentrations in 2028 and 2031, and low concentrations of near-term maturities, producing a weighted average loan maturity of 4.3 years. Facility sizes skew towards larger borrowers with 44% in facilities over $1.5 billion and a weighted average size of $1.6 billion, which supports liquidity. Slide nine provides further detail on our underlying loan collateral. Slide ten presents a snapshot of our credit hedges as of year-end. As Larry noted, we further increased our corporate credit hedges during the quarter, with that portfolio equal to roughly 90% of our net asset value as of 31 December. We also maintained a foreign currency hedge portfolio to manage exposure from our European CLO investments.

Chris Smernoff: Loan maturities are spread over several years, with the largest concentrations in 2028 and 2031, and low concentrations of near-term maturities, producing a weighted average loan maturity of 4.3 years. Facility sizes skew towards larger borrowers with 44% in facilities over $1.5 billion and a weighted average size of $1.6 billion, which supports liquidity. Slide nine provides further detail on our underlying loan collateral. Slide ten presents a snapshot of our credit hedges as of year-end. As Larry noted, we further increased our corporate credit hedges during the quarter, with that portfolio equal to roughly 90% of our net asset value as of 31 December. We also maintained a foreign currency hedge portfolio to manage exposure from our European CLO investments.

Our industry exposure is, well Diversified led by technology financial services and Healthcare with no single sector. Exceeding 11%.

Speaker #3: More than ever, I believe that our active trading, focus on liquidity, disciplined risk management, and use of tail hedges leave earned well-positioned to take advantage of dislocations and generate alpha through periods of volatility.

Loan maturities are spread over several years with the largest concentrations in 2028 and 2031 and low concentrations of near-term. Maturities producing a weighted average loan maturity of 4.3 years.

Speaker #3: Now, back to Larry.

Speaker #2: Thanks, Greg. First, I'd like to step back from the quarterly results. And reflect on the full 2025 calendar year. Because I think the bigger picture provides important context for where we stand today.

Facility sizes are skewed towards larger borrowers, with 44% in facilities over $1.5 billion, and a weighted average size of $1.6 billion, which supports liquidity.

Slide 9 provides further detail on our underlying loan collateral.

Speaker #2: 2025 was a transformative year for Ellington Credit. We completed our conversion to a CLO closed-end fund on April 1st. And in the days that followed, we efficiently liquidated all remaining mortgage-related assets with minimal NAV impact, despite all the market turmoil around the tariff announcements.

By 10%, presents a snapshot of our credit hedges as of year end.

As Larry noted, we further increased our corporate credit hedges during the quarter, with that portfolio equal to roughly 90% to 95% of our net asset value as of December 31st.

Speaker #2: Given all that volatility, we are particularly proud of how smoothly this went. It was a clean and well-executed transition that positioned us to focus exclusively on the CLO opportunity set going forward.

Christopher Smernoff: Turning to slide 11, at 31 December, our NAV was $5.19 per share, and cash and cash equivalents totaled $24.3 million. Our net asset value based total return for the quarter was -9.1%. With that, I'll pass it over to Greg to discuss the CLO market environment, our portfolio positioning, and our outlook. Greg?

Chris Smernoff: Turning to slide 11, at 31 December, our NAV was $5.19 per share, and cash and cash equivalents totaled $24.3 million. Our net asset value based total return for the quarter was -9.1%. With that, I'll pass it over to Greg to discuss the CLO market environment, our portfolio positioning, and our outlook. Greg?

We also maintained a foreign currency hedge portfolio to manage exposure from our European Colo investments.

Speaker #2: Following conversion, we methodically built out our CLO portfolio expanding it by nearly 50% to 370 million dollars by calendar year-end. And adding credit expansion.

Turning to slide 11 at the December 30th or nav, was 5.19 cents per share, and cash and cash, equivalents total 24.3 million.

Our net asset value-based total return for the quarter was -9.1%.

Speaker #2: We executed 218 CLO trades during this nine-month period, comprising 272 million dollars of purchases and 63 million dollars of sales excluding redemptions. Relative to other CLO-focused closed-end funds, we delivered both a meaningfully stronger and significantly less volatile earnings stream, a direct reflection of our disciplined and highly active approach to portfolio construction and risk management.

With that, I'll pass it over to Greg to discuss the market environment, our portfolio positioning, and our outlook. Correct.

Gregory Borenstein: Thanks, Chris. It's a pleasure to speak with everyone today. Overall, calendar Q4 was challenging for junior CLO tranches, especially CLO equity. Many of the themes that weighed on CLO equity through 2025 continued and even accelerated in Q4, further hurting performance. While CLO mezzanine tranches also saw muted returns, they outperformed CLO equity and earned increased allocation amounts benefited the fund and helped mitigate some losses. Further, the weakness in CLO equity was more pronounced in the new issue space than in the secondary market. Once again, EARN stayed away from participating in new issue equity transactions during the quarter. We've only participated in one new issue equity transaction in the 11 months following our conversion. Calendar Q4 was one of the most difficult quarters for CLO equity in recent memory.

Greg Borenstein: Thanks, Chris. It's a pleasure to speak with everyone today. Overall, calendar Q4 was challenging for junior CLO tranches, especially CLO equity. Many of the themes that weighed on CLO equity through 2025 continued and even accelerated in Q4, further hurting performance. While CLO mezzanine tranches also saw muted returns, they outperformed CLO equity and earned increased allocation amounts benefited the fund and helped mitigate some losses. Further, the weakness in CLO equity was more pronounced in the new issue space than in the secondary market. Once again, EARN stayed away from participating in new issue equity transactions during the quarter. We've only participated in one new issue equity transaction in the 11 months following our conversion. Calendar Q4 was one of the most difficult quarters for CLO equity in recent memory.

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

Overall calendar Q4 was challenging for junior clot ranches. Especially CEO equity.

Many of the themes that wait on CL Equity through 2025 continued and even accelerated in Q4.

Further hurting performance.

Speaker #2: Second, I'll turn to our activities so far in 2026. January and February continued to reflect more of the same difficult market dynamics. CLO equity remained under significant pressure with the underlying credit concerns outlined earlier continuing to weigh on sentiment.

While CM as an entrance is also submitted returns, they outperform Co equity and earns increased allocation of Ms, benefited, the fund and helped mitigate some losses.

Further, the weakness in Seal Equity was more pronounced in the new issue space than in the secondary market.

Speaker #2: Meanwhile, mezzanine debt continued to hold up comparatively well. For January, I'm pleased to report that earned once again outperformed its peer set ending the month with an NAV per share of $5.04.

And once again, earned state away from participating, in new issue, Equity transactions during the quarter.

we've only participated in 1, new issue Equity transaction in the 11 months, following our conversion,

Gregory Borenstein: Continued dispersion weighed heavily on performance as fundamental issues and lower quality credits, paired with continued coupon spread compression and better quality credits, pressured both interest cash flows and NAV valuations. In addition, because CLO liabilities generally have longer non-call periods than the underlying loans, CLO managers had limited ability to refinance or reset debt tranches at lower financing costs. As a result, CLOs were largely unable to capture the benefit of lower rates at the liability level, which could otherwise have helped offset the effects of coupon spread compression on equity cash flows. That said, entering 2026, more than 40% of EARN's US CLO portfolio consists of deals scheduled to exit their non-call periods before year-end. As these deals become refinanceable, liability refinancings and resets at tighter spreads could help mitigate the drag from coupon spread compression should the market conditions permit.

Greg Borenstein: Continued dispersion weighed heavily on performance as fundamental issues and lower quality credits, paired with continued coupon spread compression and better quality credits, pressured both interest cash flows and NAV valuations. In addition, because CLO liabilities generally have longer non-call periods than the underlying loans, CLO managers had limited ability to refinance or reset debt tranches at lower financing costs. As a result, CLOs were largely unable to capture the benefit of lower rates at the liability level, which could otherwise have helped offset the effects of coupon spread compression on equity cash flows. That said, entering 2026, more than 40% of EARN's US CLO portfolio consists of deals scheduled to exit their non-call periods before year-end. As these deals become refinanceable, liability refinancings and resets at tighter spreads could help mitigate the drag from coupon spread compression should the market conditions permit.

Calendar Q4 was one of the most difficult quarters for Co equity in recent memory.

Speaker #2: February was an even tougher month for the sector, which we think has created many more opportunities. In terms of portfolio activity, our overall portfolio was smaller given the decline in NAV, but we've continued to add mezzanine debt positions, particularly in de-leveraging BB tranches.

Continued dispersion weighed heavily on performance, as fundamental issues and lower-quality credits paired with continued coupon spread compression and better-quality credits.

Pressured both interest, cash flows and nav valuations.

Speaker #2: We have also been active recently in exercising CLO call options, generating real-life gains on debt tranches purchased at discounts to par. In addition, we've recently collapsed certain CLOs where we held discount positions which has further strengthened the credit profile of earns remaining portfolio and helped to build up liquidity in a highly volatile environment.

