Ellington Credit Company Aktie

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company Fourth Fiscal Quarter ended March 31, 2026 Results Conference Call. Today's call is being recorded. [Operator Instructions].

It is now my pleasure to turn the floor over to Alaael-Deen Shilleh, 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 registration statement on Form N-2.

Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The fund undertakes no obligation to update these forward-looking statements. Joining me today are Larry Penn, Chief Executive Officer of Ellington Credit Company; Greg Bornstein, Portfolio Manager; and Chris Smernoff, Chief Financial Officer.

Our earnings conference call presentation is available on our website, ellingtoncredit.com. Today's call will track that presentation and all statements and references are qualified by the important notice and end notes at the back of the presentation. With that, I'll turn it over to Larry.

Thanks, Alaael-Deen, and good morning, everyone. We appreciate your time and interest in Ellington Credit Company, we often refer to by its New York Stock Exchange ticker E-A-R-N or EARN for sure. Please turn to Slide 3.

The first calendar quarter of 2026 was marked by continued volatility in the CLO market. As we previously communicated in our monthly portfolio updates, the broader market environment exerted significant pressure on asset valuations and led to a decline in our NAV, but our active trading and up in the capital stack bias, once again drove our outperformance versus peers.

We believe that the first quarter largely represented a technical dislocation that reset valuations and expanded the opportunity set rather than a fundamental deterioration in underlying credit quality. Much of the asset valuation declines in the sector stem from yield spread widening and heavy selling pressure in CLO mezzanine and equity tranches amid thin liquidity and concerns around software sector exposure as opposed to any broad-based weakening and borrower fundamentals.

Importantly, we were able to issue debt capital at the end of March, which enabled us to move quickly to capitalize on this opportunity-rich environment by deploying those proceeds promptly and opportunistically. Market conditions have subsequently improved so far in the second quarter, and this has been a tailwind for what is shaping up to be a strong quarter. I will cover the details of that debt capital raise and deployment as well as our performance in April shortly.

Let's start by reviewing our results for the first quarter. The quarter began on a constructive note, with credit spreads tightening and leveraged loan prices rising early in the new year. But that initial momentum faded in late February as concerned over AI-driven disruption in the software sector which is a small but meaningful component of most CLO collateral pools triggered a sharp decline in those credits. By quarter end, U.S. and European leveraged loan prices had fallen by more than 2% from their January peaks.

This weakness, amplified by geopolitical tensions, fueled a broader risk off sentiment that widens spreads on CLO debt tranches as shown on Slide 3. While the senior AAA through single A-rated CLO tranches held up relatively well, CLO mezzanine debt came under significant selling pressure in February and March. With lower rated tranches, particularly BB-rated tranches, experiencing sharp yield spread widening. CLO equity faced multiple headwinds, including compressed excess spread from a loan repricing wave in January, wider market clearing yields and concerns surrounding those lower-quality loan borrowers.

As estimated by Nomura Research, the median CLO equity return for the quarter was negative 13%. That said, many valuation declines, particularly in CLO equity, occurred on like trading volume. And, in our view, reflected technical market dislocations and liquidity-driven price weakness rather than deterioration in underlying fundamentals or broad-based credit impairment.

For EARN, unrealized losses on CLO equity assets were the primary driver of the NAV decline in the first quarter, more than offsetting net investment income, trading gains and gains from mezzanine tranche redemptions. Turning to our capital structure. In late March, the fund issued $54 million of 8.5% 5-year senior unsecured notes. This transaction strengthened our balance sheet by extending our liability profile adding non-mark-to-market financing and providing dry powder to capitalize on a dislocated market.

At March 31, our CLO portfolio totaled $308 million, and we held a sizable $58 million in cash. Consistent with our positioning throughout the volatility, we prioritized CLO mezzanine debt over equity during the quarter. favoring the subordination levels and structural protections afforded by debt tranches, while staying disciplined in our hedging strategy. As illustrated on Slide 10, and we increased our credit hedge portfolio to approximately $187 million of high-yield CDX notional equivalents at March 31, up from $175 million at year-end.

With overall corporate credit spreads remaining tight relative to CLO spreads, we were able to add this protection at compelling levels on both a relative value basis and an absolute value basis. Following the significant spread widening in the latter part of the first quarter, market conditions improved materially in April and into May. Real money buyers have come back into the market, improving liquidity and driving CLO yield spreads tighter.

From our standpoint, the sell-off has reinvigorated the opportunity set. Prepayments and repricings have slowed, partially relieving the excess spread compression experienced in 2025, investment yields have moved higher, and CLO managers can again build par and preserve excess spread by acquiring performing loans at discounted prices, a dynamic that enhances the long-term return potential for CLO equity investors.

