Ellington Credit Company

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company 2024 Fourth Quarter Financial Results Conference Call. Today's call is being 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 that time, please press the star and 1 on your telephone keypad. You may remove yourself from the question queue at any time by pressing star and two. Lastly, if you should require operator assistance, please press star and zero. It is now my pleasure to turn the floor over to Aladin Chalet, Associate General Counsel. Sir, you may begin.

Thank you. Before we begin, I'd 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 annual and quarterly reports filed with the SEC. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The company undertakes no obligation to update these forward-looking statements. Joining me today are Larry Penn, Chief Executive Officer of Allenton Credit Company, Mark Takotsky, Co-Chief Investment Officer, Chris Smirnoff, Chief Financial Officer, and Greg Bornstein, Head of Corporate Credit at Allenton Management Group. Upon effectiveness of our conversion scheduled for April 1st, Greg and Mike Vannos, Allenton's founder and head of all portfolio management activities, will officially be designated as earns to portfolio management. Our fourth quarter earnings conference call presentation is available on our website, ellingtoncredit.com. Today's call will track that presentation, and all statements and references to figures are qualified by the important notice and end notes in 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. I'll start on slide three. I am pleased to report that on January 17th, shareholders approved our conversion to a closed-end fund, and we are now on track to complete that conversion on April 1st, so in just a few more weeks. We have continued to expand our CLO portfolio in preparation for the conversion, and in the fourth quarter, we grew the CLO portfolio by another 18 percent to $171 million. Most of this growth came in CLO equity tranches, where we currently see the most attractive opportunities. With CLO debt spreads tightening, the economics of both new and existing CLO equity investments are improving. Meanwhile, persistent pricing inefficiencies and heightened market volatility continue to create compelling relative value opportunities across the CLO market in both the U.S. and Europe. Since year end and including investment activity through Monday, the CLO portfolio now stands at around $235 million. In the fourth quarter, we also added more agency RMBS, prioritizing highly liquid pools, since those pools will be sold when we convert. Until our actual conversion date to a closed-end fund, we need to keep buying more agency pools to balance out any growth in our CLO portfolio so as to maintain our exclusion from registration as an investment company under the 1940 Act. However, as we have been adding these liquid agency pools, we have also been adding short TBA positions. Short TBAs are a valuable risk management tool that hedge interest rate risk while also mitigating exposure to higher interest rate volatility and widening agency pool yield spreads. As shown on slide 13, at year end, our net mortgage assets to equity ratio, which takes into account our net short notional TBA position at year end, declined to 2.6 to 1, down from three to one on September 30th. This marked our lowest net mortgage assets to equity ratio for earn in at least a decade. And I'll highlight that it has declined much further since year end to nearly zero today, with our TBA short positions now nearly offsetting our long agency pool assets. We were fortunate to have added these short TBA positions when we did, given the recent spike in interest rate volatility in the last few weeks. For the past year, when we've added agency pools, we've been prioritizing highly liquid sectors. And so our agency pool book, while it's always been liquid, is now as liquid as it's ever been. This portfolio rotation within our agency pool book, which really started over a full year ago, has been conducted in an orderly manner, with Mark Takotsky and his team focusing on minimizing friction. At this point, with just a few weeks to go until the conversion, the emphasis in our pool position is not on relative value, but rather on liquidity, since those pools will be sold expeditiously after the conversion. We're no longer holding pools where we're betting on pay up expansion, but rather we're holding pools with low and stable pay ups. At December 31st, the average pay up on our pools was just 20 basis points, down from 101 basis points one year prior. When we convert, We estimate that the sales of all these remaining agency pools, together with the covering of our TBA short positions, will have just a one penny effect on book value per share, which I consider minimal. Please turn now to slide four, where we'll take a look at the market backdrop. In the fourth quarter, strong credit fundamentals, robust demand for leveraged loans, and capital inflows into floating rate loan funds supported the CLO markets. As you can see here, credit spreads tightened, which drove record high corporate loan issuance, although net CLO issuance remained low due to a flurry of CLO deals being refinanced or called. CLO mezzanine debt generally performed well in the quarter, capping off an extremely strong 2024. While cross-currents in the market again drove mixed results in CLO equity, as Portfolio Manager Greg Borenstein will get into later on this call. Now let's review Earns' performance for the fourth quarter. Please turn back one slide to slide three. Our CLO mezzanine debt portfolio continued its excellent performance, with sequentially higher net interest income helping support our adjusted distributable earnings, as well as net gains resulting from several opportunistic sales, tighter credit spreads, and redemptions of several of our discount season CLO mezzanine tranches. Our CLO equity investments also contributed significantly to our adjusted distributable earnings, and they also delivered positive results, albeit with more modest total returns. Now over to our agency mortgage portfolio. Interest rate and yield spread volatility, mainly around the presidential election in November, drove underperformance in the agency pool market. This led to a loss in our agency portfolio, which in turn led to a small overall net loss for Earn for the quarter. Again, we anticipate that we'll no longer have exposure to the agency pool markets shortly after we convert to a closed-end fund on April 1st. Importantly, the combination of portfolio growth and wide net interest margins on our CLOs continue to support adjusted distributable earnings. which at $0.27 per share again covered our dividends of $0.24 for the quarter. Our debt-to-equity ratio remained below 3 to 1 at year-end, and liquidity remained high, with cash plus unencumbered assets totaling $111 million, or more than 50% of total equity. Of course, after we convert to a closed-end fund, our debt-to-equity ratios will be far lower. I'll now pass it over to Chris for a more detailed look at our financial results for the quarter.