In addition, because Co liabilities generally have longer non-call periods than the underlying loans, Co managers had limited ability to refinance or reset debt tranches at lower financing costs.

Speaker #2: While more than three quarters of our purchases in 2026 have been mezzanine debt, we have also selectively increased our CLO equity holdings where we see compelling value, such as deals with mispriced call optionality where we believe the sell-off has been overdone and entry points are attractive.

As a result, cos were largely unable to capture the benefit of lower rates at the liability level, which could otherwise have helped offset the effects of coupon spread compression on equity cash flows.

That said entering 2026 more than 40% of earns us Colo. Portfolio consists of deals, scheduled to exit their non call periods before year end.

Speaker #2: We have also been disciplined about maintaining very substantial credit hedges. Given the dispersion we've seen in the corporate credit market, our credit hedges haven't yet been able to offset the declines in CLO equity prices, but we continue to view them as an indispensable part of our portfolio management strategy.

Gregory Borenstein: In the Q4, CLO new issue volumes were constrained by a weak arbitrage, and as noted, the fund continued to avoid new issue equity. There has increased attention on the impact of manager-controlled captive funds on new issue pricing dynamics. While that discussion has merit, we believe there are also significant structural and technical factors that warrant caution on new issue equity. We have seen more attractive opportunities in secondary trading, which continues to play to Ellington's strength as an active trader. Subordination levels and structural protections remain paramount in guarding against continued idiosyncratic and sector-specific credit issues. We continue to favor defensive CLO mezzanine positions, which greatly outperformed equity on the quarter. Mezzanine debt is far less vulnerable to coupon spread compression than equity.

Greg Borenstein: In the Q4, CLO new issue volumes were constrained by a weak arbitrage, and as noted, the fund continued to avoid new issue equity. There has increased attention on the impact of manager-controlled captive funds on new issue pricing dynamics. While that discussion has merit, we believe there are also significant structural and technical factors that warrant caution on new issue equity. We have seen more attractive opportunities in secondary trading, which continues to play to Ellington's strength as an active trader. Subordination levels and structural protections remain paramount in guarding against continued idiosyncratic and sector-specific credit issues. We continue to favor defensive CLO mezzanine positions, which greatly outperformed equity on the quarter. Mezzanine debt is far less vulnerable to coupon spread compression than equity.

As these deals become refinanced, liability refinancing and resets at tighter spreads can help mitigate the drag from coupons, and brake compression—should the market conditions permit.

In the fourth quarter.

Speaker #2: This is all the more true today given that overall yield spreads in the corporate credit markets continue to be relatively tight when viewed on a historical basis.

Co new issue volumes or constrained by a weak Arbitrage. And as noted, the funk continued to avoid new issue equity,

There has been increased attention on the impact of manager-controlled captive funds on new issue pricing dynamics.

Speaker #2: Finally, looking ahead, we are focused on rebuilding that investment income and that asset value as we deploy capital into what is looking more and more like a distressed market.

While that discussion has merit, we believe there are also significant structural and technical factors that warrant caution on new issue equity.

Speaker #2: For more passive strategy, that environment only creates headwinds. For us, we see it as fertile ground, creating the kind of relative value and trading opportunities where active trading and disciplined risk management can add meaningful value.

Trader.

Speaker #2: Furthermore, and as noted earlier, we continue to believe that a substantial portion of the recent price declines are reversible since they reflect yield spread widening rather than fundamental credit impairment.

The board Nation levels and structural protections remain Paramount and guarding against continued idiosyncratic and sector specific credit issues.

We continue to favor defensive Co mezzanine positions which greatly outperformed equity on the quarter.

Speaker #2: Equally importantly, we have yet to tap the capital markets as a closed-end fund issuer. We are exploring the potential issuance of long-term unsecured debt in the coming weeks, which would supply us with a significant additional dry powder at a potentially ideal time.

Gregory Borenstein: That said, following the recent drop in loan prices, only about 15% of the universe were priced above par as of the end of February. Prepayment risk on CLO equity has definitely abated. That 15% level is down from 57% coming into the year and marks the lowest level since last April's tariff shocks. Given our active trading approach and relative value framework, we continually reassess our mezz to equity weighting as the opportunity set evolves. In Europe, spreads widened less than on debt tranches relative to the US. You can see that on slide 3, and we were able to monetize gains and rotate capital, reducing our overall European exposure as a result. While similar credit dispersion dynamics emerged, during the Q4, CLO equity in Europe avoided the same degree of spread compression seen in the US.

Greg Borenstein: That said, following the recent drop in loan prices, only about 15% of the universe were priced above par as of the end of February. Prepayment risk on CLO equity has definitely abated. That 15% level is down from 57% coming into the year and marks the lowest level since last April's tariff shocks. Given our active trading approach and relative value framework, we continually reassess our mezz to equity weighting as the opportunity set evolves. In Europe, spreads widened less than on debt tranches relative to the US. You can see that on slide 3, and we were able to monetize gains and rotate capital, reducing our overall European exposure as a result. While similar credit dispersion dynamics emerged, during the Q4, CLO equity in Europe avoided the same degree of spread compression seen in the US.

Mezzanine debt is far less vulnerable to coupon or spread compression than equity.

That said, following the recent drop in loan prices, only about 15% of the universe were priced above par as of the end of February.

Prepayment risk on Co Equity has definitely abated.

Speaker #2: We believe the current environment, characterized by dislocations and expanding relative value opportunities, is especially well-suited to our active investing and trading approach. And we look forward to updating you on our progress next quarter.

That 15% level is down from 57% coming into the year and March, the lowest level since last April's tariff shocks.

Speaker #2: With that, let's open the floor to Q&A. Operator, please proceed.

Given our active trading approach and relative value framework. We continually reassess, our mes to equity waiting as the opportunity set evolves.

Speaker #3: Thank you. If you would like to ask a question, please press star one on your telephone keypad. To leave the queue at any time, please press star two.

Speaker #3: Again, that is star one to ask a question, we'll pause for just a moment to allow questions to queue. Thank you. Our first question will come from Crispin Love with Piper Sandler, your line is open.

In Europe, spreads widened less than on debt tranches relative to the US. You can see that on slide 3, and we were able to monetize gains and rotate capital, reducing our overall European exposure as a result.

while similar credit dispersion, Dynamics emerged

Speaker #4: Hi, this is Ben Gramman for Crispin Love. Thanks for taking the question. You mentioned earlier that your portfolio is very diversified by industry and that no sector exceeds 11% exposure in your portfolio.

Gregory Borenstein: Far in 2026, CLO equity, and mezzanine to a lesser degree, has continued to underperform, with weakness spreading into broader markets amid concerns around software and AI-related credits. More than ever, I believe that our active trading focus on liquidity, disciplined risk management, and use of tail hedges leave EARN well-positioned to take advantage of dislocations and generate alpha through periods of volatility. Now back to Larry.

During the fourth quarter, Co equity in Europe, avoided the same degree of spread compression seen in the US.

Greg Borenstein: Far in 2026, CLO equity, and mezzanine to a lesser degree, has continued to underperform, with weakness spreading into broader markets amid concerns around software and AI-related credits. More than ever, I believe that our active trading focus on liquidity, disciplined risk management, and use of tail hedges leave EARN well-positioned to take advantage of dislocations and generate alpha through periods of volatility. Now back to Larry.

So far in 2026, Co equity—and mezzanine to a lesser degree—has continued to underperform.

Speaker #4: And obviously, there's a lot of negative headline attention around software, etc. So I'm just wondering what your stance is on sentiment there and then if there are any other sectors that you particularly excited about.

With weakness spreading into broader markets and main concerns around software and AI-related credits.

Speaker #4: Thank you.

Speaker #2: Go ahead, Greg.

Speaker #4: Sure. So I think the way we think about this, this is a lot of the benefit of CLOs. There's a lot of diversification by sector.

More than ever. I believe that our active trading focus on liquidity, disciplined risk management and use of tail Hedges. We've earned well positioned to take advantage of dislocations and generate Alpha through periods of volatility.

Laurence Penn: Thanks, Greg. First, I'd like to step back from the quarterly results and reflect on the full 2025 calendar year, because I think the bigger picture provides important context for where we stand today. 2025 was a transformative year for Ellington Credit. We completed our conversion to a CLO closed-end fund on 1 April, and in the days that followed, we efficiently liquidated all remaining mortgage-related assets with minimal NAV impact, despite all the market turmoil around the tariff announcements. Given all that volatility, we are particularly proud of how smoothly this went. It was a clean and well-executed transition that positioned us to focus exclusively on the CLO opportunity set going forward. Following conversion, we methodically built out our CLO portfolio, expanding it by nearly 50% to $370 million by calendar year-end, and adding credit hedges in lockstep with that expansion.