In addition, as a meaningful portion of our CLO equity portfolio exits its noncall period, refinancing and reset opportunities should enhance underlying cash flows, further improving our asset yields and supporting future growth in our net investment income. These factors created an attractive market environment for deployment. We responded to this favorable environment by rapidly investing the majority of our dry powder into new opportunities with deployment substantially complete by the end of April.

Improved secondary market liquidity has also allowed us to be highly active in portfolio construction. In mezzanine debt, we have rotated out of many lower coupon investments priced near par, where we believe the market is overstating the probability of a near-term call, and we have moved into higher coupon wider spread opportunities with stronger underlying credit fundamentals. In equity, we have added longer duration, high cash flow structures with solid covenant cushions while reducing exposure to shorter duration, more highly leveraged physicians with greater sensitivity to low price volatility.

These recent maneuvers contributed to our strong monthly economic return of nearly 7% in April and position us for improved earnings capacity as we rebuild net investment income and as we continue rotating out of investments with limited upside into more attractive risk-adjusted opportunities. I'll now turn it over to Chris to discuss the financial results in more detail. Chris?

Thanks, Larry, and good morning, everyone. Please turn to Slide 4. For the quarter ended March 31, 2026, which concluded our inaugural fiscal year as a CLO closed-end fund, we reported a GAAP net loss of $0.86 per share. As detailed on Slide 6, the primary driver was mark-to-market losses in CLO equity, while CLO mezzanine debt proved comparatively more resilient. As Larry discussed, the first quarter was characterized by a sharp risk-off move that disproportionately impacted lower rated CLO securities.

So mezzanine debt, particularly BB-rated tranches experienced significant yield spread widening and selling pressure, while CLO equity was pressured even more severely by lower excess spread water market clearing yields and heightened concerns around more vulnerable borrowers. These dynamics drove a meaningful mark-to-market volatility across the sector despite relatively stable underlying credit fundamentals. Within our CLO mezzanine debt portfolio, net investment income and trading gains together with the positive impact of deal calls of positions owned at discounts to par offset a portion of the mark-to-market write-downs.

Credit hedges were also a moderate drag on results. Adjusted net investment income declined by $0.02 sequentially to $0.19 per share for the quarter, driven by lower asset yields on our CLO equity positions. The weighted average cost yield for the quarter on our CLO portfolio was 12.5%, down from 13.7% in the prior quarter, primarily driven by lower projected cash flows. As illustrated on Slide 7, the size of our overall CLO portfolio declined during the quarter, driven by net sales, paydowns and mark-to-market reductions.

Consistent with our active trading approach, we executed 44 distinct trades during the period, purchasing $30.7 million of investments, 93% in CLO debt and 7% in CLO equity and selling $34.2 million. At March 31, CLO equity represented 53% of total CLO holdings, up slightly from 52% at year-end while -- while European CLO investments accounted for 10% down to 12% at December 31. These figures do not capture the impact of deploying the proceeds from the unsecured note transaction, which closed at quarter end and was substantially deployed by the end of April.

During April, we continued actively repositioning the portfolio. And as of April 30, our CLO portfolio has grown by more than 6% to approximately $328 million overall. Slide 8 provides an overview of the corporate loans underlying our CLO investments. The collateral remains predominantly first lien floating rate leverage loans representing roughly 95% of the underlying assets. Our industry exposure is well diversified led by technology, financial services and health care, with no single sector exceeding 11%.

The loan maturities are spread over several years with the largest concentrations in 2028 and 2031 and minimal near-term maturities and resulting in an average -- weighted average loan maturity of 4.3 years. Facility sizes skewed towards larger borrowers with a weighted average size of $1.7 billion which supports secondary market liquidity. Slide 9 provides further detail on the underlying loan collateral.

Notably, the weighted average junior overcollateralization cushion on our CLO equity tranches only declined by points quarter-over-quarter to 4.29%, further evidence that the Q1 selloff was more technical than fundamental in nature. Slide 10 presents a snapshot of our credit hedges as of March 31. As noted earlier, we further increased our corporate credit hedges during the quarter with that portfolio reaching $187 million in high-yield CDX notional equivalents at quarter end, up from $175 million at December 31. We also continue to maintain a foreign currency hedge portfolio to manage exposure from our European CLO investments.

Turning to Slide 11. Our NAV at March 31 was $4.09 per share and cash and cash equivalents totaled $57.7 million. On March 30, we issued $54 million of 8.5% 5-year senior unsecured notes, which trade on the New York Stock Exchange under the ticker ELLA and incurred approximately $2.3 million of issuance costs, which were fully expensed during the quarter.

As noted earlier, the deployment of the proceeds was substantially complete by the end of April with most of the proceeds deployed into new CLO investments and the balance used to repay short-term secured borrowings. As of April 30, the estimated range on our NAV per share was $4.26 a to $4.32 with a midpoint of $4.29. With that, I'll turn it over to Greg to discuss the CLO market environment, our portfolio positioning and our outlook. Greg?

