NYSE:EARN Ellington Credit Q3 2024 Earnings Report $5.61 +0.12 (+2.19%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$5.62 +0.01 (+0.27%) As of 04/25/2025 07:58 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Ellington Credit EPS ResultsActual EPS$0.28Consensus EPS $0.27Beat/MissBeat by +$0.01One Year Ago EPS$0.21Ellington Credit Revenue ResultsActual Revenue$4.75 millionExpected Revenue$7.55 millionBeat/MissMissed by -$2.80 millionYoY Revenue GrowthN/AEllington Credit Announcement DetailsQuarterQ3 2024Date11/12/2024TimeAfter Market ClosesConference Call DateWednesday, November 13, 2024Conference Call Time1:00PM ETUpcoming EarningsEllington Credit's Q1 2025 earnings is scheduled for Tuesday, May 13, 2025, with a conference call scheduled on Wednesday, May 14, 2025 at 11:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Ellington Credit Q3 2024 Earnings Call TranscriptProvided by QuartrNovember 13, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00by. Welcome to the Ellington Credit Company 20 24 Third Quarter Financial Results Conference Call. Today's call is being recorded. It is now my pleasure to turn the floor over to Aladdin Chile, Associate General Counsel. Sir, you may begin. Speaker 100:00:37Thank you. Before we begin, I would like to remind everyone that certain statements made during this conference call may constitute forward looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements are not historical in nature. As described under Item 1A of our annual report on Form 10 ks and Part 2, Item 1A of our quarterly report on Form 10 Q, forward looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs, expectations, estimates and projections. Consequently, you should not rely on these forward looking statements as predictions of future events. Speaker 100:01:14Unless otherwise noted, statements made during this conference call are made as of the date of this call. The company undertakes no obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise. Joining me on the call today are Larry Penn, Chief Executive Officer of Ellington Credit Company Mark Tecotzky, our Co Chief Investment Officer and Chris Smerinoff, our Chief Financial Officer. We are also again joined by Greg Borenstein, Head of Corporate Credit at Ellington Management Group. Following the completion of our conversion to a CLO closed end fund, Greg, along with Ellington's founder, Mike Granos, will officially be designated as EARN's 2 portfolio managers. Speaker 100:01:53Our Q3 earnings conference call presentation is available on our website, ellingtoncredit.com. Our comments this morning will follow that presentation. Please note that any references made on this call to figures in that presentation are qualified in their entirety by the notes at the back of the presentation. Any figures relating to the current status of the shareholder vote are made as of this morning. Such figures are subject to change based on a variety of factors, including the ability of shareholders to change or revoke their votes, which they are entitled to do at any time prior to the annual meeting and our tabulator finalizing its report. Speaker 100:02:25As a reminder, during this call, we'll sometimes refer to Ellington Credit Company by its NYSE ticker EARN or EARN for short. With that, I will now turn Speaker 200:02:35the call over to Larry. Thanks, Eladine, and good morning, everyone. We appreciate your time and interest in Ellington Credit Company. I'll start with an update on the shareholder vote related to our strategic transformation. As you've seen, we have postponed the Annual Shareholder Meeting as we work to accumulate the required votes to approve the conversion of EARN to a Delaware closed end fund. Speaker 200:02:59Shareholder support for the conversion has been overwhelmingly positive. Based on voting results as of this morning, the 3 conversion related proposals have approval rates above 92% and over 95% if you don't include abstentions. However, in order to pass 2 of the 3 proposals, we need 4 votes from a majority of all shares outstanding, not just the votes cast. And as of this morning, we are still short of that threshold. On those proposals, we currently have about 10,500,004 votes, but we still need a little more than 2,000,000 additional 4 votes in order for them to pass. Speaker 200:03:42I should note that these approval rates are unofficial and preliminary and shareholders can change their vote at any time prior to the annual meeting. Both ISS and Glass Lewis, the leading independent proxy advisory services have unanimously recommended 4 votes on all the conversion related proposals as they recognize the benefits to earn shareholders of the conversion. On Slide 4, we highlight some of the anticipated benefits to shareholders of the transformation, which include better projected risk adjusted returns over the long term and enhanced access to the capital markets, while also affording shareholders with the additional protections provided by the 1940 Act. Furthermore, as a registered investment company, we would generally not be subject to corporate income tax. With our current status as a taxable C Corp, we are subject to a small level of corporate income tax, but we will be subject to the full corporate tax level after our NOLs burn off. Speaker 200:04:47Also, until we convert to a RIC, we also need to continue to hold a portfolio of agency MBS pools to maintain our exemption from the 1940 Act. And thus that keeps us from completing the full transition of our investment portfolio to corporate CLOs. To those who have voted already, thank you. And to those with unvoted proxies, please submit your vote as soon as possible. Please turn now to Slide 6 of the earnings presentation for the market backdrop for the Q3. Speaker 200:05:22Despite volatility spiking in early August, the CLO market in the Q3 continued to benefit from strengthening loan fundamentals and robust demand for leveraged loans. As you can see on this slide, leveraged loan default rates continue to decline in both U. S. And Europe, while prepayment rates continue to be elevated, particularly in the U. S. Speaker 200:05:44In terms of new CLO issuance, while tightening credit spreads and lower interest rates supported strong corporate loan issuance, net CLO supply in the U. S. Was actually negative overall for the quarter as a result of the combined impact of an elevated pace of refinancings and resets and as many seasoned CLOs were called. Also as depicted on Slide 6, the combination of strong loan fundamentals and positive market technicals during the quarter drove CLO mezzanine spreads tighter overall in both U. S. Speaker 200:06:15And European markets, while high yield and IG credit indices tightened further as well. Similar to the prior quarter, performance for U. S. CLO equity was somewhat mixed, which Greg will get into later on this call. Meanwhile, in the Agency MBS market, with interest rates falling and the yield curve steepening in anticipation of the Fed's cut in September, Agency MBS spreads tightened and the U. Speaker 200:06:40S. Agency MBS Index generated an excess return of 76 basis points for the quarter. I'll turn now to EARN's 3rd quarter results on Slide 7. We had another quarter of excellent performance from our CLO debt portfolio with robust loan prepayments triggering further deleveraging in our seasoned mezzanine positions and with low default rates boosting demand for junior mezz tranches, which drove credit spreads tighter. We also enhanced returns in our CLO debt portfolio through some opportunistic trading and we further enhance returns by driving the liquidation of a CLO where we own discount mezzanine debt. Speaker 200:07:20In that case, the redemption proceeds we received upon the CLO's liquidation far exceeded the value of our mezz debt position were to have remained as a CLO tranche. Meanwhile, we also had positive performance in our CLO equity portfolio, also enhanced by opportunistic trading as well as by our successful completion of 2 deal refinancings. Finally, we had positive results from our remaining RMBS investments and EARN's overall