Larry Penn: Thanks, Greg. First, I'd like to step back from the quarterly results and reflect on the full 2025 calendar year, because I think the bigger picture provides important context for where we stand today. 2025 was a transformative year for Ellington Credit. We completed our conversion to a CLO closed-end fund on 1 April, and in the days that followed, we efficiently liquidated all remaining mortgage-related assets with minimal NAV impact, despite all the market turmoil around the tariff announcements. Given all that volatility, we are particularly proud of how smoothly this went. It was a clean and well-executed transition that positioned us to focus exclusively on the CLO opportunity set going forward. Following conversion, we methodically built out our CLO portfolio, expanding it by nearly 50% to $370 million by calendar year-end, and adding credit hedges in lockstep with that expansion.

Now, back to Larry.

Thanks Greg.

Speaker #4: And then there's diversification by name. You see some headlines with what's going on maybe in areas of private credit, but in some of those vehicles, things can be pretty chunky.

First, I'd like to step back from the quarterly results and reflect on the full 2025 calendar year because I think the bigger picture provides important context for where we stand today.

Speaker #4: The same thing goes for certain areas of the middle market and private credit CLO market even. So if you're going to have large single-name exposure, you just have much more idiosyncratic risk.

2025 was a transformative year for Ellington Credit.

Speaker #4: We find this to be far harder to control and so given our whole risk management framework and that as long as our portfolio is representative of the overall market, be it percentage of sectors, percentage of names, things like that, overall, it just becomes more statistical for us to handle the risk.

We completed our conversion to a cllo closed end fund on April 1st. And in the days that followed, we liquidated, all remaining mortgage related assets with minimal nav impact despite all the market turmoil around the Tariff announcements

given all that volatility, we are particularly proud of how smoothly this went

It was a clean and well-executed transition that positioned us to focus exclusively on the CLO opportunity set going forward.

Speaker #4: In regards to views on specific sectors, there was certainly damage done in software and the sector has sold off a lot. I think from the way that we look at the credits, the way that we speak to our managers who are looking at the credits, there's going to be winners and losers, which has been the story of a lot of things over the last year.

Following conversion, we methodically built out our cllo portfolio.

Laurence Penn: We executed 218 CLO trades during this 9-month period, comprising $272 million of purchases and $63 million of sales, excluding redemptions. Relative to other CLO-focused closed-end funds, we delivered both a meaningfully stronger and significantly less volatile earnings stream, a direct reflection of our disciplined and highly active approach to portfolio construction and risk management. Second, I'll turn to our activity so far in 2026. January and February continued to reflect more of the same difficult market dynamics. CLO equity remained under significant pressure, with the underlying credit concerns outlined earlier continuing to weigh on sentiment. Meanwhile, mezzanine debt continued to hold up comparatively well. For January, I'm pleased to report that EARN once again outperformed its peer set, ending the month with an NAV per share of $5.04.

Larry Penn: We executed 218 CLO trades during this 9-month period, comprising $272 million of purchases and $63 million of sales, excluding redemptions. Relative to other CLO-focused closed-end funds, we delivered both a meaningfully stronger and significantly less volatile earnings stream, a direct reflection of our disciplined and highly active approach to portfolio construction and risk management. Second, I'll turn to our activity so far in 2026. January and February continued to reflect more of the same difficult market dynamics. CLO equity remained under significant pressure, with the underlying credit concerns outlined earlier continuing to weigh on sentiment. Meanwhile, mezzanine debt continued to hold up comparatively well. For January, I'm pleased to report that EARN once again outperformed its peer set, ending the month with an NAV per share of $5.04.

Expanding it by nearly 50%, to $370 million by calendar year-end, and adding credit hedges in lockstep with that expansion.

We executed 218 Clos trades during this 9-month period, comprising 272 million of purchases and 63 million of sales. Excluding redemptions.

Speaker #4: And so in some cases, you might have names that have real warning signs and we should be concerned about. And others may be pushed down in sympathy with managers reducing overall sector exposure.

Speaker #4: I don't think we have a strong view if loan prices are specifically weak or cheap on a name-by-name basis within the sector. I think it's just important to keep these exposures appropriately in line.

Second, I'll turn to our activities so far in 2026.

January and February continue to reflect more of the same difficult market dynamics.

Speaker #2: Awesome. Thanks so much for the color

Speaker #1: Are there ? Sure

Co Equity remained under significant pressure with the underlying credit concerns outlined earlier continuing to weigh on sentiment.

Speaker #2: Thank you . Our next question will come from Jason Weaver with Jones trading . Your line is open .

Meanwhile mezzanine debt continued to hold up. Comparatively well.

Speaker #3: Hey , guys . Good morning . Thanks for taking my question First , I wonder if you could help us quantify the proportion of loans underlying the portfolio that are triple C rated or lower

Laurence Penn: February was an even tougher month for the sector, which we think has created many more opportunities. In terms of portfolio activity, our overall portfolio was smaller, given the decline in NAV. We've continued to add mezzanine debt positions, particularly in de-leveraging BB tranches. We have also been active recently in exercising CLO call options, generating realized gains on debt tranches purchased at discounts to par. In addition, we've recently collapsed certain CLOs where we held discount positions, which has further strengthened the credit profile of EARN's remaining portfolio and helped to build up liquidity in a highly volatile environment.

Larry Penn: February was an even tougher month for the sector, which we think has created many more opportunities. In terms of portfolio activity, our overall portfolio was smaller, given the decline in NAV. We've continued to add mezzanine debt positions, particularly in de-leveraging BB tranches. We have also been active recently in exercising CLO call options, generating realized gains on debt tranches purchased at discounts to par. In addition, we've recently collapsed certain CLOs where we held discount positions, which has further strengthened the credit profile of EARN's remaining portfolio and helped to build up liquidity in a highly volatile environment.

For January, I'm pleased to report that were earned. Once again, outperformed its peer set, ending the month with a NAV per share of $5.40.

February was an even tougher month for the sector which we think is created many more opportunities.

Speaker #4: Greg , do you happen to have that your fingertips ?

Speaker #5: I don't have it at my fingertips , but I think in general , a lot of these operate around seven and a half , 7.5% is a typical triple C bucket in the CLO .

In terms of portfolio activity, our overall portfolio was smaller, given the decline in NAV. We've continued to add mezzanine debt positions, particularly in deleveraging double-B trocas.

Speaker #5: And I could get you an exact percentage at an underlying look . Obviously , the percentage exposure . You mean on an overall yield on an overall ?

We have also been active recently in exercising Co call options, generating real-life gains on debt crunches purchased at discounts to par.

Speaker #5: Well , I'm getting some feedback on a daily basis

Laurence Penn: While more than three-quarters of our purchases in 2026 have been mezzanine debt, we have also selectively increased our CLO equity holdings where we see compelling value, such as deals with mispriced call optionality, where we believe the sell-off has been overdone and entry points are attractive. We have also been disciplined about maintaining very substantial credit hedges. Given the dispersion we've seen in the corporate credit market, our credit hedges haven't yet been able to offset the declines in CLO equity prices, but we continue to view them as an indispensable part of our portfolio management strategy. This is all the more true today, given that overall yield spreads in the corporate credit markets continue to be relatively tight when viewed on a historical basis.

Larry Penn: While more than three-quarters of our purchases in 2026 have been mezzanine debt, we have also selectively increased our CLO equity holdings where we see compelling value, such as deals with mispriced call optionality, where we believe the sell-off has been overdone and entry points are attractive. We have also been disciplined about maintaining very substantial credit hedges. Given the dispersion we've seen in the corporate credit market, our credit hedges haven't yet been able to offset the declines in CLO equity prices, but we continue to view them as an indispensable part of our portfolio management strategy. This is all the more true today, given that overall yield spreads in the corporate credit markets continue to be relatively tight when viewed on a historical basis.

In addition, we've recently collapsed certain COOs where we held discount positions, which has further strengthened the credit profile of our instruments, remaining portfolio, and helped to build up liquidity in a wholly— in a highly volatile environment.

Speaker #3: Because got it .

Speaker #5: If we own . For example , a well mezzanine tranche if the deal has a certain amount of triple C exposure , we're not necessarily exposed as much as we are .

While more than 3/4 of our purchases in 2026, have been mezzanine debt.

Speaker #5: If we own an equity tranche .

Speaker #3: Sure , sure . Of course .

Speaker #5: So but the CLO loan index , for example , is about 4.4% . And so considering our diversification that we were just talking about in terms of equity to mezz across a number of deals with underlying a lot of underlying loans , underneath all these , I would guess that we're tracking not too far off from that 4.4% number .

We have also selectively increased, our Co Equity Holdings where we see compelling value, such as deals with mispriced call optionality, where we believe the sell-off has been overdone and entry points are attractive.

Funded by maintaining very substantial credit hedges.

Given the dispersion we've seen in the corporate credit Market our credit Hedges haven't yet, been able to offset the declines in Co Equity prices, where we continue to view them as an indispensable part of our portfolio management strategy.

Speaker #5: You see in the CLO market . In total .