Thanks, Chris. It's a pleasure to speak with everyone today. Calendar Q1 was an eventful quarter, presenting both challenges and opportunities. While January was stable, February and March saw both credit and broader market selloffs. Initially, concerns in the software sector drove underperformance in portfolios of the loan market. Leverage loans across sectors then weakened in February and made concerns surrounding private credit and direct lending.

Those pressures were compounded in March when geopolitical conflict led to further declines across broader markets and risk premia increased globally. These largely technical sell-offs ultimately enhance the opportunity set, particularly as EARN completed its first bond deal at the end of Q1. Much of the story in the CLO market through 2025 was the pain of prepayments in the loan market and 2026 began in much the same way. With the repricing wave in early January that drove the share of loans trading above par from 58% at the end of December to 26% at the end of January per Morningstar leaving investors hopeful that the worst of the prepayment wave was behind them.

From there, a software-led sell-off in loans combined with macro shocks from the Iran War, led the Morningstar LSTA U.S. leveraged loan index to drop nearly 2.5 points in price to lows reached in early March. While U.S. loans rebounded by $0.46 from those lows by quarter end, February and March saw price declines in both junior mezzanine and equity CLO tranches. Concerns around credit dispersion persisted and CLO equity in particular, was poorly bid. Not surprisingly, CLO repricing is plummeted, providing some much-needed relief to excess spread.

This dearth of demand created one of the more attractive buying opportunities and secondary CLO equity in some time. And we took advantage by deploying liquidity generated from our hedges rotating out of fully priced mezzanine positions and most significantly, issuing unsecured debt and then deploying the proceeds. The investment opportunity was not just limited to CLO equity as we saw many compelling offerings in mezzanine debt as well. The CLO market dynamics in Q1 were very different from those in Q4 of last year.

In Q4, a significant portion of the price declines were crystallized through spread compression in loans and moderate fundamental losses. In contrast, we believe that most of the CLO price declines in Q1 were technical in nature, driven primarily by spread widening. In our view, the Q1 drawdown represents a compelling opportunity that not only has already benefited in so far in Q2 as reflected in our improved NAV at April month end, but should also benefit us in the months ahead.

As markets have stabilized, secondary trading volumes and CLOs have also normalized, which has allowed us to rotate the portfolio and improve positioning. While CLO equity presented an interesting opportunity in the secondary market in April, we have gradually seen valuations in that sector become less compelling as the market has tightened. In addition, with a number of repricing eligible loans estimated by PitchBook to be around 3% of the loan index as of May 8, spread compression concerns have reemerged, albeit to a much lesser extent than in Q4.

Lastly, we continue to believe that new issue CLO equity remains less compelling, given more attractive risk-adjusted returns available in the secondary markets. And given the limited ability to create attractive cash flow profiles, so our activity has remained muted in that sector. Now back to Larry.

Thanks, Greg. The past year has been productive and eventful for EARN to say the least. We completed our RIC conversion. We successfully transitioned the portfolio out of mortgage-backed securities and into CLO investments with minimal impact to NAV, and we thoughtfully scale the CLO portfolio. Expanding it by 23% year-over-year. Nearly 3/4 of our CLO purchases have been mezzanine debt tranches, underscoring our up in credit bias, particularly during the challenging past 6 months.

In addition, we executed more than 260 trades over the course of the year to capture relative value across the CLO capital structure. At the same time, we strengthened our capital structure through the issuance of long-term unsecured notes, and we built a substantial credit hedging portfolio designed to mitigate downside risk and support opportunistic investing. As of March 31, our fiscal year-end, the high-yield CDX notional equivalents represented by our credit hedges actually exceeded our NAV, which I view as strong evidence of our conservative approach.

We believe that AI-driven disruption, tariffs, geopolitical uncertainty and recession concerns continue to present real risks, and our diversification and active hedging and trading are specifically designed to mitigate these risks. For the full fiscal year, we declared total distributions of $0.96 per common share. And while unrealized mark-to-market losses resulted in a net loss overall, we believe that our underlying portfolio remains fundamentally sound and that many of these markdowns were technical in nature. We remain confident in the earnings prospects of our growing CLO portfolio and a robust hedging program.

Even back to the recovery we've seen in our portfolio so far in the second quarter, we believe that a meaningful portion of the recent price declines remains reversible with potential for further recovery as credit spreads continue to normalize. Relative to other CLO focused closed-end funds, we have delivered stronger and less volatile earnings over the past 12 months, reflecting our disciplined and highly active approach to portfolio construction and risk management. We are particularly pleased with the timing and execution of our unsecured note offering, raising capital at the end of March enabled us to deploy into a dislocated market at highly attractive levels.