annualized economic return for the Q3 was 10.8%. As with prior quarters, our ongoing shift from Agency MBS into CLOs continue to lower our leverage ratios. You can see on Slide 7 that our debt to equity ratio declined to 2.5:one@quarterend. Speaker 200:08:09Meanwhile, our cash plus unencumbered assets finished the quarter at a very healthy $121,500,000 which represented nearly 2 thirds of our total equity. The wide net interest margins on our CLOs also enabled our adjusted distributable earnings to continue to cover our dividends during the Q3, despite our significantly lower leverage and even as we terminated in conjunction with selling agency pools, several interest rate swap hedging positions that had been supporting ADE. As we had forecast on last quarter's call, our ADE did tick down in the 3rd quarter as we terminated these swaps. But as we had also forecast, our ADE for the Q3 still exceeded our Q1 level of $0.27 per share and covered our Q3 dividends. With that, I'll now pass it over to Chris to review our financial results for the Q3 in more detail. Speaker 200:09:01Chris? Speaker 300:09:02Thank you, Larry, and good morning, everyone. Please turn to Slide 8 for a summary of Ellicyn Credit's 3rd quarter financial results. For the quarter ended September 30, we are reporting net income of $0.21 per share and adjusted distributable earnings of $0.28 per share. ADE excludes the catch up amortization adjustment, which was positive $173,000 in the 3rd quarter. Our debt to equity ratio adjusted for unsettled trades decreased to 2.5 times at September 30 compared to 3.7 times at June 30. Speaker 300:09:38The decline was driven by higher shareholders' equity and the less leverage we employ on our growing CLO investment portfolio as compared to the leverage we employ on our legacy agency MBS portfolio. Similarly, our net mortgage assets to equity ratio decreased over the same period to 3 times from 4 times. Our overall net interest margin increased to 5.22 percent from 4.24% in the prior quarter, which reflects a higher allocation of capital to the credit strategy and a higher NIM on our agency portfolio driven by higher asset yields and a lower cost of funds. Despite the overall increase, the net interest margin on our credit portfolio actually declined sequentially, finishing more in line with our 1st quarter NIM. As we highlighted last quarter, the higher NIM in the 2nd quarter has been the result of accelerated prepayments on the loans underlying several discounted CLO positions, which resulted in high payoff activity and high asset yields for those CLOs positions. Speaker 300:10:46Prepaid payment activity was less significant in the Q3 in our CLO mezz portfolio, which drove asset yields and NIM in the credit portfolio more in line with our Q1 results. In the Q3, we continue to benefit from positive carry on our interest rate swaps, where we receive a higher floating rate and pay a lower fixed rate. But as Larry mentioned, the impact of this benefit declined in Q3 as some of these swaps expired and as we sold down the agency portfolio and took off the associated hedges. The swap benefit should continue to burn off as we finish our rotation out of Agency MBS and into CLOs, the wide NIMs of the CLOs themselves are a counterbalance. The combination of lower leverage and the swap terminations drove the sequential decline in our ADE. Speaker 300:11:38Despite the decline, our adjusted distributable earnings continue to exceed our dividends paid in the 3rd quarter. Slide 9 shows the attribution of income by strategy. In the Q3, the CLO strategy generated $0.12 per share of portfolio income driven by strong net interest income, which increased sequentially with the larger CLO portfolio. Further, net gains on our U. S. Speaker 300:12:05And European CLO debt portfolios were supported by both opportunistic sales and tighter credit spreads on health positions. We also benefited from positive performance from our U. S. And European CLO equity portfolios, where net interest income exceeded net realized and unrealized losses. The net realized and unrealized losses in CLO equity were primarily the result of dollar price and NIM compression on the corporate loan assets underlying our CLOs, partially offset by the positive impact of opportunistic trading and the 2 deal refinancings that Larry mentioned. Speaker 300:12:46Meanwhile, our agency strategy performed well in the Q3, generating $0.18 per share of portfolio income. In the quarter, interest rates fell, the yield curve steepened and Agency MBS spreads tightened as the market anticipated the beginning of the Federal Reserve's interest rate cutting cycle. In September, the Federal Reserve reduced the target range for the federal funds rate by 50 basis points and also released updated economic projections that implied another 50 basis points of interest rate cuts later in 2024, although that expectation is no longer shared by the market. Tighter yield spreads drove net gains on our Agency RMBS, which exceeded net losses on our interest rate hedges driven by declining interest rates. Our non agency portfolio generated positive results for the quarter as well, driven by net interest income and net gains associated with several profitable sales. Speaker 300:13:48As a reminder, in connection with our strategic transformation, we revoked our REIT election effective January 1 this year and we are currently operating as a taxable C Corp. We came into the year with substantial net operating loss carry forwards and in the Q3 we used a portion of those to offset the majority of our federal taxable income and we intend to continue to do so for so long as we operate as a C Corp. For the Q3 we accrued an income tax expense of $463,000 which represents the net tax liability accrued on our taxable income after the NOL offset. Due to federal and state restrictions on NOL utilization, we cannot offset 100% of our taxable income. Our utilization of NOLs reduced our effective tax rate from what would have been about 28% to about 7.8% for the quarter. Speaker 300:14:46Please note that we are not booking a deferred tax asset on our balance sheet related to the NOLs. So our reported book value remains fully tangible. After the conversion to a close end fundRIC, we generally will not be subject to corporate income tax. Please turn now to our balance sheet on Slide 10. Book value per share was $6.85 at September 30 compared to $6.91 at June 30. Speaker 300:15:15Including the $0.24 per share of dividends in the quarter, our economic return for the quarter was 2.6% or 10.8% annualized with compounding. We ended the quarter with $121,500,000 of cash and unencumbered assets. Next, please turn to Slide 11 for a summary of our portfolio holdings. Our CLO portfolio increased to $144,500,000 at September 30 as compared to $85,000,000 at June 30. At September 30, CLO equity comprised 52% of our total CLO holdings, up from 47% at June 30. Speaker 300:15:57Meanwhile, European CLO investments comprised 17% of our total CLO holdings at September 30, consistent with the prior quarter. Our capital allocation to CLOs increased to 58% at September 30 from 45% at June 30. Meanwhile, the size of our agency RMBS portfolio decreased to RMB462 1,000,000 compared to RMB531 1,000,000 at June 30. And as you can see on Slide 12, we are entirely out of 15 year pools. Cost to liquidate our Agency RMBS continue to be low and our remaining Agency RMBS portfolio is very liquid. Speaker 300:16:38Our aggregate holdings of interest rate interest only securities and non Agency RMBS decreased as well to less than $12,000,000 On Slide 13, we provide details of our interest rate hedging portfolio. During the quarter, we continued to hedge interest rate risk primarily through the use of interest rate swaps. As shown on Slide 14, we again ended the quarter with a net loan TBA position both on a notional basis and as measured by 10 year equivalents. On Slide 15, you can see that nearly all the loans underlying our CLO portfolio are floating rate and as such have much lower interest rate duration. We also selectively hedge the credit risk of our corporate CLO