Speaker #3: Got it . Okay . Thanks for that . And

Laurence Penn: Finally, looking ahead, we are focused on rebuilding net investment income and net asset value as we deploy capital into what is looking more and more like a distressed market. For more passive strategy, that environment only creates headwinds. For us, we see it as fertile ground, creating the kind of relative value and trading opportunities where active trading and disciplined risk management can add meaningful value. Furthermore, and as noted earlier, we continue to believe that a substantial portion of the recent price declines are reversible, since they reflect yield spread widening rather than fundamental credit impairment. Equally importantly, we have yet to tap the capital markets as a closed-end fund issuer. We are exploring the potential issuance of long-term unsecured debt in the coming weeks, which would supply us with significant additional dry powder at a potentially ideal time.

Larry Penn: Finally, looking ahead, we are focused on rebuilding net investment income and net asset value as we deploy capital into what is looking more and more like a distressed market. For more passive strategy, that environment only creates headwinds. For us, we see it as fertile ground, creating the kind of relative value and trading opportunities where active trading and disciplined risk management can add meaningful value. Furthermore, and as noted earlier, we continue to believe that a substantial portion of the recent price declines are reversible, since they reflect yield spread widening rather than fundamental credit impairment. Equally importantly, we have yet to tap the capital markets as a closed-end fund issuer. We are exploring the potential issuance of long-term unsecured debt in the coming weeks, which would supply us with significant additional dry powder at a potentially ideal time.

This is all the more true today, given that overall yield spreads in the corporate credit markets continue to be relatively tight when viewed on a historical basis.

Speaker #4: Sorry , I was just going to say we'll consider adding that to our monthly tear sheet . So

Speaker #3: Perfect . Okay . And then turning back over to the the I'm getting some feedback to the credit hedges , I think in January the update said you had trimmed $175 million position a bit , but can you help us understand the amount of negative carry from those positions ?

Finally, looking ahead, we are focused on rebuilding that investment income and that asset value as we deploy capital into what is looking more and more like a distressed market.

For more passive strategy, that environment only creates headwinds.

For us, we see it as fertile, ground creating the kind of relative value and trading opportunities for active trading and discipline risk management, can add meaningful value.

Speaker #3: You know , at current levels of high yield , I see something like $0.04 a quarter , but maybe you executed those a lot tighter

Speaker #4: Well , think first , maybe Greg , you can speak to the carry question in terms of trimming the size of the credit portfolio .

Furthermore, and as noted earlier, we continue to believe that a substantial portion of the recent price declines are reversible, since they reflect yield spread widening rather than fundamental credit impairment.

Speaker #4: The long portfolio also declined both declines are modest . 1231 to 131 . But it was a smaller credit hedge portfolio in lockstep with a slightly smaller long portfolio .

Equally importantly, we have yet to tap the capital markets as a closed end fund issuer.

Laurence Penn: We believe the current environment, characterized by dislocations and expanding relative value opportunities, is especially well suited to our active investing and trading approach, and we look forward to updating you on our progress next quarter. With that, let's open the floor to Q&A. Operator, please proceed.

Larry Penn: We believe the current environment, characterized by dislocations and expanding relative value opportunities, is especially well suited to our active investing and trading approach, and we look forward to updating you on our progress next quarter. With that, let's open the floor to Q&A. Operator, please proceed.

We are exploring the potential issuance of long-term unsecured debt in the coming weeks, which would supply us with significant additional dry powder at a potentially ideal time.

Speaker #3: Okay . Thanks , Greg .

Speaker #4: Do you want to comment on the the drag you're seeing from the credit hedges on a go forward basis ?

We believe the current environment characterized by dislocations and expanding relative value. Opportunities is especially well suited to our active investing and trading approach.

And we look forward to updating you on our progress next quarter.

Speaker #5: Sure . I think overall There's what we've experienced and then there's what we've had so far . I think if you look when you discuss what's gone on this year , for example , it's been a pretty minimal drag just because you've actually seen at least year to date , some high yield .

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. To leave the queue at any time, please press star two. Again, that is star one to ask a question. We'll pause for just a moment to allow questions to queue. Thank you. Our first question will come from Crispin Love with Piper Sandler. Your line is open.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. To leave the queue at any time, please press star two. Again, that is star one to ask a question. We'll pause for just a moment to allow questions to queue. Thank you. Our first question will come from Crispin Love with Piper Sandler. Your line is open.

With that, let's open the floor to Q&A. Operator, please proceed.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad.

To leave the Queue at any time. Please press star 2 again that is star 1 to ask a question. We'll pause for just a moment to allow questions to queue.

Ben Graman: Hi, this is Ben Graman for Crispin Love. Thanks for taking the question. You mentioned earlier that your portfolio is very diversified by industry and that no sector exceeds 11% exposure in your portfolio. Obviously there's a lot of negative headline attention around software, et cetera. I'm just wondering what your stance is on sentiment there, and then if there are any other sectors that you're particularly excited about. Thank you.

Ben Graman: Hi, this is Ben Graham for Crispin Love. Thanks for taking the question. You mentioned earlier that your portfolio is very diversified by industry and that no sector exceeds 11% exposure in your portfolio. Obviously there's a lot of negative headline attention around software, et cetera. I'm just wondering what your stance is on sentiment there, and then if there are any other sectors that you're particularly excited about. Thank you.

Thank you. Our first question will come from Kristen Love with Piper Sandler. Your line is open.

Speaker #5: Right ? Also , you have to remember that we really focus these hedges for larger drawdown scenarios . We're very mindful of the drag .

Speaker #5: And so I think that the we have is much more in sort of these larger shocks . If you take a look at the holdings that we have in there versus what the drag is on on a run rate so I can get you the exact as of today , because obviously this number shifts around .

Speaker #3: Yeah .

Speaker #5: Quite a bit depending upon where things widen to . But I would note that we've been very active repositioning and rotating , considering all this volatility .

Laurence Penn: Go ahead, Greg.

Larry Penn: Go ahead, Greg.

Hi, this is Ben Graham in for Chris, and love—thanks for taking the question. Um, you mentioned earlier that your portfolio is very diversified by industry and that no sector exceeds 11% exposure in your portfolio. And, um, obviously there's a lot of negative headline attention around software, etc. So I'm just wondering what your stance is on sentiment there, and then if there are any other sectors that you're particularly excited about. Thank you.

Gregory Borenstein: Sure. I think the way we think about this is a lot of the benefit of CLOs. There's a lot of diversification by sector, and then there's diversification by name. You see some headlines with what's going on maybe in areas of private credit, but in some of those vehicles, things can be pretty chunky. The same thing goes for certain areas of the middle market and private credit CLO market even. If you're gonna have large single name exposure, you just have much more idiosyncratic risk. We find this to be far harder to control.

Greg Borenstein: Sure. I think the way we think about this is a lot of the benefit of CLOs. There's a lot of diversification by sector, and then there's diversification by name. You see some headlines with what's going on maybe in areas of private credit, but in some of those vehicles, things can be pretty chunky. The same thing goes for certain areas of the middle market and private credit CLO market even. If you're gonna have large single name exposure, you just have much more idiosyncratic risk. We find this to be far harder to control.

Go ahead, Greg.

Sure. So

Speaker #5: And we're mindful When we take a look at it , you know some of these shorts may be in a more liquid high yield index .

I think the way we think about this,

Speaker #5: Some of these shorts may be in loan form . You know , as we've seen very specific loan issues . There . You know , as well as on the out of the money side , you know , different types of puts and payers .

this is a lot of the benefit of cos there's a lot of diversification by sector. Um and then there's diversification by name uh you see some headlines with what's going on maybe in areas of private credit.

But in some of those Vehicles things can be pretty chunky. Um,

Speaker #5: I think that overall , as I'm trying to give you an answer off the , you know , a rough off the top of my head on this , you're seeing probably an overall drag , which amounts to something to 1 to 2% of fund Nav per annum .

Gregory Borenstein: Given our whole risk management framework and process, I think we generally feel more comfortable that as long as our portfolio is representative of the overall market, be it, you know, percentage of sectors, percentage of, you know, names, things like that, overall, it just becomes more statistical for us to handle the risk. In regards to views on specific sectors, there was certainly damage done in software, and the sector has sold off a lot. I think from the way that we look at the credits, the way that we speak to our managers who are looking at the credits, there's going to be winners and losers, which has been the story of a lot of things over the last year.

Greg Borenstein: Given our whole risk management framework and process, I think we generally feel more comfortable that as long as our portfolio is representative of the overall market, be it, you know, percentage of sectors, percentage of, you know, names, things like that, overall, it just becomes more statistical for us to handle the risk. In regards to views on specific sectors, there was certainly damage done in software, and the sector has sold off a lot. I think from the way that we look at the credits, the way that we speak to our managers who are looking at the credits, there's going to be winners and losers, which has been the story of a lot of things over the last year.

The same thing goes for certain areas of the Middle Market and private credit CLO market. Even so, if you're going to have large single-name exposure, you just have much more interesting credit risk. We find this to be far harder to control. And so, given our whole risk management framework and process.