And it is encouraging to see the market's recognition of the strength of [ Burn's ] credit story and risk management discipline. Since mid-April, our unsecured notes have consistently traded at a premium to their issue price, even at today's higher treasury yields. As noted earlier, we believe that the market environment has shifted in our favor. With higher reinvestment yields and improving market sentiment, we see a stronger foundation for continued growth.

We entered the new fiscal year with Apple liquidity and a flexible balance sheet that supports increased earnings capacity and the momentum in April and into May has reinforced our confidence in our ability to generate attractive total returns as the year progresses. Our balanced portfolio approach, mezzanine debt for stability, equity for upside, hedging for downside protection and active trading to capture relative value positions us well across a range of market environments.

More than ever, we believe that our focus on liquidity, active trading, disciplined risk management and tail risk hedging will enable us to capitalize on dislocations and generate alpha through periods of volatility.

Thank you for your time and your continued support of Ellington credit. And with that, let's open the floor to Q&A. Operator, please proceed.

[Operator Instructions]. And our first question today comes from Crispin Love with Piper Sandler.

Larry, you said on it a little, but can you discuss just dry powder, you did the debt offering at the end of the quarter. it seems like much of that has been deployed through May. What do you have to deploy now?

And then just how close are you [indiscernible].

Hey, Chrispin. It's Jay. I can take that. So we've made the point that through April, we're substantially deployed on those unsecured note proceeds. So we saw the sell-off through March and a kind of a golden opportunity to capitalize. And so we were pretty quick to deploy and kind of deploy rapidly in new investments and replacing some short-term secured borrowings.

You can see on our April 1 page from Monday night that the portfolio is up about $20 million month-over-month. And so that's net of some sales, that's net of some paydowns and just some principal return on underlying investments. Looking forward, I think that again, the proceeds are mostly deployed. We probably have a little bit of room to add secured borrowings on the margin, but I would characterize the proceeds from the notes is kind of deployed and kind of invest at this point.

Yes. And I think it'll be probably more about recharging our adjusted net investment income through rotations, especially out of, as we mentioned, certain types of of equity profiles into other types of equity promises, especially will make a very meaningful change.

Okay. Great. That's helpful. And then first quarter -- first calendar were very challenging for a lot of the reasons you discussed. Just on the outlook here. Second quarter so far, it seems constructive based on your comments. And then Larry, on just recharging adjusted net investment income. Can you talk about your confidence in covering the dividend with adjusted NII over the near to intermediate term?

Yes. So look, I think we -- obviously, we just raised the debt capital at the end of March. So we're not talking about April, I think after this current quarter is over, right, that's when you'll see the momentum in our adjusted net investment income, I think, sort of be back on the upswing, right? Given the timing of our debt deal. And I think that our next step is to get that adjusted NII for the quarter into the low 20s. That's going to be our next step.

And I think that once it's there, through just from that and from actively trading the portfolio and we are active traders and there's -- the opportunities are, we think, much better than they've been. We'll be where we want to be, which is we'll be paying a high dividend and hopefully, with minimum or no book value erosion. I mean that's always our goal.

That was our final question for today. We thank you for participating in the Ellington Credit Company Fourth Fiscal Quarter ended March 31, 2026 Results Conference Call. You may disconnect your lines, and have a nice day.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company Fiscal Quarter ended December 31, 2025 Results Conference Call. Today's call will be recorded. [Operator Instructions]

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

Thank you. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical in nature and involve risks and uncertainties detailed in our registration statement on Form N-2. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The fund undertakes no obligation to update these forward-looking statements.

Joining me today are Larry Penn, Chief Executive Officer of Ellington Credit Company; Greg Borenstein, Portfolio Manager; and Chris Smernoff, Chief Financial Officer. Our 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 in end notes at the back of the presentation.

With that, I'll turn it over to Larry.

Thanks, Alaael-Deen, and good morning, everyone. We appreciate your time and interest in Ellington Credit Company, which we often refer to by its New York Stock Exchange ticker, E-A-R-N or EARN. Please turn to Slide 3.

The fourth calendar quarter was the most challenging market environment for CLO equity since mid-2022 and before that, since the COVID crisis. Thanks to our active and disciplined portfolio management strategy, Ellington Credit was able to limit fund losses to approximately 9% of NAV, once again outperforming the overall peer set. The CLO equity market was impacted by many of the same factors in the leveraged loan market, particularly elevated credit dispersion and ongoing coupon spread compression. Those same factors that dominated performance in prior quarters.

Put simply, weaker credits underperformed, while stronger borrowers continue to refinance and reprice at tighter yield spreads. These factors continue to pressure leveraged loan prices and reduce excess interest across the vast majority of the CLO market. Together, these dynamics weighed heavily on CLO equity performance, leading to lower projected cash flows and weaker mark-to-market valuations with year-end technical selling further compounding the weakness.