and non agency RMBS investments. Speaker 300:17:25As of September 30, 2024, our credit hedge portfolio was relatively small. Finally, general and administrative expenses were higher quarter over quarter due to expenses incurred related to the strategic transformation. Management fees were also higher quarter over quarter driven by higher shareholders' equity at quarter end. I will now turn the presentation over to Greg. Speaker 400:17:53Thanks, Chris. It's a pleasure speaking to everyone again today. As Larry mentioned, performance of our CLOs in Q3 was led foremost by our debt portfolio, where tightening mezz spreads offered opportunities to monetize gains and also drove positive price action on assets that we continue to hold. As the market has continued to tighten, we have looked to trade out of debt positions where we think the total return upside is largely played out. We are still selectively finding opportunities in mezz paper, but some of the low hanging fruit is gone. Speaker 400:18:29And we are very focused on appropriate risk adjusted returns and avoiding reaching for yield by taking on undue risks. We also had positive performance in our CLO equity portfolio in the quarter, albeit with a lower ROE than our mezz portfolio. Overall in the market, the performance of CLO equity was more of a mixed bag, as tightening credit spreads on both leveraged loans on the asset side and CLO debt tranches on the liability side produce some more nuanced results. On one hand, tightening debt spreads allowed some deals to refinance or reset their debt, including extending their reinvestment periods. And that drove strong returns for many CLO equity profiles and deals with better performing portfolios and higher debt costs. Speaker 400:19:21On the other hand, higher prepayment speeds in the loan market led to both price declines for loans trading above par and compression in loan floating rate spreads as large volumes of loans trading at premiums to par were refinanced at par and replaced with lower spread loans. These effects triggered mark to market losses in some CLO equity profiles as both their interest payments due to lower excess interest in the CLO and underlying asset values declined in tandem. We saw a similar dynamic play out in Europe, although with slower prepayment speeds, the negative impact of the prepayment of premium loans was less pronounced. As we look to the remainder of the year, we currently see better relative value and ample opportunities in CLO equity, where tighter debt spreads are improving economics for both new and existing deals. Early signs post election are showing general spread tightening in the credit markets, which accompanied with higher rates have continued to improve demand for floating rate CLO liabilities. Speaker 400:20:33In addition, continued heavy issuance in the CLO market is creating inefficiencies and relative value opportunities in both CLO debt and equity. Given our strong systems and deep experience in both primary and secondary markets, EARN is well positioned to capitalize on these inefficiencies. With that, I turn the presentation over to Mark. Speaker 500:21:01Thanks, Greg. Q3 was generally a strong quarter for spread products. Both CLO Debt and Agency MBS performed well relative to benchmarks as the Fed kicked off its interest rate cutting cycle in September. Looking at agency prepayments, we have been predicting that newly issued non call protected pools could have elevated repayment rates if they get in the money and that is exactly what happened in the Q3 when rates fell. We saw CPRs north of 60 for certain Fannie Mae pools with mid-7s WACC. Speaker 500:21:36Fortunately for EARN, we have largely protected our agency portfolio from that type of exposure. Looking back over the past 12 months, I am really happy that we were able to put so much money to work in the CLO market at wider spreads than current levels. In the Q3, we stayed invested in our core holdings of Agency MBS, while also selling down that portfolio as needed to free up cash for additional CLO purchases. By quarter end, nearly 60% of our capital was allocated to CLOs. However, until we complete EARN's conversion to a RIC, I'll note that our ability to increase our CLO capital allocation much above that 60% level is limited by the requirement to stay exempt from the 1940 Act, which requires us to maintain that core portfolio of agency pools. Speaker 500:22:24So from here, we will stay largely invested in the current MBS portfolio until the conversion occurs, capturing the available agency NIM and we'll only really be net selling MBS to add CLOs to the extent we have room. Meanwhile, we've continued to make our agency MBS portfolio incrementally more liquid. And once we obtain the requisite approvals for the conversion, we will sell down our remaining agency MBS portfolio and can complete the rotation to CLOs. We've seen long term interest rates, including mortgage rates, rise substantially since quarter end. That has had a chilling effect on origination volumes, which are also poised for the typical seasonal slowdowns. Speaker 500:23:08In addition, the Q3 brought the 1st Fed rate cut in 4 years and we just had another cut last week. So we should soon see our 1st non inverted yield curve in a while. All these factors should increase demand for MBS from banks and CMO arbitrageurs and create a favorable supply demand technical for agency MBS going into year end. Now back to Larry. Speaker 200:23:33Thanks, Mark. I'm pleased with the continued ramp up and strong performance of the CLO strategy in EARN and how we've pivoted our CLO portfolio composition as the market opportunity has evolved. I'm particularly pleased with the active approach we've taken to enhance our returns. Our active approach not only includes the opportunistic trading that is a core tenant of our portfolio management philosophy, but it also can include driving refinancing and or liquidation of the deals we're invested in when beneficial and achievable. All these steps have added alpha to our results. Speaker 200:24:09So far in the Q4, we've continued to see the benefits of the portfolio rotation away from Agency MBS and towards CLOs, with CLOs returning positive returns in October even as volatility and interest rates rose. Those market movements drove agency spreads quite a bit wider in October, but they've somewhat retightened in November post election. We very much look forward to completing our RIC conversion. I strongly believe that our strategic transformation will generate superior risk adjusted returns for Ellington Credit shareholders. If you haven't voted yet, please do so. Speaker 200:24:46And as always, we are happy to answer any questions. I continue to be encouraged by how positive our conversations with investors and analysts have been following the announcement of the transformation earlier this year. With that, we'll now open the call to questions. Operator, please go ahead. Operator00:25:03Thank you. And we will take our first question from Crispin Love with Piper Sandler. Please go ahead. Speaker 600:25:27Hi, this is Brad Cappuzzi on for Crispin. Just kind of high level, can you speak on the credit quad and the CLO book and how you expect that to trend over time? What kind of what are your delinquency and loss expectations as well as risk adjusted returns? Speaker 400:25:44Sure. I think overall, longer term, if rates if we go through, for example, it's scenario dependent, a very high rate environment for a long time that will clearly stress corporate credit and some of these companies' ability to be able to service their debt. I think in general, you see the current trailing 12 month default rate is below 1% historically. It may sit 2 north above that. If you take a look at COVID, this got to at the peak a little over 4%. Speaker 400:26:29And so that gives you a sense of some of the things that we've seen in both benign and stressed environments. We don't have a crystal ball, but I would say that you could certainly see them elevate from where we are now into that more traditional average if we stay in a high rate environment. And