Ellington Credit Company

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company 2024 Third Quarter Financial Results Conference Call. Today's call is being recorded. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. At any time, if your question has been answered, you may remove yourself from the queue by pressing star 2. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Aladin Cholet, Associate General Counsel. Sir, you may begin.

Thank you. Before we begin, I would like to remind everyone that certain statements made during this conference call may constitute forward-looking statements within the meaning of the state-farber 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-K and Part 2, Item 1A of our Quarterly Report on Form 10-Q, forward-looking statements are subject to a variety of risks and uncertainties that could cause a company's actual results to differ from its beliefs, expectations, estimates, and projections. Consequently, you should not rely on these forward-looking statements as predictions of future events. Unless otherwise noted, statements made during this conference call are made as of the date of this call. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Joining me on the call today are Larry Penn, Chief Executive Officer of Ellington Credit Company, Mark Tchaikovsky, our Co-Chief Investment Officer, and Chris Smirnoff, our Chief Financial Officer. We are also again joined by Greg Bornstein, 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 two portfolio managers. Our third quarter 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. As a reminder, during this call, we'll sometimes refer to Ellington Credit Company by its NYSE ticker E-A-R-N, or EARN for short. With that, I will now turn the call over to Larry.

Thanks, Aladina. 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. Shareholder support for the conversion has been overwhelmingly positive. Based on voting results as of this morning, the three conversion-related proposals have approval rates above 92% and over 95% if you don't include abstentions. However, in order to pass two of the three proposals, we need four votes from a majority of all shares outstanding, not just a votes cast. And as of this morning, we are still short of that threshold. On those proposals, we currently have about 10.5 million for votes, but we still need a little more then 2 million additional four votes in order for them to pass. I should note that these approval rates are unofficial and preliminary, and shareholders can change their vote at any time prior to the annual meeting. Both ISS and Glass-Lewis, the leading independent proxy advisory services, have unanimously recommended four votes on all the conversion-related proposals, as they recognize the benefits to earn shareholders of the conversions. On slide four, we highlight some of the anticipated benefits to shareholders of the transformation, which include better projected risk-adjusted returns over the long term and enhanced access to the capital markets, while also affording shareholders with the additional protections provided by the 1940 Act. Furthermore, 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. Also, until we convert to a RIC, we also need to continue to hold a portfolio of agency MBS pools to maintain our exemption from the 1940 Act, and thus that keeps us from completing the full transition of our investment portfolio to corporate CLOs. To those interested, 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 six of the earnings presentation for the market backdrop for the third quarter. Despite volatility spiking in early August, the CLO market in the third quarter continued to benefit from strengthening loan fundamentals and robust demand for leveraged loans. As you can see on this slide, Leveraged loan default rates continued to decline in both U.S. and Europe, while prepayment rates continued to be elevated, particularly in the U.S. In 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 six, the combination of strong loan fundamentals and positive market technicals during the quarter drove CLO mezzanine spreads tighter overall in both U.S. and European markets, while high yield and IG credit indices tightened further as well. 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.S. agency MBS index generated an excess return of 76 basis points for the quarter. I'll turn now to Earn's third 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 MES tranches, which drove credit spreads tighter. We also enhanced returns in our CLO debt portfolio through some opportunistic trading, and we further enhanced returns by driving the liquidation of a CLO where we own discount mezzanine debt. In that case, the redemption procedure we received upon the CLO's liquidation far exceeded the value of our MES debt position were it 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 two deal refinancings. Finally, we had positive results from our remaining RMBS investments and earned overall annualized economic return for the third quarter was 10.8%. As with prior quarters, our ongoing shift from agency MBS into CLOs continued to lower our leverage ratios. You can see on slide 7 that our debt-to-equity ratio declined to 2.5 to 1 at quarter end. Meanwhile, our cash plus unencumbered assets finished the quarter at a very healthy $121.5 million, which represented nearly two-thirds of our total equity. The widened interest margins on our CLOs also enabled our adjusted distributable earnings to continue to cover our dividends during the third quarter. despite our significantly lower leverage, and even as we terminated, in conjunction with selling agency pools, several interest rate swap hedging positions that had been supporting ADE. As we had forecast on last quarter's call, our ADE did tick down in the third quarter as we terminated these swaps, but as we had also forecast, our ADE for the third quarter still exceeded our first quarter level of 27 cents per share and covered our third quarter dividends. With that, I'll now pass it over to Chris, to review our financial results for the third quarter in more detail. Chris?