As estimated by Nomura Research, the median CLO equity return for the quarter was negative 9% and for the full year, negative 14%. For Ellington Credit, our relative up in credit bias and active trading strategy helped mitigate these headwinds. CLO mezzanine debt tranches, which have been a focus of our investment activity in recent months, proved more resilient and opportunistic trading contributed positively to results.

As shown on Slide 3, yield spreads did widen on CLO debt tranches, but the move was much more contained than the dislocation seen in CLO equity. Last year, following our conversion to a CLO closed-end fund on April 1 and continuing through the fourth calendar quarter, we steadily increased our allocation to CLO mezzanine debt tranches, which we believed offered a compelling balance of yield and downside protection by virtue of their structural credit enhancement. Reflecting the strategic shift, approximately 70% of our CLO purchases during this 9-month period were mezzanine debt tranches.

Meanwhile, we also identified select CLO equity opportunities in the secondary market while generally avoiding new issue CLO equity where pricing dynamics were mostly unattractive. In the fourth quarter, we also benefited as we did throughout much of last year from several mezzanine positions being redeemed at par that we had purchased at discounts, generating realized gains. Those redemptions, coupled with opportunistic trading, offset some of the portfolio growth from new mezzanine investment activity. Nevertheless, the proportion of debt in our CLO portfolio grew substantially, ending the year at just under 50%, up from roughly 1/3 at our April 1 conversion.

Active trading once again played an important role in our relative outperformance. We executed 47 unique CLO trades during the quarter, excluding deal liquidations, and we actively managed our credit hedges. We redeployed our October interest payments and equity distributions into higher-quality deleveraging mezzanine debt positions while trimming higher dollar priced, longer spread duration mezzanine debt profiles where we saw less favorable risk reward. We also took advantage of notable spread concessions in the new issue debt market to add BB-rated tranches at significantly higher yields. On the equity side, we remain selective, steering clear of more levered and lower quality profiles. This active approach allowed us to mitigate downside pressure, harvest gains opportunistically and reposition the portfolio for better risk-adjusted returns. The real-time information that comes with this level of trading activity is especially valuable in these high volatility market environments.

On Slide 6, you can see that we actually recorded positive realized gains in each subsector for the quarter. All that said, as previously reported in our monthly NAV updates, the magnitude of the market-wide decline in CLO equity valuations led to a drop in the fund's NAV and therefore, a net quarterly loss overall. Not all losses are created equal, however. While price declines emanating from underlying loan losses and from refinancing and repricings of premium loans are irreversible, a portion of the decline in our quarterly NAV was driven by credit spread widening rather than realized credit impairment or fundamental deterioration. As a result, a portion of these mark-to-market losses could reverse if and when market conditions normalize.

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

In short, while the fourth quarter was challenging for CLOs broadly, our disciplined and active portfolio management cushion the impact, drove EARN's relative outperformance and positioned us to play offense in what we believe is an increasingly opportunity-rich investment environment as we move forward into 2026.

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

Thanks, Larry, and good morning, everyone. Please turn to Slide 4. For the fourth calendar quarter, we reported a GAAP net loss of $0.56 per share. On Slide 6, you can see a breakout of portfolio net income by CLO subsector. Significant mark-to-market losses on CLO equity drove our net loss for the quarter, while CLO mezzanine debt held up better by comparison. In the U.S. leveraged loan market, performance diverged sharply by credit quality during the quarter. Lower rated CCC loans came under significant pressure from elevated CLO reset and liquidation activity and rising defaults while premium priced loans continue to refinance at par.

Against that backdrop, CLO debt spreads widened and CLO equity bore the brunt of the weakness as spread compression and credit deterioration among weaker loans drove simultaneous declines in both excess interest and underlying asset values. Higher quality seasoned mezzanine tranches proved more resilient. In Europe, the story was more nuanced as loans underperformed their U.S. counterparts, while CLO debt tranche spreads for the most part, held up better by comparison.

Within our CLO mezzanine debt portfolio, net interest income and trading gains, together with the positive impact of deal calls on positions owned at discounts to par offset the majority of mark-to-market write-downs. Credit hedges were also a drag on results, reflecting strong performance in the broader credit and equity markets during the period. Net interest income declined by $0.02 sequentially to $0.21 per share for the quarter, driven by lower asset yields and portfolio turnover. The weighted average GAAP yield for the quarter on our CLO portfolio was 13.7%, down from 15.5% in the prior quarter.

Slide 7 illustrates a modest sequential decline in the size of our overall CLO portfolio. During the quarter, we made new purchases totaling $66 million, 60% in CLO debt and 40% in CLO equity, and we sold $19 million of CLOs, consistent with our active trading approach. At December 31, CLO equity represented 52% of total CLO holdings, roughly unchanged from the prior quarter, while CLO -- while European CLO investments accounted for 12%, down from 14% at September 30.