I think we generally feel more comfortable that, as long as—

Speaker #5: So we think that considering the environments and the risk right now , it's a small or very reasonable amount to pay for the type of protection we'll get if volatility or any sort of drawdown , you know , should really kind of persist throughout the year .

Our portfolio is representative of the overall market—be it, you know, percentage of sectors, percentage of, you know, names, things like that. Um, overall, it just becomes more statistical for us to handle the risk in regards to views on specific sectors.

Speaker #3: Yeah , even .

Speaker #4: 2% would be even 2% would be less than a penny a month . Well worth it .

Speaker #5: We do once again to reiterate , by keeping the protection focused more out of the money options , it really does substantially reduce the cost .

Speaker #5: Believe it's protected , you know , to locally more heavily protect . I think the issues become one the cost obviously will weigh heavily .

Um, there was certainly damage done in software and the sector has sold off a lot. I think for, um, the way that we look at the credits, the way that we speak to our managers who are looking at the credits, there's going to be winners and losers, which has been the story of

Gregory Borenstein: In some cases, you might have names that have real warning signs, and we should be concerned about, and others may be pushed down in sympathy with managers reducing overall sector exposure. I don't think we have a strong view, if loan prices are specifically weak or cheap on a name-by-name basis within the sector. I think it's just important to keep these exposures, you know, appropriately in line.

Greg Borenstein: In some cases, you might have names that have real warning signs, and we should be concerned about, and others may be pushed down in sympathy with managers reducing overall sector exposure. I don't think we have a strong view, if loan prices are specifically weak or cheap on a name-by-name basis within the sector. I think it's just important to keep these exposures, you know, appropriately in line.

Speaker #5: And then two there's basis risk , right . The issue that happened that you're exposed to in terms of really tail loan names on the capital structure is not easily controllable .

Speaker #5: When you talk about using more liquid indices . Right . You would for example , loans underperform things like high yield underperform anything in equities .

A lot of things over the last year. And so, in some cases, you might have names that have real warning signs and we should be concerned about, and others may be pushed down in sympathy with managers reducing overall sector exposure. I don't think we have a strong view. Um, if—

Speaker #5: And so we're also mindful around the accuracy and efficacy of the hedge use . Right . And there are a lot of different basis risks .

Loan prices are specifically weak or cheap on a name-by-name basis within the sector. I think it's just important to keep these exposures, you know, appropriately in line.

Ben Graman: Awesome. Thanks so much for the color there.

Ben Graman: Awesome. Thanks so much for the color there.

Gregory Borenstein: Sure.

Greg Borenstein: Sure.

Awesome. Thanks so much for the color there.

Operator: Thank you. Our next question will come from Jason Weaver with JonesTrading. Your line is open.

Operator: Thank you. Our next question will come from Jason Weaver with JonesTrading. Your line is open.

Sure.

Speaker #5: And so we are mindful .

Speaker #3: Got it . That's helpful . And the sort of you know decomposition of it would be interesting to see as you know , we're just looking at it from looking at high yield CDs .

Jason Weaver: Hey, guys. Good morning. Thanks for taking my question. First, I wonder if you could help us quantify the proportion of loans underlying the portfolio that are CCC-rated or lower.

Jason Weaver: Hey, guys. Good morning. Thanks for taking my question. First, I wonder if you could help us quantify the proportion of loans underlying the portfolio that are CCC-rated or lower.

Thank you. Our next question, will come from Jason Weaver with Jones trading. Your line is open.

Hey guys. Good morning. Thanks for taking my question.

Speaker #3: And that's what you put as equivalents . But obviously there's there's much more basis if you're using individual positions . So I appreciate the color .

Uh, first, I wonder if you could help us quantify the proportion of loans underlying the portfolio that are triple-C rated or lower.

Operator: Greg, do you happen to have that at your fingertips?

Larry Penn: Greg, do you happen to have that at your fingertips?

Speaker #5: Sure .

Speaker #4: But it's not .

Speaker #5: Be published .

Speaker #4: Yeah .

Gregory Borenstein: I don't have it at my fingertips, but I think in general, a lot of these operate around 7.5%. 7.5% is a typical CCC bucket in a CLO. I could get you an exact percentage at an underlying look. Obviously, the percentage exposure even on an overall... Whoa, I'm getting some feedback. on a deal basis.

Speaker #3: Yeah yeah .

Greg Borenstein: I don't have it at my fingertips, but I think in general, a lot of these operate around 7.5%. 7.5% is a typical CCC bucket in a CLO. I could get you an exact percentage at an underlying look. Obviously, the percentage exposure even on an overall... Whoa, I'm getting some feedback. on a deal basis.

Greg, you happen to have that uh, at your fingertips.

Speaker #4: It's not so much single name positions though . That's not we're doing . It is more in broad based cdks and similar instruments

Around 7 and a half, 7 and a half percent is a typical Triple C bucket in the CL. Oh, um,

and,

Speaker #5: lot of , you know , to Larry's point , you'll see different types of indices , potentially ETFs . Right . The CLO market , we own a large number of tranches backed by each one of these deals can be hundreds of loans .

I could get you an exact percentage uh, at an underlying look obviously.

The.

Percent is exposure.

[Analyst] (Jones Trading): Mm-hmm.

Jason Weaver: Mm-hmm.

Speaker #5: And so it really creates a lot of diversification , which allows us to be a little more statistical by using indices as well .

Well, I'm getting some feedback, uh, on a deal basis.

Gregory Borenstein: 'Cause-

Greg Borenstein: 'Cause-

[Analyst] (Jones Trading): Got it.

Jason Weaver: Got it.

Gregory Borenstein: If we own, for example, a well-supported mezzanine tranche, if the deal has a certain amount of CCC exposure, we're not necessarily exposed as much as we are if we own an equity tranche.

Greg Borenstein: If we own, for example, a well-supported mezzanine tranche, if the deal has a certain amount of CCC exposure, we're not necessarily exposed as much as we are if we own an equity tranche.

Speaker #5: It allows us to similarly represent that . Right . We're not here . It is not our strength to be making single name bets .

because got it, if we own for example a well supported mezzanine Tron, if the deal has a certain amount of Triple C exposure, we're not necessarily

[Analyst] (Jones Trading): Sure. Sure. Of course.

Jason Weaver: Sure. Sure. Of course.

Gregory Borenstein: The CLO loan index, for example, is about 4.4%. Considering our diversification that we were just talking about in terms of, you know, equity to mezz across a number of deals, with underlying, a lot of underlying loans, you know, underneath all these, I would guess that we're tracking not too far off from that 4.4% number you see in the CLO market in total.

Greg Borenstein: The CLO loan index, for example, is about 4.4%. Considering our diversification that we were just talking about in terms of, you know, equity to mezz across a number of deals, with underlying, a lot of underlying loans, you know, underneath all these, I would guess that we're tracking not too far off from that 4.4% number you see in the CLO market in total.

Speaker #5: As we were saying . So unless we think there's an outsized exposure to a single name that exists for some reason , and maybe we want to take on that in general , we look to avoid single name bets on the long side and single name bets on the short side .

Speaker #5: But when you look at what we generally have , just to give of what we generally use in our arsenal , Cdks high Yield index out of the money IWM puts loan ETFs , shorts credit index tranches , loan ETF puts right I think it's just sort of all in that area of the market that we think offers different values and how we want to protect , and some sort of mixture of those , you know , we'll pivot around and adjust based upon as our portfolio and our longs change .

[Analyst] (Jones Trading): Got it. Okay. Thanks for that.

Jason Weaver: Got it. Okay. Thanks for that.

Exposed as much as we are if we own an equity, tranche. Sure. Sure, of course. So so, but the cllo loan index, for example, is about 4.4% and so considering our diversification that we were just talking about in terms of, you know, Equity to mass across a number of deals. Uh, with underlying, um, a lot of underlying loans, you know, underneath all these, I would guess that we're tracking. Uh, not too far off from that 4.4% number. You see in the seal Market in total.

Operator: Yeah. We'll, sorry, I'm just gonna say, we'll consider adding that to our monthly tear sheet.

Larry Penn: Yeah. We'll, sorry, I'm just gonna say, we'll consider adding that to our monthly tear sheet.

[Analyst] (Jones Trading): Perfect. Okay. Turning back over to the, I'm getting some feedback. Turning back to the credit hedges. I think in January, the update said you had trimmed the $175 million position a bit. Can you help us understand the amount of negative carry from those positions? At, you know, at current levels of high yield, I see something like $0.04 a quarter, but maybe you executed those a lot tighter.

Jason Weaver: Perfect. Okay. Turning back over to the, I'm getting some feedback. Turning back to the credit hedges. I think in January, the update said you had trimmed the $175 million position a bit. Can you help us understand the amount of negative carry from those positions? At, you know, at current levels of high yield, I see something like $0.04 a quarter, but maybe you executed those a lot tighter.