how we think about the credit quality, I think overall, if things get tighter in the market and spreads are tighter, it allows more companies to have access to financing. And perhaps you see looser documentation, which is something we look at. If things start to get more stressed, you're going to see the market be a little bit more buyer friendly with perhaps tighter language, more covenants and only better quality companies coming to market. Speaker 400:27:21And so it's a little bit of balance in terms of how we see that progressing, if that answers it. Speaker 600:27:29Yes, I appreciate the commentary. And then just the last question for me. How are you guys thinking about the dividend, especially as you rotate more capital and the CLOs and leverage continues to tick down? Speaker 200:27:43Yes. Well, as we rotate I can take that. I mean, as we're rotating into CLOs, yes, the leverage is ticking down, but our net interest margin is going up quite quickly. So our and as I mentioned, our adjusted distributable earnings for the Q3 were in line maybe even penny higher than they were back in the Q4. So we don't see at this point, we see good support for the dividend through our adjusted distributable earnings and we've already rotated gone from basically 0%. Speaker 200:28:24If you go back a little over a year of CLOs to now, I think as we mentioned before, over half of our capital is risk capital is now in CLOs. So, less leverage, but greater net interest margin and the 2 seem to be balancing out pretty well. So our dividend is still well supported as we continue this rotation. Speaker 600:28:46Awesome. I appreciate it. Thank you. Operator00:28:51Thank you. And we will take our next question from Douglas Harter with UBS. Please go ahead. Speaker 600:29:01Thanks. You guys were active in raising capital through the ATM during the quarter. Can you talk about kind of your continued appetite to do that? Speaker 200:29:17Yes. I mean, Chris, do you want to talk about kind of our execution there in terms of was there any dilution? Sure. Speaker 300:29:25Yes. During the quarter, there was $0.04 of dilution. We also expect that that play dilution will reflect in better G and A ratios going forward. Speaker 200:29:47Right. So that will be at those levels, it's very accretive to earnings because we raised a fair amount of capital. So I would say, look, our stock price now is not in a place where we would tap the ATM. But when we were trading much higher in the Q3, we took advantage of it. And so it's going to be very price dependent at this point. Speaker 200:30:12And if we're raising capital as we did net very close to book, that is given that we're a small company and that we do have fixed expenses. I mean it's I think it's a no brainer. Speaker 600:30:30Makes sense. Appreciate the answer. Thank you. Operator00:30:35Thank you. And we will take our next question from Jason Weaver with Jones Trading. Please go ahead. Speaker 700:30:43Hey, guys. Thanks for taking my question. Maybe one for Greg, just on the visibility. I think you touched on this in your prepared remarks. Would you expect the strong issuance trend to remain in place if pricing remains as supportive? Speaker 700:30:56Any sort of nuance or cadence implications over the next few quarters ahead that you can suss out? Speaker 400:31:02So I think on the trend we're heading and what we see in the market right now, I this was a very large issuance here. You saw a lot of resets. I think you will continue to see that. Taking a step back, AAAs have come in, they're starting to get close to levels that were close to the post financial crisis types. I think with demand for floating rate products, especially from maybe some traditional places that didn't wait CLOs as much. Speaker 400:31:40I think with what happened in 2022, you see places very focused on rate duration with perhaps where that is headed. That in addition to the growth of the CLO ETF space at the top of the capital structure, this should keep putting demand pressure on CLO liabilities. As that happens, as deals will exit their non call, you will see the equity investors which control the option continue to come to market. And you may also see actual new issuance deals continue to pick up with loan creation also turning back on. That was a bit of a that's sort of what slowed things down last year. Speaker 400:32:28It was hard for people to simply source the loans. That's why it was a lot of recycling or resetting, if you will. But just talking to a lot of the banks that we work with and actually bank these transactions, everyone seems like they have a busy pipeline ahead. And getting to these levels, which we have not seen since a couple of years before COVID in that 2017, 2018 timeframe, a lot of deals will still find it additive to come in and reset their liabilities. Speaker 700:33:04Got it. Thanks for that. And then maybe related to it exactly, assuming today, if you had certainty about the shareholder vote being supportive, to liquidate the agency portfolio seems relatively straightforward. But what does the timeline look like to move that capital into new CLO equity? Speaker 400:33:25Sure. So I think we're obviously watching it carefully. And so as we see the probability increase there, Speaker 300:33:35we Speaker 400:33:35will behave accordingly in terms of how much dry powder we want to keep in terms of leaning into that a little bit. I think that overall, to be realistic, the tighter the market is, the more patient and selective we are about our investments. If things were dislocated, that would obviously present a real opportunity and we could go into secondary and purchase CUSIPs pretty quickly. That said, I think with earn is left in a very diversified place right now. And so we're fortunate to not be too worried about concentration risk. Speaker 400:34:17And so I think that if we start to see that move forward, as noted in the prepared remarks, we really see the value in new issue. And so I think we would simply be more active with where we see that opportunity coming in at new issue and sort of setting up those types of transactions to rotate the rest of the portfolio and get going on that. And as we said, it's very, very busy. And so with all the banks working on deals and all the volumes coming out, I think we would just lean into that opportunity more. Speaker 700:34:51Excellent. That's very helpful. Thank you for the color. Speaker 200:34:54Yes. I mean, I think just sorry to follow-up on that. At the end of the quarter, we had 145,000,000 of CLO investments up from $85,000,000 a quarter before and that's without having the push of the shareholder vote already done and sort of ready as you said to liquidate the remaining pools and reinvest. So, and our so that's in 1 quarter that's $60,000,000 and that's without pedal to the metal. And our equity capital as you can see is under $200,000,000 So we could be invested certainly in a quarter or less, equal to our total capital base or total equity base. Speaker 200:35:40And I think we could do it even faster. Now of course, we want to have some leverage in the portfolio. So I think 90 days is a very reasonable target. But of course, we're not there yet. We need the boats. Speaker 700:35:54Perfect. That makes the clarity quite a bit better. Appreciate it. Operator00:36:01Thank you. That was our final question for today. We thank you for participating in the Ellington Credit Company Third Quarter 2024 Financial Results Conference Call. You may now disconnect your line at this time and have a wonderful day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallEllington Credit Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K) Ellington Credit Earnings HeadlinesUBS Adjusts Price Target for Ellington Credit (EARN) Amid Economic Uncertainty | EARN Stock NewsApril 17, 2025 | gurufocus.comEllington Credit Company EARNApril 11, 2025 | morningstar.comFrom Social Security to Social Prosperity?In less than a decade, Social Security could be out of money. But a surprising plan from Trump’s inner circle may not just save the system — it could unlock a major opportunity for savvy investors. Financial insider Jim Rickards calls it “Social Prosperity,” and says those who act now could see the biggest gains.April 26, 2025 | Paradigm Press (Ad)Ellington Credit: A New Entrant To The CLO SectorApril 10, 2025 | seekingalpha.comEllington Credit: A New Entrant To The CLO SectorApril 10, 2025 | seekingalpha.comEllington Credit price target lowered to $6.50 from $8 at Piper SandlerApril 8, 2025 | markets.businessinsider.comSee More Ellington Credit Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Ellington Credit? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Ellington Credit and other key companies, straight to your email. Email Address About Ellington CreditEllington Credit (NYSE:EARN) Company, a real estate investment trust, acquires, invests in, and manages residential mortgage-and real estate-related assets. It acquires and manages residential mortgage-backed securities (RMBS), including agency pools and agency collateralized mortgage obligations (CMOs); and non-agency RMBS, such as non-agency CMOs, such as investment grade and non-investment grade. The company has elected to be taxed as a real estate investment trust. As a result, it would not be subject to corporate income tax on that portion of its net income that is distributed to shareholders. The company was formerly known as Ellington Residential Mortgage REIT and changed its name to Ellington Credit Company in April 2024. 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There are 8 speakers on the call. Operator00:00:00by. Welcome to the Ellington Credit Company 20 24 Third Quarter Financial Results Conference Call. Today's call is being recorded. It is now my pleasure to turn the floor over to Aladdin Chile, Associate General Counsel. Sir, you may begin. Speaker 100:00:37Thank you. Before we begin, I would like to remind everyone that certain statements made during this conference call may constitute forward looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements are not historical in nature. As described under Item 1A of our annual report on Form 10 ks and Part 2, Item 1A of our quarterly report on Form 10 Q, forward looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs, expectations, estimates and projections. Consequently, you should not rely on these forward looking statements as predictions of future events. Speaker 100:01:14Unless otherwise noted, statements made during this conference call are made as of the date of this call. The company undertakes no obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise. Joining me on the call today are Larry Penn, Chief Executive Officer of Ellington Credit Company Mark Tecotzky, our Co Chief Investment Officer and Chris Smerinoff, our Chief Financial Officer. We are also again joined by Greg Borenstein, Head of Corporate Credit at Ellington Management Group. Following the completion of our conversion to a CLO closed end fund, Greg, along with Ellington's founder, Mike Granos, will officially be designated as EARN's 2 portfolio managers. Speaker 100:01:53Our Q3 earnings conference call presentation is available on our website, ellingtoncredit.com. Our comments this morning will follow that presentation. Please note that any references made on this call to figures in that presentation are qualified in their entirety by the notes at the back of the presentation. Any figures relating to the current status of the shareholder vote are made as of this morning. Such figures are subject to change based on a variety of factors, including the ability of shareholders to change or revoke their votes, which they are entitled to do at any time prior to the annual meeting and our tabulator finalizing its report. Speaker 100:02:25As a reminder, during this call, we'll sometimes refer to Ellington Credit Company by its NYSE ticker EARN or EARN for short. With that, I will now turn Speaker 200:02:35the call over to Larry. Thanks, Eladine, and good morning, everyone. We appreciate your time and interest in Ellington Credit Company. I'll start with an update on the shareholder vote related to our strategic transformation. As you've seen, we have postponed the Annual Shareholder Meeting as we work to accumulate the required votes to approve the conversion of EARN to a Delaware closed end fund. Speaker 200:02:59Shareholder support for the conversion has been overwhelmingly positive. Based on voting results as of this morning, the 3 conversion related proposals have approval rates above 92% and over 95% if you don't include abstentions. However, in order to pass 2 of the 3 proposals, we need 4 votes from a majority of all shares outstanding, not just the votes cast. And as of this morning, we are still short of that threshold. On those proposals, we currently have about 10,500,004 votes, but we still need a little more than 2,000,000 additional 4 votes in order for them to pass. Speaker 200:03:42I should note that these approval rates are unofficial and preliminary and shareholders can change their vote at any time prior to the annual meeting. Both ISS and Glass Lewis, the leading independent proxy advisory services have unanimously recommended 4 votes on all the conversion related proposals as they recognize the benefits to earn shareholders of the conversion. On Slide 4, we highlight some of the anticipated benefits to shareholders of the transformation, which include better projected risk adjusted returns over the long term and enhanced access to the capital markets, while also affording shareholders with the additional protections provided by the 1940 Act. Furthermore, as a registered investment company, we would generally not be subject to corporate income tax. With our current status as a taxable C Corp, we are subject to a small level of corporate income tax, but we will be subject to the full corporate tax level after our NOLs burn off. Speaker 200:04:47Also, until we convert to a RIC, we also need to continue to hold a portfolio of agency MBS pools to maintain our exemption from the 1940 Act. And thus that keeps us from completing the full transition of our investment portfolio to corporate CLOs. To those who have voted already, thank you. And to those with unvoted proxies, please submit your vote as soon as possible. Please turn now to Slide 6 of the earnings presentation for the market backdrop for the Q3. Speaker 200:05:22Despite volatility spiking in early August, the CLO market in the Q3 continued to benefit from strengthening loan fundamentals and robust demand for leveraged loans. As you can see on this slide, leveraged loan default rates continue to decline in both U. S. And Europe, while prepayment rates continue to be elevated, particularly in the U. S. Speaker 200:05:44In terms of new CLO issuance, while tightening credit spreads and lower interest rates supported strong corporate loan issuance, net CLO supply in the U. S. Was actually negative overall for the quarter as a result of the combined impact of an elevated pace of refinancings and resets and as many seasoned CLOs were called. Also as depicted on Slide 6, the combination of strong loan fundamentals and positive market technicals during the quarter drove CLO mezzanine spreads tighter overall in both U. S. Speaker 200:06:15And European markets, while high yield and IG credit indices tightened further as well. Similar to the prior quarter, performance for U. S. CLO equity was somewhat mixed, which Greg will get into later on this call. Meanwhile, in the Agency MBS market, with interest rates falling and the yield curve steepening in anticipation of the Fed's cut in September, Agency MBS spreads tightened and the U. Speaker 200:06:40S. Agency MBS Index generated an excess return of 76 basis points for the quarter. I'll turn now to EARN's 3rd quarter results on Slide 7. We had another quarter of excellent performance from our CLO debt portfolio with robust loan prepayments triggering further deleveraging in our seasoned mezzanine positions and with low default rates boosting demand for junior mezz tranches, which drove credit spreads tighter. We also enhanced returns in our CLO debt portfolio through some opportunistic trading