Slide 8 provides an overview of the corporate loans underlying our CLO investments. The collateral remains predominantly first lien floating rate leveraged loans, representing roughly 95% of the underlying assets. Our industry exposure is well diversified, led by technology, financial services and health care with no single sector exceeding 11%. Loan maturities are spread over several years with the largest concentrations in 2028 and 2031 and low concentrations of near-term maturities, producing a weighted average loan maturity of 4.3 years. Facility size is skewed towards larger borrowers with 44% in facilities over $1.5 billion and a weighted average size of $1.6 billion, which supports liquidity.

Slide 9 provides further detail on our underlying loan collateral. Slide 10 presents a snapshot of our credit hedges as of year-end. As Larry noted, we further increased our corporate credit hedges during the quarter with that portfolio equal to roughly 90% of our net asset value as of December 31. We also maintained a foreign currency hedge portfolio to manage exposure from our European CLO investments. Turning to Slide 11. At December 31, our NAV was $5.19 per share and cash and cash equivalents totaled $24.3 million. Our net asset value based total return for the quarter was negative 9.1%.

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

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

Calendar Q4 was one of the most difficult quarters for CLO equity in recent memory. Continued dispersion weighed heavily on performance as fundamental issues in lower quality credits paired with continued coupon spread compression and better quality credits pressured both interest cash flows and NAV valuations. In addition, because CLO liabilities generally have longer non-call periods than the underlying loans, CLO managers had limited ability to refinance or reset debt tranches at lower financing costs. As a result, CLOs were largely unable to capture the benefit of lower rates at the liability level, which could otherwise have helped offset the effects of coupon spread compression on equity cash flows.

That said, entering 2026, more than 40% of EARN's U.S. CLO portfolio consists of deals scheduled to exit their non-call periods before year-end. As these deals become refinanceable, liability refinancings and resets at tighter spreads could help mitigate the drag from coupon spread compression should the market conditions permit.

In the fourth quarter, CLO new issue volumes were constrained by a weak arbitrage. And as noted, the fund continued to avoid new issue equity. There has increased attention on the impact of manager-controlled captive funds on new issue pricing dynamics. While that discussion has merit, we believe there are also significant structural and technical factors that warrant caution on new issue equity. We have seen more attractive opportunities in secondary trading, which continues to play to Ellington's strength as an active trader.

The subordination levels and structural protections remain paramount in guarding against continued idiosyncratic and sector-specific credit issues. We continue to favor defensive CLO mezzanine positions, which greatly outperformed equity on the quarter. Mezzanine debt is far less vulnerable to coupon spread compression than equity. That said, following the recent drop in loan prices, only about 15% of the universe were priced above par as of the end of February. Prepayment risk on CLO equity has definitely abated. That 15% level is down from 57% coming into the year and marks the lowest level since last April's tariff shocks. Given our active trading approach and relative value framework, we continually reassess our mezz to equity weighting as the opportunity set evolves.

In Europe, spreads widened less than on debt tranches relative to the U.S. You can see that on Slide 3, and we were able to monetize gains and rotate capital, reducing our overall European exposure as a result. While similar credit dispersion dynamics emerged during the fourth quarter, CLO equity in Europe avoided the same degree of spread compression seen in the U.S.

So far in 2026, CLO equity and mezzanine to a lesser degree, has continued to underperform with weakness spreading into broader markets amid concerns around software and AI-related credits. More than ever, I believe that our active trading, focus on liquidity, disciplined risk management and use of tail hedges, we've earned well positioned to take advantage of dislocations and generate alpha through periods of volatility.

Now back to Larry.

Thanks, Greg. First, I'd like to step back from the quarterly results and reflect on the full 2025 calendar year because I think the bigger picture provides important context for where we stand today. 2025 was a transformative year for Ellington Credit. We completed our conversion to a CLO closed-end fund on April 1. And in the days that followed, we efficiently liquidated all remaining mortgage-related assets with minimal NAV impact despite all the market turmoil around the tariff announcements.

Given all that volatility, we are particularly proud of how smoothly this went. It was a clean and well-executed transition that positioned us to focus exclusively on the CLO opportunity set going forward. Following conversion, we methodically built out our CLO portfolio, expanding it by nearly 50% to $370 million by calendar year-end and adding credit hedges in lockstep with that expansion. We executed 218 CLO trades during this 9-month period, comprising $272 million of purchases and $63 million of sales, excluding redemptions. Relative to other CLO-focused closed-end funds, we delivered both a meaningfully stronger and significantly less volatile earnings stream, a direct reflection of our disciplined and highly active approach to portfolio construction and risk management.

Second, I'll turn to our activity so far in 2026. January and February continued to reflect more of the same difficult market dynamics. CLO equity remained under significant pressure with the underlying credit concerns outlined earlier continuing to weigh on sentiment. Meanwhile, mezzanine debt continued to hold up comparatively well. For January, I'm pleased to report that EARN once again outperformed its peer set, ending the month with an NAV per share of $5.04. February was an even tougher month for the sector, which we think has created many more opportunities.

