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- **Record Q2 Performance**: 19.7% annualized NAV return and 27% CLO portfolio growth, driven by timely asset redeployment.
- **Strong Yield Metrics**: 15.6% yield on U.S. CLO portfolio and $0.18 per share net gains from active trading.
- **Strategic Shifts**: Increased focus on secondary market CLO mezzanine and credit hedges to mitigate tariff-related risks.
- **Leverage Expansion**: Plans to issue debt to accelerate portfolio growth to $400 million by year-end.

**【CEO Summary Section】**
Ellington Credit Company reported a strong start to its new fiscal year with a 19.7% annualized NAV return and a 27% quarter-over-quarter growth in its CLO portfolio to $317 million. The company opportunistically sold its legacy mortgage assets in early April, redeploying capital into CLOs at market lows. Performance was driven by CLO equity and mezzanine investments, with net investment income exceeding expectations. Management highlighted the benefits of the closed-end fund structure, including tax efficiency and enhanced investment flexibility. The company projects monthly net investment income to cover its $0.08 distribution starting in September.

**【CFO Financial Commentary】**
GAAP net income was $0.27 per share, with adjusted net investment income of $0.18 per share. The U.S. CLO portfolio yielded 15.6%, driven by strong performance across debt and equity tranches. Net realized and unrealized gains totaled $0.18 per share, including par redemptions of mezzanine positions purchased at discounts. European CLO equity underperformed due to wider credit dispersion, but the portfolio remained well-diversified with 95% exposure to senior secured loans. The company maintained $36.6 million in cash, supporting its active trading strategy.

**【Q&A Key Highlights】**
1. **CLO Market Dynamics**: Greg Borenstein explained that AAA spreads lagged loan price recoveries due to reduced demand from ETFs and foreign buyers. The company shifted focus to secondary market opportunities, executing 79 unique CLO trades in Q2. 
2. **Tariff Impact**: CEO Larry Penn noted tariffs create sector-specific risks, making mezzanine tranches less sensitive to macro volatility compared to equity. The company added credit hedges at improved entry points.
3. **NAV Update**: As of July 31, NAV was $6.16 per share, up from $6.12 at quarter-end. The company plans to issue long-term unsecured debt to boost leverage and earnings growth.


Ellington Credit Company (EARN) Q2 2025 Earnings Call Transcript

- **Closed-End Fund Transition**: 28% of capital (formerly in Agency RMBS) will be redeployed into CLOs post-April 1 conversion, targeting 0.5x leverage.
- **CLO Growth**: CLO portfolio expanded 10x in 2024, with 72% allocation by year-end. European CLOs outperformed U.S. peers, driving diversification benefits.
- **Financial Resilience**: Q4 ADE of $0.27 covered the dividend, despite a $0.07 net loss. Short TBA positions mitigated interest rate risk, reducing net mortgage exposure to near zero.
- **Market Opportunity**: Recent credit volatility creates inefficiencies, with CLO equity offering wide net interest margins. Post-conversion, fresh capital deployment may drive Q2 ADE recovery.
- **Risk Management**: Liquidity remains strong at $111M, and debt-to-equity ratio stayed below 3:1. Post-conversion, the company will no longer hold Agency RMBS, focusing solely on CLOs.


**【CEO Summary Section】**
- **Conversion Progress**: Shareholders approved the transition to a closed-end fund, set to complete on April 1, 2025. The CLO portfolio grew by 18% to $171 million in Q4, with 58% allocated to CLO equity. By year-end, the net mortgage assets-to-equity ratio dropped to 2.6:1, nearing zero post-year-end due to TBA short positions.
- **Financial Performance**: Adjusted distributable earnings (ADE) of $0.27 per share covered the $0.24 dividend. Despite a $0.07 net loss, CLO mezzanine debt and equity contributed positively, offsetting Agency RMBS underperformance.
- **Risk Management**: Short TBA positions hedged interest rate risk, reducing net mortgage exposure. Liquidity remained strong with $111 million in cash and unencumbered assets.
- **Future Outlook**: Post-conversion, 28% of capital (previously in Agency RMBS) will be deployed into CLOs, targeting a 0.5x leverage ratio. Full ramp-up of the CLO portfolio is expected by mid-2025.

**【CFO Financial Commentary】**
- **Q4 Results**: Net loss of $0.07 per share vs. ADE of $0.27. CLO mezzanine debt net interest income grew, with gains from tighter spreads and redemptions. CLO equity showed modest returns, while Agency RMBS underperformed due to rate volatility.
- **Balance Sheet**: Debt-to-equity ratio at 2.9x, below the 3:1 threshold. Liquidity metrics remain robust, with no corporate income tax liability post-conversion.
- **Portfolio Shifts**: CLO allocation rose to 72% (from 11% in 2024), with 14% in European CLOs. Agency RMBS holdings decreased to $512 million, prioritizing liquidity ahead of conversion.

**【CIO & Portfolio Manager Insights】**
- **CLO Market Dynamics**: Mezzanine tranches performed well on spread tightening, while equity faced headwinds from loan refinancing and coupon compression. European CLOs outperformed U.S. peers, highlighting diversification benefits.
- **Agency Strategy**: Short TBA positions offset long Agency RMBS, reducing market risk. Post-conversion, Agency pools will be sold, freeing capital for CLOs.
- **Market Volatility**: Recent credit market volatility creates inefficiencies, offering opportunities for active management. Long-term risks include corporate stress from elevated rates.