Got it. Okay. Um, thanks for that. We'll—sorry, I'm just going to say we'll consider adding that to our monthly tear sheet. So, um, perfect.

Speaker #5: Right . The way we see things in the way that we think that that helps protect and manage our risk .

Okay. Uh, and then turning back over to the, uh, I'm getting some feedback—uh, turning back to the credit hedges. I think in January the update said you had trimmed the $175 million position a bit. Uh, but can you help us understand the amount of negative carry from those positions? Uh, you know, at current levels of high yield, I see something like $0.04 a quarter, but maybe you executed those a lot tighter.

Operator: Well, I think first, maybe, Greg, you can speak to the carry question. In terms of trimming the size of the credit portfolio, the long portfolio also declined. You know, both declines are modest, twelve thirty-one to one thirty-one. It was, you know, a smaller credit hedge portfolio, in lockstep with a slightly smaller long portfolio.

Chris Smernoff: Well, I think first, maybe, Greg, you can speak to the carry question. In terms of trimming the size of the credit portfolio, the long portfolio also declined. You know, both declines are modest, twelve thirty-one to one thirty-one. It was, you know, a smaller credit hedge portfolio, in lockstep with a slightly smaller long portfolio.

Speaker #3: Got it . Well , I really appreciate that color . Thanks for all the assistance

Speaker #2: Thank you . Our next question will come from Eric Hagen with Btig . Your line is open .

Speaker #6: Hey , thanks . Good morning . All right . So obviously a lot of attention on redemptions for asset managers right now . The question is how much of a knock on effect do you see between redemptions and conditions .

But I think first uh maybe Greg you can speak to the the carry question in terms of trimming the size of the credit portfolio. The the long portfolio also declined um you know both declines are modest 1231 to 131. Um but it was you know a smaller credit hedge portfolio. Uh in lock step with a slightly smaller.

[Analyst] (Jones Trading): Okay. Thanks.

Jason Weaver: Okay. Thanks.

Speaker #6: And spread widening in the CLO market ?

Long portfolio. Okay.

Operator: Greg, do you wanna comment on the, kind of, the drag you're seeing from the credit hedges on a, they're gonna go forward basis?

Chris Smernoff: Greg, do you wanna comment on the, kind of, the drag you're seeing from the credit hedges on a, they're gonna go forward basis?

Thanks.

Speaker #4: Greg

Speaker #5: Well , I think that one thing to point to is maybe some redemptions you've seen in things like Triple-A , right ? That ETF will actually sort of move as flows come in and out , and it's more easily trackable .

Um, Greg, do you want to comment on the kind of drag you're seeing from the credit hedges on a—

Gregory Borenstein: Sure. I think overall, there's what we've experienced, and then there's what we've had so far. I think if you look when you discuss what's gone on this year, for example, it's been a pretty minimal drag just 'cause you've actually seen, at least year-to-date, some widening in high yield, right? Also, you have to remember that we really focus these hedges for larger drawdown scenarios. We're very mindful of the drag. I think the protection we have is much more in sort of these larger shocks if you take a look at the holdings that we have in there, versus what the drag is on a run rate. I can get you the exact as of today, 'cause obviously this number shifts around.

Greg Borenstein: Sure. I think overall, there's what we've experienced, and then there's what we've had so far. I think if you look when you discuss what's gone on this year, for example, it's been a pretty minimal drag just 'cause you've actually seen, at least year-to-date, some widening in high yield, right? Also, you have to remember that we really focus these hedges for larger drawdown scenarios. We're very mindful of the drag. I think the protection we have is much more in sort of these larger shocks if you take a look at the holdings that we have in there, versus what the drag is on a run rate. I can get you the exact as of today, 'cause obviously this number shifts around.

They're going to go for Graces.

sure, I I think overall

Speaker #5: And so I think that concerns around loans , concerns around more interest rates may go right , has certainly led to what may drive that floating rate funds .

There's what we've experienced, and then there's what we've had so far. I think if you look, when you discuss—

What's going on this year? For example,

Speaker #5: You know , there's other ETFs that I think have similar to you know , J Triple-A which is the big one in the space have experienced a similar situation .

It's been a pretty minimal drag, just because you've actually seen—

at least year to date.

Speaker #5: I mean this is what we're sort of looking for as an active trader . It creates great opportunity for us with flows moving from A to B .

Speaker #5: Lots of folks repositioning their portfolios . You know , there's a lot of rotations even from some of these ETFs where it's not necessarily inflows outflows , but maybe they're rotating .

[Analyst] (Jones Trading): Yeah

Jason Weaver: Yeah.

Gregory Borenstein: ... quite a bit depending upon where things widen to. I would note that we've been very active in repositioning and rotating, considering all this volatility. We're mindful, when we take a look at it, you know, some of these shorts may be in a more liquid high yield index. Some of these shorts may be in loan form, you know, as we've seen very specific loan issues there. You know, as well as on the out of the money side, you know, different types of puts and payers. I think that overall, as I'm trying to give you an answer off the, a rough, off the top of my head on this, you're seeing probably an overall drag, which amounts to something to 1% to 2% of fund NAV per annum.

Greg Borenstein: ... quite a bit depending upon where things widen to. I would note that we've been very active in repositioning and rotating, considering all this volatility. We're mindful, when we take a look at it, you know, some of these shorts may be in a more liquid high yield index. Some of these shorts may be in loan form, you know, as we've seen very specific loan issues there. You know, as well as on the out of the money side, you know, different types of puts and payers. I think that overall, as I'm trying to give you an answer off the, a rough, off the top of my head on this, you're seeing probably an overall drag, which amounts to something to 1% to 2% of fund NAV per annum.

Speaker #5: Right . And as there's much more active market as price discovery settles in , it's really beneficial in terms of being able to actually actively trade a maneuver .

Some widening in high yield, right. Also, you have to remember that we really focus these hedges, uh, for larger drawdown scenarios. We're very mindful of the drag. And so, I think the protection we have is much more in sort of these larger shocks. If you take a look at the holdings that we have in there, uh, versus, uh, what the drag is, um, on a run rate. So I can get you the exact as of today, because obviously this number shifts around. Yeah. Um, yeah.

Quite a bit, depending upon where things wind into. But I would note that we've been very active in repositioning and rotating, considering all this volatility, and we're mindful. Um

Speaker #5: So it's been something we've honestly looked forward to okay .

uh,

Speaker #6: That's that's interesting . Thank you . Next one is maybe more related kind of to the general mechanics in working through potential defaults and what the timeline and the structure to work through those defaults looks like .

when we take a look at it, you know, some of these shorts may be in a more liquid, high yield index, some of these shorts may be in loan form.

You know, as we've seen very specific loan issues there. Um you know as well as on the out of the money side uh you know different types of puts and payers

Speaker #6: Is it would you chalk it up to like a binary outcome with respect to recovering potential proceeds ? Or is the severity always 100% in the CLO market ?

I think that, overall, as I'm trying to give you an answer off the, you know, a rough—uh, off the top of, um,

My head on this.

Speaker #5: No no no . Historically , if you were to take a look at leveraged loans , these recoveries are well above zero . I mean , recoveries have been pushed down over time .

Gregory Borenstein: We think that considering the environments and the risk right now, it's a small, or a very reasonable, amount to pay for the type of protection we'll get if volatility or any sort of drawdown, you know, should really kind of persist throughout the year.

Greg Borenstein: We think that considering the environments and the risk right now, it's a small, or a very reasonable, amount to pay for the type of protection we'll get if volatility or any sort of drawdown, you know, should really kind of persist throughout the year.

Speaker #5: I think that , you know , historically , I think there's a lot of data out on this . You know , maybe it was up around 70 .

[Analyst] (Jones Trading): Got it. Thank you for that.

Jason Weaver: Got it. Thank you for that.

Operator: Even 2% would be less than $0.01 a month. Well worth it.

Chris Smernoff: Even 2% would be less than $0.01 a month. Well worth it.

Speaker #5: It's probably eased off of that a little bit . I think that sorry , if you take a look at Clos , for example , if you look at par , we look at something called Par burn , right ?

You're seeing probably, uh, an overall drag which amounts to something to 1 to 2 percentage in the risk. Right now, it's a small or a very reasonable, uh, amount to pay for the type of protection. We'll get if volatility or any sort of draw down, you know, should really kind of persist throughout the year.

Gregory Borenstein: We do once again to reiterate, by keeping the protection focused more out of the money options, it really does substantially reduce the cost believe it's protected. You know, to locally more heavily protect, I think the issues become: one, the costs obviously will weigh heavily. Then two, there's basis risk, right? The issue that happened that you're exposed to in terms of really tail loan names on the capital structure is not easily controllable when you talk about using more liquid indices, right? You would've seen, for example, loans underperform things like high yield, underperform anything in equities. So we're also mindful around the accuracy and efficacy of the hedge we'll use, right? There are a lot of different basis risks, so we are mindful.