In terms of portfolio activity, our overall portfolio was smaller given the decline in NAV, but we've continued to add mezzanine debt positions, particularly in deleveraging BB tranches. We have also been active recently in exercising CLO call options, generating realized gains on debt tranches purchased at discounts to par. In addition, we've recently collapsed certain CLOs where we held discount positions, which has further strengthened the credit profile of our remaining portfolio and helped to build up liquidity in a highly volatile environment. While more than 3/4 of our purchases in 2026 have been mezzanine debt, we have also selectively increased our CLO equity holdings where we see compelling value, such as deals with mispriced call optionality where we believe the sell-off has been overdone and entry points are attractive.

We have also been disciplined about maintaining very substantial credit hedges. Given the dispersion we've seen in the corporate credit market, our credit hedges haven't yet been able to offset the declines in CLO equity prices, but we continue to view them as an indispensable part of our portfolio management strategy. This is all the more true today given that overall yield spreads in the corporate credit markets continue to be relatively tight when viewed on a historical basis.

Finally, looking ahead, we are focused on rebuilding net investment income and net asset value as we deploy capital into what is looking more and more like a distressed market. For more passive strategy, that environment only creates headwinds. For us, we see it as fertile ground, creating the kind of relative value and trading opportunities where active trading and disciplined risk management can add meaningful value.

Furthermore, and as noted earlier, we continue to believe that a substantial portion of the recent price declines are reversible since they reflect yield spread widening rather than fundamental credit impairment. Equally importantly, we have yet to tap the capital markets as a closed-end fund issuer. We are exploring the potential issuance of long-term unsecured debt in the coming weeks, which will supply us with a significant additional dry powder at a potentially ideal time. We believe the current environment characterized by dislocations and expanding relative value opportunities is especially well suited to our active investing and trading approach, and we look forward to updating you on our progress next quarter.

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

[Operator Instructions] Our first question will come from Crispin Love with Piper Sandler.

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

Go ahead, Greg.

Sure. So I think the way we think about this, this is a lot of the benefit of CLOs. There's a lot of diversification by sector and then there's diversification by name. You see some headlines with what's going on maybe in areas of private credit. But in some of those vehicles, things can be pretty chunky. The same thing goes for certain areas of the middle market and private credit CLO market even. So if you're going to have large single name exposure, you just have much more idiosyncratic risk. We find this to be far harder to control. And so given our whole risk management framework and process, I think we generally feel more comfortable that as long as our portfolio is representative of the overall market, be it percentage of sectors, percentage of names, things like that.

Overall, it just becomes more statistical for us to handle the risk in regards to views on specific sectors, there is certainly damage done in software, and the sector has sold off a lot. I think from the way that we look at the credits, the way that we speak to our managers who are looking at the credits, there's going to be winners and losers, which has been the story of a lot of things over the last year. And so in some cases, you might have names that have real warning signs and we should be concerned about and others may be pushed down in sympathy with managers reducing overall sector exposure. I don't think we have a strong view if loan prices are specifically weak or cheap on a name-by-name basis within the sector. I think it's just important to keep these exposures appropriately in line.

Our next question will come from Jason Weaver with JonesTrading.

First, I wonder if you could help us quantify the proportion of loans underlying the portfolio that are CCC rated or lower.

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

I don't have it at my fingertips. But I think in general, a lot of these operate around 7.5% is a typical CCC bucket in the CLO. And I could get you an exact percentage at an underlying look. Obviously, the percentage exposure -- I'm getting some feedback on a deal basis. Because if we own, for example, a well-supported mezzanine tranche, if the deal has a certain amount of CCC exposure, we're not necessarily exposed as much as we are if we own an equity tranche.

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

Sorry, I was just going to say we'll consider adding that to our monthly term sheet.

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

Well, I think first, maybe, Greg, you can speak to the carry question. In terms of trimming the size of the credit portfolio, the loan portfolio also declined. Both declines are modest, 12/31 to 1/31, but it was a smaller credit hedge portfolio in lockstep with a slightly smaller loan portfolio. Greg, do you want to comment on the kind of the drag you're seeing from the credit hedges on a go-forward basis?

Sure. I think overall, there's what we've experienced and then there's what we've had so far. I think if you look when you discuss what's going on this year, for example, it's been a pretty minimal drag just because you've actually -- at least year-to-date, some widening in high yield, right? Also, you have to remember that we really focus these hedges for larger drawdown scenarios. We're very mindful of the drag. And so I think the protection we have is much more in sort of these larger shocks, if you take a look at the holdings that we have in there versus what the drag is on a run rate. So I can get you the exact as of today because obviously, this number shifts around quite a bit depending upon where things widen into. But I would note that we've been very active in repositioning and rotating considering all this volatility.