and we further enhance returns by driving the liquidation of a CLO where we own discount mezzanine debt. Speaker 200:07:20In that case, the redemption proceeds we received upon the CLO's liquidation far exceeded the value of our mezz debt position were to have remained as a CLO tranche. Meanwhile, we also had positive performance in our CLO equity portfolio, also enhanced by opportunistic trading as well as by our successful completion of 2 deal refinancings. Finally, we had positive results from our remaining RMBS investments and EARN's overall annualized economic return for the Q3 was 10.8%. As with prior quarters, our ongoing shift from Agency MBS into CLOs continue to lower our leverage ratios. You can see on Slide 7 that our debt to equity ratio declined to 2.5:one@quarterend. Speaker 200:08:09Meanwhile, our cash plus unencumbered assets finished the quarter at a very healthy $121,500,000 which represented nearly 2 thirds of our total equity. The wide net interest margins on our CLOs also enabled our adjusted distributable earnings to continue to cover our dividends during the Q3, despite our significantly lower leverage and even as we terminated in conjunction with selling agency pools, several interest rate swap hedging positions that had been supporting ADE. As we had forecast on last quarter's call, our ADE did tick down in the 3rd quarter as we terminated these swaps. But as we had also forecast, our ADE for the Q3 still exceeded our Q1 level of $0.27 per share and covered our Q3 dividends. With that, I'll now pass it over to Chris to review our financial results for the Q3 in more detail. Speaker 200:09:01Chris? Speaker 300:09:02Thank you, Larry, and good morning, everyone. Please turn to Slide 8 for a summary of Ellicyn Credit's 3rd quarter financial results. For the quarter ended September 30, we are reporting net income of $0.21 per share and adjusted distributable earnings of $0.28 per share. ADE excludes the catch up amortization adjustment, which was positive $173,000 in the 3rd quarter. Our debt to equity ratio adjusted for unsettled trades decreased to 2.5 times at September 30 compared to 3.7 times at June 30. Speaker 300:09:38The decline was driven by higher shareholders' equity and the less leverage we employ on our growing CLO investment portfolio as compared to the leverage we employ on our legacy agency MBS portfolio. Similarly, our net mortgage assets to equity ratio decreased over the same period to 3 times from 4 times. Our overall net interest margin increased to 5.22 percent from 4.24% in the prior quarter, which reflects a higher allocation of capital to the credit strategy and a higher NIM on our agency portfolio driven by higher asset yields and a lower cost of funds. Despite the overall increase, the net interest margin on our credit portfolio actually declined sequentially, finishing more in line with our 1st quarter NIM. As we highlighted last quarter, the higher NIM in the 2nd quarter has been the result of accelerated prepayments on the loans underlying several discounted CLO positions, which resulted in high payoff activity and high asset yields for those CLOs positions. Speaker 300:10:46Prepaid payment activity was less significant in the Q3 in our CLO mezz portfolio, which drove asset yields and NIM in the credit portfolio more in line with our Q1 results. In the Q3, we continue to benefit from positive carry on our interest rate swaps, where we receive a higher floating rate and pay a lower fixed rate. But as Larry mentioned, the impact of this benefit declined in Q3 as some of these swaps expired and as we sold down the agency portfolio and took off the associated hedges. The swap benefit should continue to burn off as we finish our rotation out of Agency MBS and into CLOs, the wide NIMs of the CLOs themselves are a counterbalance. The combination of lower leverage and the swap terminations drove the sequential decline in our ADE. Speaker 300:11:38Despite the decline, our adjusted distributable earnings continue to exceed our dividends paid in the 3rd quarter. Slide 9 shows the attribution of income by strategy. In the Q3, the CLO strategy generated $0.12 per share of portfolio income driven by strong net interest income, which increased sequentially with the larger CLO portfolio. Further, net gains on our U. S. Speaker 300:12:05And European CLO debt portfolios were supported by both opportunistic sales and tighter credit spreads on health positions. We also benefited from positive performance from our U. S. And European CLO equity portfolios, where net interest income exceeded net realized and unrealized losses. The net realized and unrealized losses in CLO equity were primarily the result of dollar price and NIM compression on the corporate loan assets underlying our CLOs, partially offset by the positive impact of opportunistic trading and the 2 deal refinancings that Larry mentioned. Speaker 300:12:46Meanwhile, our agency strategy performed well in the Q3, generating $0.18 per share of portfolio income. In the quarter, interest rates fell, the yield curve steepened and Agency MBS spreads tightened as the market anticipated the beginning of the Federal Reserve's interest rate cutting cycle. In September, the Federal Reserve reduced the target range for the federal funds rate by 50 basis points and also released updated economic projections that implied another 50 basis points of interest rate cuts later in 2024, although that expectation is no longer shared by the market. Tighter yield spreads drove net gains on our Agency RMBS, which exceeded net losses on our interest rate hedges driven by declining interest rates. Our non agency portfolio generated positive results for the quarter as well, driven by net interest income and net gains associated with several profitable sales. Speaker 300:13:48As a reminder, in connection with our strategic transformation, we revoked our REIT election effective January 1 this year and we are currently operating as a taxable C Corp. We came into the year with substantial net operating loss carry forwards and in the Q3 we used a portion of those to offset the majority of our federal taxable income and we intend to continue to do so for so long as we operate as a C Corp. For the Q3 we accrued an income tax expense of $463,000 which represents the net tax liability accrued on our taxable income after the NOL offset. Due to federal and state restrictions on NOL utilization, we cannot offset 100% of our taxable income. Our utilization of NOLs reduced our effective tax rate from what would have been about 28% to about 7.8% for the quarter. Speaker 300:14:46Please note that we are not booking a deferred tax asset on our balance sheet related to the NOLs. So our reported book value remains fully tangible. After the conversion to a close end fundRIC, we generally will not be subject to corporate income tax. Please turn now to our balance sheet on Slide 10. Book value per share was $6.85 at September 30 compared to $6.91 at June 30. Speaker 300:15:15Including the $0.24 per share of dividends in the quarter, our economic return for the quarter was 2.6% or 10.8% annualized with compounding. We ended the quarter with $121,500,000 of cash and unencumbered assets. Next, please turn to Slide 11 for a summary of our portfolio holdings. Our CLO portfolio increased to $144,500,000 at September 30 as compared to $85,000,000 at June 30. At September 30, CLO equity comprised 52% of our total CLO holdings, up from 47% at June 30. Speaker 300:15:57Meanwhile, European CLO investments comprised 17% of our total CLO holdings at September 30, consistent with the prior quarter. Our capital allocation to CLOs increased to 58% at September 30 from 45% at June 30. Meanwhile, the size of our agency RMBS portfolio decreased to RMB462 1,000,000 compared to RMB531 1,000,000 at June 30. And as you can see on Slide 12, we are entirely out of 15 year pools. Cost to liquidate our Agency RMBS continue to be low and our remaining Agency RMBS portfolio is very liquid. Speaker 300:16:38Our aggregate holdings of interest rate interest only securities and non Agency RMBS decreased as well to less