Greg Borenstein: We do once again to reiterate, by keeping the protection focused more out of the money options, it really does substantially reduce the cost believe it's protected. You know, to locally more heavily protect, I think the issues become: one, the costs obviously will weigh heavily. Then two, there's basis risk, right? The issue that happened that you're exposed to in terms of really tail loan names on the capital structure is not easily controllable when you talk about using more liquid indices, right? You would've seen, for example, loans underperform things like high yield, underperform anything in equities. So we're also mindful around the accuracy and efficacy of the hedge we'll use, right? There are a lot of different basis risks, so we are mindful.

Even 2% would be less than a penny a month. Well worth it.

Speaker #5: Which is just what's the overall kind of loss of sensation of a deal . Just because now you have to be mindful that sometimes there's some loss that's not classified as a default .

Speaker #5: For example , if something is a distressed exchange , it's not a technical default . And there's generally , some haircut . But if you look at close , you know , with underlying leveraged loans , the average par burn or loss rate , as we sort of see it from a pragmatic standpoint , is about 75 basis points annually , which helps translate to that .

We do, once again, want to reiterate, by keeping the protection focused more on out-of-the-money options. It really does substantially reduce the cost. I believe it's protected, you know, to locally more heavily protect. I think the issues become, one, the costs obviously weigh heavily.

And then, two, there’s basis for us, right? The issue that happened that you’re exposed to in terms of, really, to loan names on the Capitol Street.

It is not easily controllable when you talk about using more liquid.

Speaker #5: So when loans are defaulting , you are seeing real recoveries . Now , it varies . Some certainly have been close to zero .

[Analyst] (Jones Trading): Got it. That's helpful. The, sort of, you know, decomposition of it would be interesting to see. As you know, we're just looking at it from looking at high yield CDX, and that's what you put as equivalents, but obviously there's much more basis of using individual positions. No, I appreciate the color.

Jason Weaver: Got it. That's helpful. The, sort of, you know, decomposition of it would be interesting to see. As you know, we're just looking at it from looking at high yield CDX, and that's what you put as equivalents, but obviously there's much more basis of using individual positions. No, I appreciate the color.

So, we're also mindful around, uh, the accuracy and efficacy of the headful use, right? And a lot of different basis, risks. And so we are mindful.

Speaker #5: You know , others have been much higher . And so those are all very deal specific . Right . And this is where you get into , you know , do you have liability management exercises .

Speaker #5: How are the sponsors treating things ? Are there in-groups and outgroups . You know , I think overall we try to be , you know , defaults and losses have picked up as they think we saw some of these issues .

Gregory Borenstein: Sure. I think this should all be published.

Greg Borenstein: Sure. I think this should all be published.

Got it that that's helpful. And and, and the uh, sort of, you know, decomposition of it would be interesting to see as as, you know, we're just looking at it from looking at high yield CDX. Uh, and and that's what you put as equivalents. But obviously, there's there's much more basis of using individual positions. So no, I I appreciate the color.

[Analyst] (Jones Trading): Yeah.

Jason Weaver: Yeah.

Sure. But it's not all these published. Yeah.

Operator: Yeah. It's not so much single name positions, though. That's not what we're doing. It is more in broad-based CDX, and you know, similar instruments.

Larry Penn: Yeah. It's not so much single name positions, though. That's not what we're doing. It is more in broad-based CDX, and you know, similar instruments.

Yeah.

Speaker #5: Clos have seen a lot less than in private credit . Right . These broadly syndicated loans that have real transparency on them that do price actively day to day , right .

Yeah, it's not so much single name Physicians though. That's not what we're doing. It is more in broad-based.

CDX. Um,

Speaker #5: You generally know where most of these are in terms of bids and offer , but we are mindful of where losses could go .

Gregory Borenstein: It's a lot of, you know, to Larry's point, you'll see different types of indices, potentially ETFs, right? The CLO market, we own a large number of tranches backed by, you know, each one of these deals can be hundreds of loans. It really creates a lot of diversification, which allows us to be a little more statistical. By using indices as well, it allows us to similarly, represent that, right? We're not here. It is not our strength to be making single name bets, as we were saying. Unless we think there's an outsized exposure to a single name that exists for some reason, and maybe we wanna take on that, in general, we look to avoid single name bets on the long side and single name bets on the short side.

Greg Borenstein: It's a lot of, you know, to Larry's point, you'll see different types of indices, potentially ETFs, right? The CLO market, we own a large number of tranches backed by, you know, each one of these deals can be hundreds of loans. It really creates a lot of diversification, which allows us to be a little more statistical. By using indices as well, it allows us to similarly, represent that, right? We're not here. It is not our strength to be making single name bets, as we were saying. Unless we think there's an outsized exposure to a single name that exists for some reason, and maybe we wanna take on that, in general, we look to avoid single name bets on the long side and single name bets on the short side.

And you know, similar instruments.

it it it's a lot of, you know, to Larry's Point you'll see different types of

Speaker #5: They were elevated last year above historical averages . And as you see , sector specific concerns , I think that one reason we are mindful and tepid on increasing equity exposure is that if you're a first law clo , you are exposed directly to any defaults that may occur .

Indices potentially ETFs, right? The cllo market, we own a large number of tranches. Backed by, you know, each 1 of these deals can be hundreds of loans and so it really creates a lot of diversification which allows us to be a little more statistical, um, by using indices as well. It allows us to similarly, um,

Speaker #5: So I don't know if that directly answers the question .

Speaker #6: But yeah , no , that was really helpful . Detail . Thank you guys so much . Appreciate you

Speaker #2: That was our final question for today . We thank you for your participation in the Ellington Credit Co company fiscal quarter ended December 31st , 2025 .

Gregory Borenstein: When you look at what we generally have, just to give you a set of what we generally use in our arsenal, CDX High Yield Index out of the money, IWM puts, loan ETF shorts, credit index tranches, loan ETF puts, right? I think it's just sort of all in that area of the market that we think offers different values in how we wanna protect and some sort of mixture of those, you know, we'll pivot around and adjust based upon as our portfolio and our longs change, right? The way we see things and the way that we think that that helps sort of protect and manage our risk. Got it. Well, I really appreciate that color. Thanks for all the assistance. Mm-hmm.

Greg Borenstein: When you look at what we generally have, just to give you a set of what we generally use in our arsenal, CDX High Yield Index out of the money, IWM puts, loan ETF shorts, credit index tranches, loan ETF puts, right? I think it's just sort of all in that area of the market that we think offers different values in how we wanna protect and some sort of mixture of those, you know, we'll pivot around and adjust based upon as our portfolio and our longs change, right? The way we see things and the way that we think that that helps sort of protect and manage our risk. Got it. Well, I really appreciate that color. Thanks for all the assistance. Mm-hmm.

Represent that, right? We're not here. It is not our strength to be making single-name bets, as we were saying. So, um, unless we think there's an outsized exposure to a single name that exists for some reason, and maybe we want to take on that. Uh, in general, we look to avoid single-name bets on the long side and single-name bets on the short side. But when you look at what we generally have, just to give you a sense of what we generally,

Use in our Arsenal.

CDX high yield index out of the money, uh, IWM puts, loan ETF shorts, credit index, tranches, loan ETF puts, right. I think it's just sort of all in that, uh, area of the market that we think offers, uh,

different, uh, values and how we want to protect, and some sort of

uh,

mixture of those, uh, you know, we'll pivot around and adjust based upon

As our portfolio and our longs change, right? The way we see things and the way that we think—that helps sort of protect and manage our risk.

Got it. Well, I really appreciate that, caller. Thanks for all the assistance.

Operator: Thank you. Our next question will come from Eric Hagen with BTIG. Your line is open.

Operator: Thank you. Our next question will come from Eric Hagen with BTIG. Your line is open.

Mhm.

Eric Hagen: Hey, thanks. Good morning. All right, obviously a lot of attention on redemptions for asset managers right now. The question is, how much of a knock-on effect do you see between redemptions and conditions and, you know, spread widening in the CLO market?

Eric Hagen: Hey, thanks. Good morning. All right, obviously a lot of attention on redemptions for asset managers right now. The question is, how much of a knock-on effect do you see between redemptions and conditions and, you know, spread widening in the CLO market?

Thank you. Our next question will come from Eric Haugen with BTIG. Your line is open.

Gregory Borenstein: Greg? Well, I think that one thing to point to is maybe some redemptions you've seen in things like JAAA, right? That ETF will actually sort of move as flows come in and out, and it's more easily trackable. Listen, I think the concerns around loans, concerns around where interest rates may go, right, has certainly led to, you know, what may drive that. Floating rate funds, you know, There's other ETFs, that I think have similar to, you know, JAAA, which is the big one in the space, have experienced a similar situation. I mean, this is what we're sort of looking for. As an active trader, it creates great opportunity for us, with flows moving from A to B, lots of folks repositioning their portfolios.

Chris Smernoff: Greg?