**【Q&A Highlights】**
- **Capital Deployment**: ~28% of equity (~$171 million) will be redeployed post-conversion, targeting CLO equity with wide net interest margins. ADE may temporarily dip in Q2 but recover by Q3.
- **Market Reaction**: CLO equity prices reflect technical factors (discount rate widening) more than fundamental credit deterioration. Mezzanine tranches remain attractive at discounts.
- **Leverage Target**: Initial leverage of 0.5x (e.g., $150M CLOs per $100M equity) may expand as the portfolio stabilizes, leveraging closed-end fund capital market access.


Ellington Residential Mortgage REIT (EARN)-13 Mar 25-2024 Q4 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-13 Nov 24-2024 Q3 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-13 Aug 24-2024 Q2 Earnings call transcript

Ellington Credit (EARN)-15 May 24-2024 Q1 Earnings call transcript

- **Strategic Shift to CLOs**: 17% equity allocation to CLOs, with 70% growth in 2024 Q1, targeting 15-20% returns.
- **Financial Performance**: Q4 net income $0.75/share, ADE $0.27/share, NIM 2.19% (vs. 1.34% prior quarter).
- **Market Trends**: Agency MBS spreads wide (150-200bps), CLOs benefit from corporate credit tightening and leveraged loan refinancing.
- **Leverage Strategy**: 5-6x CLO leverage vs. 8-9x agency MBS, reducing rate risk exposure.
- **Fed Rate Cuts Catalyst**: Agency MBS demand growth if rates decline 100-200bps for refinancing eligibility.

**【CEO Summary Section】**
- The company reported net income of $0.75 per share and adjusted distributable earnings (ADE) of $0.27 per share for Q4 2023. The CEO emphasized the strategic pivot to corporate loan obligations (CLOs), which now account for 17% of total equity allocation. The CLO portfolio grew by $13.6 million in Q4 and an additional 70% in early 2024, driven by high-yield returns (15-20%) and lower leverage compared to agency MBS. The CEO highlighted the stability and growth potential of CLOs amid market volatility and the expected Federal Reserve rate cuts.

**【CFO Financial Commentary】**
- Q4 net income was $0.75 per share, with ADE of $0.27 per share, up from $0.24 in the prior quarter. The net interest margin (NIM) expanded to 2.19% (from 1.34%), driven by higher asset yields and lower funding costs. The CLO portfolio's NIM of 6.28% (up from 4.55%) outperformed agency MBS (2.02% NIM) and non-agency RMBS (4.55%). The debt-to-equity ratio declined to 5.3x (from 7.3x), reflecting reduced leverage on CLOs.

**【CIO Market Insights】**
- Agency MBS spreads remain wide (historically 150-200bps), supported by low supply, benign prepayment risk, and inflows into fixed-income funds. CLOs benefit from corporate credit tightening (high-yield spreads down 100bps in Q4) and leveraged loan refinancing. Seasoned CLO mezzanine tranches are expected to deleverage faster due to higher prepayment speeds, driving returns for EARN's discounted investments.

**【Q&A Highlights】**
- **Leverage Strategy**: Management aims to balance agency MBS volatility with stable CLO returns, targeting 5-6x leverage for CLOs. 
- **Prepayment Risk**: Most owned coupons require 100-200bps rate declines for refinancing, with affordable prepayment protection for agency pools.
- **Fed Policy Impact**: Rate cuts could boost Agency MBS demand, while CLOs benefit from corporate credit recovery and leveraged loan inflows.
- **Market Liquidity**: CLOs offer higher NIM (6-7x vs. 8-9x for agency), with less delta hedging cost exposure.

**【2024 Outlook】**
- CLOs to drive ADE growth, with agency MBS performance dependent on rate cuts timing. The company expects continued CLO portfolio expansion and reduced leverage on agency MBS. The leveraged loan market's 40%+ par trading incentivizes refinancing, supporting CLO cash flows and deleveraging.

Ellington Residential Mortgage REIT (EARN)-7 Mar 24-2023 Q4 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-13 Nov 23-2023 Q3 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-11 Aug 23-2023 Q2 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-12 May 23-2023 Q1 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-7 Mar 23-2022 Q4 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-10 Nov 22-2022 Q3 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-12 Aug 22-2022 Q2 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-3 May 22-2022 Q1 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-8 Mar 22-2021 Q4 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-3 Nov 21-2021 Q3 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-3 Aug 21-2021 Q2 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-8 May 21-2021 Q1 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-17 Feb 21-2020 Q4 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-8 Nov 20-2020 Q3 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-8 Aug 20-2020 Q2 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-9 May 20-2020 Q1 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-11 Feb 20-2019 Q4 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-5 Nov 19-2019 Q3 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-2 Aug 19-2019 Q2 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-3 May 19-2019 Q1 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-12 Feb 19-2018 Q4 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-6 Nov 18-2018 Q3 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-3 Aug 18-2018 Q2 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-4 May 18-2018 Q1 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-9 Feb 18-2017 Q4 Earnings call transcript

Ellington Residential Mortgage REIT (EARN)-3 Nov 17-2017 Q3 Earnings call transcript

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