than $12,000,000 On Slide 13, we provide details of our interest rate hedging portfolio. During the quarter, we continued to hedge interest rate risk primarily through the use of interest rate swaps. As shown on Slide 14, we again ended the quarter with a net loan TBA position both on a notional basis and as measured by 10 year equivalents. On Slide 15, you can see that nearly all the loans underlying our CLO portfolio are floating rate and as such have much lower interest rate duration. We also selectively hedge the credit risk of our corporate CLO and non agency RMBS investments. Speaker 300:17:25As of September 30, 2024, our credit hedge portfolio was relatively small. Finally, general and administrative expenses were higher quarter over quarter due to expenses incurred related to the strategic transformation. Management fees were also higher quarter over quarter driven by higher shareholders' equity at quarter end. I will now turn the presentation over to Greg. Speaker 400:17:53Thanks, Chris. It's a pleasure speaking to everyone again today. As Larry mentioned, performance of our CLOs in Q3 was led foremost by our debt portfolio, where tightening mezz spreads offered opportunities to monetize gains and also drove positive price action on assets that we continue to hold. As the market has continued to tighten, we have looked to trade out of debt positions where we think the total return upside is largely played out. We are still selectively finding opportunities in mezz paper, but some of the low hanging fruit is gone. Speaker 400:18:29And we are very focused on appropriate risk adjusted returns and avoiding reaching for yield by taking on undue risks. We also had positive performance in our CLO equity portfolio in the quarter, albeit with a lower ROE than our mezz portfolio. Overall in the market, the performance of CLO equity was more of a mixed bag, as tightening credit spreads on both leveraged loans on the asset side and CLO debt tranches on the liability side produce some more nuanced results. On one hand, tightening debt spreads allowed some deals to refinance or reset their debt, including extending their reinvestment periods. And that drove strong returns for many CLO equity profiles and deals with better performing portfolios and higher debt costs. Speaker 400:19:21On the other hand, higher prepayment speeds in the loan market led to both price declines for loans trading above par and compression in loan floating rate spreads as large volumes of loans trading at premiums to par were refinanced at par and replaced with lower spread loans. These effects triggered mark to market losses in some CLO equity profiles as both their interest payments due to lower excess interest in the CLO and underlying asset values declined in tandem. We saw a similar dynamic play out in Europe, although with slower prepayment speeds, the negative impact of the prepayment of premium loans was less pronounced. As we look to the remainder of the year, we currently see better relative value and ample opportunities in CLO equity, where tighter debt spreads are improving economics for both new and existing deals. Early signs post election are showing general spread tightening in the credit markets, which accompanied with higher rates have continued to improve demand for floating rate CLO liabilities. Speaker 400:20:33In addition, continued heavy issuance in the CLO market is creating inefficiencies and relative value opportunities in both CLO debt and equity. Given our strong systems and deep experience in both primary and secondary markets, EARN is well positioned to capitalize on these inefficiencies. With that, I turn the presentation over to Mark. Speaker 500:21:01Thanks, Greg. Q3 was generally a strong quarter for spread products. Both CLO Debt and Agency MBS performed well relative to benchmarks as the Fed kicked off its interest rate cutting cycle in September. Looking at agency prepayments, we have been predicting that newly issued non call protected pools could have elevated repayment rates if they get in the money and that is exactly what happened in the Q3 when rates fell. We saw CPRs north of 60 for certain Fannie Mae pools with mid-7s WACC. Speaker 500:21:36Fortunately for EARN, we have largely protected our agency portfolio from that type of exposure. Looking back over the past 12 months, I am really happy that we were able to put so much money to work in the CLO market at wider spreads than current levels. In the Q3, we stayed invested in our core holdings of Agency MBS, while also selling down that portfolio as needed to free up cash for additional CLO purchases. By quarter end, nearly 60% of our capital was allocated to CLOs. However, until we complete EARN's conversion to a RIC, I'll note that our ability to increase our CLO capital allocation much above that 60% level is limited by the requirement to stay exempt from the 1940 Act, which requires us to maintain that core portfolio of agency pools. Speaker 500:22:24So from here, we will stay largely invested in the current MBS portfolio until the conversion occurs, capturing the available agency NIM and we'll only really be net selling MBS to add CLOs to the extent we have room. Meanwhile, we've continued to make our agency MBS portfolio incrementally more liquid. And once we obtain the requisite approvals for the conversion, we will sell down our remaining agency MBS portfolio and can complete the rotation to CLOs. We've seen long term interest rates, including mortgage rates, rise substantially since quarter end. That has had a chilling effect on origination volumes, which are also poised for the typical seasonal slowdowns. Speaker 500:23:08In addition, the Q3 brought the 1st Fed rate cut in 4 years and we just had another cut last week. So we should soon see our 1st non inverted yield curve in a while. All these factors should increase demand for MBS from banks and CMO arbitrageurs and create a favorable supply demand technical for agency MBS going into year end. Now back to Larry. Speaker 200:23:33Thanks, Mark. I'm pleased with the continued ramp up and strong performance of the CLO strategy in EARN and how we've pivoted our CLO portfolio composition as the market opportunity has evolved. I'm particularly pleased with the active approach we've taken to enhance our returns. Our active approach not only includes the opportunistic trading that is a core tenant of our portfolio management philosophy, but it also can include driving refinancing and or liquidation of the deals we're invested in when beneficial and achievable. All these steps have added alpha to our results. Speaker 200:24:09So far in the Q4, we've continued to see the benefits of the portfolio rotation away from Agency MBS and towards CLOs, with CLOs returning positive returns in October even as volatility and interest rates rose. Those market movements drove agency spreads quite a bit wider in October, but they've somewhat retightened in November post election. We very much look forward to completing our RIC conversion. I strongly believe that our strategic transformation will generate superior risk adjusted returns for Ellington Credit shareholders. If you haven't voted yet, please do so. Speaker 200:24:46And as always, we are happy to answer any questions. I continue to be encouraged by how positive our conversations with investors and analysts have been following the announcement of the transformation earlier this year. With that, we'll now open the call to questions. Operator, please go ahead. Operator00:25:03Thank you. And we will take our first question from Crispin Love with Piper Sandler. Please go ahead. Speaker 600:25:27Hi, this is Brad Cappuzzi on for Crispin. Just kind of high level, can you speak on the credit quad and the CLO book and how you expect that to trend over time? What kind of what are your delinquency and loss expectations as well as risk adjusted returns? Speaker 400:25:44Sure. I think overall, longer term, if rates if we go through, for example, it's scenario dependent, a very high rate environment for a long time that will clearly stress corporate credit and some of these companies' ability