Hey, thanks. Good morning. All right. So, obviously, a lot of attention on redemptions for asset managers right now. The question is, how much of a knock-on effect do you see between redemptions and conditions and, you know, spread widening in the CLO market?

Greg Borenstein: Well, I think that one thing to point to is maybe some redemptions you've seen in things like JAAA, right? That ETF will actually sort of move as flows come in and out, and it's more easily trackable. Listen, I think the concerns around loans, concerns around where interest rates may go, right, has certainly led to, you know, what may drive that. Floating rate funds, you know, There's other ETFs, that I think have similar to, you know, JAAA, which is the big one in the space, have experienced a similar situation. I mean, this is what we're sort of looking for. As an active trader, it creates great opportunity for us, with flows moving from A to B, lots of folks repositioning their portfolios.

Right.

Uh, well, I think this one thing to point to is maybe some redemptions you've seen in things like JAAA, right? That ETF will actually sort of move as flows come in and out, and it's more easily trackable. And so

Listen, I think that concerns around loans, concerns around more interest rates may go, right? Um,

…has certainly led to, you know, what may drive that—um—floating rate funds, you know, a…

There's other ETFs um that I think have similar to you know J Triple A which is the big 1 of the space have experienced um a similar situation.

Gregory Borenstein: You know, there's a lot of rotations even from some of these ETFs, where it's not necessarily inflows, outflows, but maybe they're rotating, right? As there's a much more active market, as price discovery settles in, it's really beneficial in terms of being able to actually actively trade and maneuver. It's been something we've honestly looked forward to.

Greg Borenstein: You know, there's a lot of rotations even from some of these ETFs, where it's not necessarily inflows, outflows, but maybe they're rotating, right? As there's a much more active market, as price discovery settles in, it's really beneficial in terms of being able to actually actively trade and maneuver. It's been something we've honestly looked forward to.

I mean, this is what we're sort of looking for. As an active trader, it creates great opportunity for us, uh, with flows. Moving from A to B, lots of folks repositioning their portfolios. You know, there's a lot of rotations, even from some of these ETFs, uh, where it's not necessarily inflows or outflows, but maybe they're rotating, right? And as there's a much more active market, as, um, price discovery settles in, um, it's really beneficial. Uh,

Eric Hagen: Okay. That's, that's interesting. Thank you. Next one is maybe more related kinda to the general mechanics in working through potential defaults and what the timeline and the structure to work through those defaults looks like. Would you chalk it up to basically being like a binary outcome with respect to recovering potential procedures? Is the severity almost always 100% in the CLO market?

Eric Hagen: Okay. That's, that's interesting. Thank you. Next one is maybe more related kinda to the general mechanics in working through potential defaults and what the timeline and the structure to work through those defaults looks like. Would you chalk it up to basically being like a binary outcome with respect to recovering potential procedures? Is the severity almost always 100% in the CLO market?

In terms of being able to actually actively trade and maneuver, so, um, it's been something we've honestly looked forward to.

Okay, that's interesting. Thank you. Um, next one is maybe more related, kind of to the general mechanics in working through potential defaults.

Gregory Borenstein: No, no. Historically, if you were to take a look at leveraged loans, these recoveries are well above zero. I mean, recoveries have been pushed down over time. I think that, you know, historically, I think there's a lot of data out on this. You know, maybe it was up around 70. It's probably eased off of that a little bit. I think that, sorry. If you take a look at CLOs, for example, if you look at par. We look at something called par burn, right? Which is just what's the overall kind of loss of a deal. Just because now you have to be mindful that sometimes there's some loss that's not classified as a default. For example, if something's a distressed exchange, it's not a technical default. There's generally, you know, some haircut.

And what the timeline and the structure to work through those defaults looks like um, is it would you chalk it up to basically being like a binary outcome with respect to recovering potential proceeds or is is the severity almost always 100% in the CLA Market?

Greg Borenstein: No, no. Historically, if you were to take a look at leveraged loans, these recoveries are well above zero. I mean, recoveries have been pushed down over time. I think that, you know, historically, I think there's a lot of data out on this. You know, maybe it was up around 70. It's probably eased off of that a little bit. I think that, sorry. If you take a look at CLOs, for example, if you look at par. We look at something called par burn, right? Which is just what's the overall kind of loss of a deal. Just because now you have to be mindful that sometimes there's some loss that's not classified as a default. For example, if something's a distressed exchange, it's not a technical default. There's generally, you know, some haircut.

No, no, no. Uh, historically, if you’re to take a look at leveraged loans, these recoveries are—are—are well above zero. I mean, recoveries have been pushed down over time. Um,

I think that.

Off of that a little bit.

Um,

I think that, uh, sorry, um, if you take a look at COS, for example, uh, if you look at our—we look at something called PARB, right? Which is just, what's the overall kind of loss of a deal. Just because, now you have to be mindful that—

Sometimes there's some loss that's not classified as a default. For example, if something's a distressed exchange, it's not a technical default.

Gregory Borenstein: If you look at CLOs, you know, with underlying leveraged loans, the average par burn or loss rate, as we sort of see it from a pragmatic standpoint, is about 75 basis points annually, which, you know, helps to kinda translate to that. When loans are defaulting, you are seeing real recoveries. Now, it varies. Some certainly have been close to zero, you know, others have been much higher. Those are all very deal specific, right? This is where you get into, you know, do you have liability management exercises? How are the sponsors treating things? Are there in-groups and out-groups? You know, I think overall, you know, defaults and losses have picked up as I think we saw some of these issues.

Greg Borenstein: If you look at CLOs, you know, with underlying leveraged loans, the average par burn or loss rate, as we sort of see it from a pragmatic standpoint, is about 75 basis points annually, which, you know, helps to kinda translate to that. When loans are defaulting, you are seeing real recoveries. Now, it varies. Some certainly have been close to zero, you know, others have been much higher. Those are all very deal specific, right? This is where you get into, you know, do you have liability management exercises? How are the sponsors treating things? Are there in-groups and out-groups? You know, I think overall, you know, defaults and losses have picked up as I think we saw some of these issues.

Um, and there's generally, you know, some haircut, but if you look at, uh, Clo's, you know, with underlying leveraged loans, the average par burn, or or loss rate, as we sort of see it from a pragmatic, standpoint is about 75 basis points annually. Um,

Which, you know, helps to kind of translate to that. So when loans are defaulting, you are seeing real recoveries now. It varies. Some certainly have been close to zero, you know? Others have been much higher, and so those are all very deal specific, right? And this is where you get into.

Um, you know, do you have, uh, liability management exercises—is, how are the sponsors treating things? Are there in-groups and out-groups? Um, you know, I think overall we try to be, you know,

Gregory Borenstein: CLOs have seen a lot less than in private credit, right? These broadly syndicated loans that have real transparency on them, that do price actively day to day, right? You generally know where most of these, you know, are in terms of bid and offer. We are mindful of where losses could go. They were elevated last year above historical averages. As you see sector-specific concerns, I think that one reason we are mindful and tepid on increasing equity exposure, is that if you're a first loss CLO, you are exposed directly to any defaults that may occur. I don't know if that directly answers the question, but.

Greg Borenstein: CLOs have seen a lot less than in private credit, right? These broadly syndicated loans that have real transparency on them, that do price actively day to day, right? You generally know where most of these, you know, are in terms of bid and offer. We are mindful of where losses could go. They were elevated last year above historical averages. As you see sector-specific concerns, I think that one reason we are mindful and tepid on increasing equity exposure, is that if you're a first loss CLO, you are exposed directly to any defaults that may occur. I don't know if that directly answers the question, but.

Defaults and losses had picked up, as I think we saw some of these issues. CLS have seen a lot less than in private credit, right? These broadly syndicated loans that have real transparency on them, that do price actively day-to-day, right? You generally know where most of these are in terms of a bid and offer. Um,

But we are mindful of.

Where losses could go to, um, they were elevated last year, but historical averages. And as you see, sector-specific concerns, um,

I think that one reason we are mindful and kept on increasing equity exposure is that, if you're a first loss C, you are exposed directly to any defaults that may occur.

Eric Hagen: Yeah, no. That was really helpful detail. Thank you guys so much. Appreciate you.

Eric Hagen: Yeah, no. That was really helpful detail. Thank you guys so much. Appreciate you.

So, um, I don't know if that directly answers the question. Um,

Gregory Borenstein: All right.

Greg Borenstein: All right.

But yeah, no, that was really helpful detail. Um, thank you guys so much. Appreciate you.

Operator: That was our final question for today. We thank you for your participation in the Ellington Credit Company fiscal quarter ended 31 December 2025 Results Conference Call. You may now disconnect the line and have a great day.

Operator: That was our final question for today. We thank you for your participation in the Ellington Credit Company fiscal quarter ended 31 December 2025 Results Conference Call. You may now disconnect the line and have a great day.

Thank you for your participation in the Ellington Credit Company fiscal quarter ended December 31, 2025 results conference call. You may now disconnect the line and have a great day.