to be able to service their debt. I think in general, you see the current trailing 12 month default rate is below 1% historically. It may sit 2 north above that. If you take a look at COVID, this got to at the peak a little over 4%. Speaker 400:26:29And so that gives you a sense of some of the things that we've seen in both benign and stressed environments. We don't have a crystal ball, but I would say that you could certainly see them elevate from where we are now into that more traditional average if we stay in a high rate environment. And how we think about the credit quality, I think overall, if things get tighter in the market and spreads are tighter, it allows more companies to have access to financing. And perhaps you see looser documentation, which is something we look at. If things start to get more stressed, you're going to see the market be a little bit more buyer friendly with perhaps tighter language, more covenants and only better quality companies coming to market. Speaker 400:27:21And so it's a little bit of balance in terms of how we see that progressing, if that answers it. Speaker 600:27:29Yes, I appreciate the commentary. And then just the last question for me. How are you guys thinking about the dividend, especially as you rotate more capital and the CLOs and leverage continues to tick down? Speaker 200:27:43Yes. Well, as we rotate I can take that. I mean, as we're rotating into CLOs, yes, the leverage is ticking down, but our net interest margin is going up quite quickly. So our and as I mentioned, our adjusted distributable earnings for the Q3 were in line maybe even penny higher than they were back in the Q4. So we don't see at this point, we see good support for the dividend through our adjusted distributable earnings and we've already rotated gone from basically 0%. Speaker 200:28:24If you go back a little over a year of CLOs to now, I think as we mentioned before, over half of our capital is risk capital is now in CLOs. So, less leverage, but greater net interest margin and the 2 seem to be balancing out pretty well. So our dividend is still well supported as we continue this rotation. Speaker 600:28:46Awesome. I appreciate it. Thank you. Operator00:28:51Thank you. And we will take our next question from Douglas Harter with UBS. Please go ahead. Speaker 600:29:01Thanks. You guys were active in raising capital through the ATM during the quarter. Can you talk about kind of your continued appetite to do that? Speaker 200:29:17Yes. I mean, Chris, do you want to talk about kind of our execution there in terms of was there any dilution? Sure. Speaker 300:29:25Yes. During the quarter, there was $0.04 of dilution. We also expect that that play dilution will reflect in better G and A ratios going forward. Speaker 200:29:47Right. So that will be at those levels, it's very accretive to earnings because we raised a fair amount of capital. So I would say, look, our stock price now is not in a place where we would tap the ATM. But when we were trading much higher in the Q3, we took advantage of it. And so it's going to be very price dependent at this point. Speaker 200:30:12And if we're raising capital as we did net very close to book, that is given that we're a small company and that we do have fixed expenses. I mean it's I think it's a no brainer. Speaker 600:30:30Makes sense. Appreciate the answer. Thank you. Operator00:30:35Thank you. And we will take our next question from Jason Weaver with Jones Trading. Please go ahead. Speaker 700:30:43Hey, guys. Thanks for taking my question. Maybe one for Greg, just on the visibility. I think you touched on this in your prepared remarks. Would you expect the strong issuance trend to remain in place if pricing remains as supportive? Speaker 700:30:56Any sort of nuance or cadence implications over the next few quarters ahead that you can suss out? Speaker 400:31:02So I think on the trend we're heading and what we see in the market right now, I this was a very large issuance here. You saw a lot of resets. I think you will continue to see that. Taking a step back, AAAs have come in, they're starting to get close to levels that were close to the post financial crisis types. I think with demand for floating rate products, especially from maybe some traditional places that didn't wait CLOs as much. Speaker 400:31:40I think with what happened in 2022, you see places very focused on rate duration with perhaps where that is headed. That in addition to the growth of the CLO ETF space at the top of the capital structure, this should keep putting demand pressure on CLO liabilities. As that happens, as deals will exit their non call, you will see the equity investors which control the option continue to come to market. And you may also see actual new issuance deals continue to pick up with loan creation also turning back on. That was a bit of a that's sort of what slowed things down last year. Speaker 400:32:28It was hard for people to simply source the loans. That's why it was a lot of recycling or resetting, if you will. But just talking to a lot of the banks that we work with and actually bank these transactions, everyone seems like they have a busy pipeline ahead. And getting to these levels, which we have not seen since a couple of years before COVID in that 2017, 2018 timeframe, a lot of deals will still find it additive to come in and reset their liabilities. Speaker 700:33:04Got it. Thanks for that. And then maybe related to it exactly, assuming today, if you had certainty about the shareholder vote being supportive, to liquidate the agency portfolio seems relatively straightforward. But what does the timeline look like to move that capital into new CLO equity? Speaker 400:33:25Sure. So I think we're obviously watching it carefully. And so as we see the probability increase there, Speaker 300:33:35we Speaker 400:33:35will behave accordingly in terms of how much dry powder we want to keep in terms of leaning into that a little bit. I think that overall, to be realistic, the tighter the market is, the more patient and selective we are about our investments. If things were dislocated, that would obviously present a real opportunity and we could go into secondary and purchase CUSIPs pretty quickly. That said, I think with earn is left in a very diversified place right now. And so we're fortunate to not be too worried about concentration risk. Speaker 400:34:17And so I think that if we start to see that move forward, as noted in the prepared remarks, we really see the value in new issue. And so I think we would simply be more active with where we see that opportunity coming in at new issue and sort of setting up those types of transactions to rotate the rest of the portfolio and get going on that. And as we said, it's very, very busy. And so with all the banks working on deals and all the volumes coming out, I think we would just lean into that opportunity more. Speaker 700:34:51Excellent. That's very helpful. Thank you for the color. Speaker 200:34:54Yes. I mean, I think just sorry to follow-up on that. At the end of the quarter, we had 145,000,000 of CLO investments up from $85,000,000 a quarter before and that's without having the push of the shareholder vote already done and sort of ready as you said to liquidate the remaining pools and reinvest. So, and our so that's in 1 quarter that's $60,000,000 and that's without pedal to the metal. And our equity capital as you can see is under $200,000,000 So we could be invested certainly in a quarter or less, equal to our total capital base or total equity base. Speaker 200:35:40And I think we could do it even faster. Now of course, we want to have some leverage in the portfolio. So I think 90 days is a very reasonable target. But of course, we're not there yet. We need the boats. Speaker 700:35:54Perfect. That makes the clarity quite a bit better. Appreciate it. Operator00:36:01Thank you. That was our final question for today. We thank you for participating in the Ellington Credit Company Third Quarter 2024 Financial Results Conference Call. You may now disconnect your line at this time and have a wonderful day.Read morePowered by