And we're mindful when we take a look at it, some of these shorts may be in a more liquid high-yield index. Some of these shorts may be in loan form as we've seen very specific loan issues there as well as on the out of the money side, different types of puts and payers. I think that overall, as I'm trying to give you an answer off a rough -- off the top of my head on this, you're seeing probably an overall drag which amounts to something to 1% to 2% of fund NAV per annum. So we think that considering the environment and the risk right now, it's a small or a very reasonable amount to pay for the type of protection we'll get if volatility or any sort of drawdown should really kind of persist throughout the year.

Even 2% would be less than $0.01 a month, well worth it.

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

Got it. That's helpful. And the sort of decomposition of it would be interesting to see. We're just looking at it from looking at high-yield CDX, and that's what you put as equivalents. But obviously, there's much more basis of using individual positions. So I appreciate the color.

But it's not...

All be published...

Yes. It's not so much single name positions though. That's not what we're doing. It is more in broad-based CDX and similar instruments.

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

But when you look at what we generally have, just to give you a set of what we generally use in our arsenal, CDX high-yield index out of the money IWM puts, loan ETF shorts, credit index tranches, loan ETF puts, right? I think it's just sort of all in that area of the market that we think offers different values in how we want to protect and some sort of mixture of those will pivot around and adjust based upon as our portfolio and our longs change, right, the way we see things and the way that we think that, that helps sort of protect and manage our risk.

Our next question will come from Eric Hagen with BTIG.

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

Greg?

Well, I think that one thing to point to is maybe some redemptions you've seen in things like JAAA, right? That ETF will actually sort of move as flows come in and out, and it's more easily trackable. And so listen, I think the concerns around loans, concerns around where interest rates may go, right, has certainly led to what may drive that. Floating rate funds, there's other ETFs that I think have similar to JAAA, which is the big one in the space, have experienced a similar situation. I mean this is what we're sort of looking for as an active trader, it creates great opportunity for us with flows moving from A to B, lots of folks repositioning their portfolios. There's a lot of rotations even from some of these ETFs where it's not necessarily inflows, outflows, but maybe they're rotating, right? And as there's much more active market as price discovery settles in, it's really beneficial in terms of being able to actually actively trade to maneuver. So it's been something we've honestly look forward to.

Okay. That's interesting. Next one is maybe more related kind of to the general mechanics in working through potential defaults and what the time line and the structure to work through those defaults looks like. Is it -- would you chalk it up to basically being like a binary outcome with respect to recovering potential proceeds? Or is the severity almost always 100% in the CLO market?

No, no, no. Historically, if you were to take a look at leveraged loans, these recoveries are well above 0. I mean recoveries have been pushed down over time. I think that historically, I think there's a lot of data out on this. Maybe it was up around 70%. It's probably eased off of that a little bit. I think that -- sorry, if you take a look at CLOs, for example, if you look at -- we look at something called par burn, right, which is just what's the overall kind of loss of the deal just because now you have to be mindful that sometimes there's some loss that's not classified as a default. For example, if something is a distressed exchange, it's not a technical default, and there's generally some haircut. But if you look at CLOs with underlying leveraged loans, the average par burn or loss rate as we sort of see it from a pragmatic standpoint, is about 75 basis points annually, which helps to kind of translate to that.

So when loans are defaulting, you are seeing real recoveries. Now it varies. Some certainly have been close to 0. Others have been much higher. And so those are all very deal specific, right? And this is where you get into do you have liability management exercises? How are the sponsors treating things? Are there in groups and out groups? I think overall, we try to be -- defaults and losses have picked up as I think we saw some of these issues. CLOs have seen a lot less than the private credit, right? These broadly syndicated loans that have real transparency on them that do price actively day-to-day, right? You generally know where most of these are in terms of bid and offer.

But we are mindful of where losses could go to. They were elevated last year above historical averages. And as you see sector-specific concerns, I think that one reason we are mindful and tepid on increasing equity exposure is that if you're a first loss CLO, you are exposed directly to any defaults that may occur. So I don't know if that directly answers the question, but...

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

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company Second Fiscal Quarter ended September 30, 2025 Results Conference Call. Today's call is being recorded. [Operator Instructions]

It is now my pleasure to turn the floor over to Alaael-Deen Shilleh, 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 registration statement on Form N-2. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The company undertakes no obligation to update these forward-looking statements.

Joining me today are Larry Penn, Chief Executive Officer of Ellington Credit Company; Greg Borenstein, Portfolio Manager; and Chris Smernoff, Chief Financial Officer.

Our earnings call -- our 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 at the back of the presentation.

With that, I'll turn it over to Larry.

Thanks, Alaael-Deen, and good morning, everyone. We appreciate your time and interest in Ellington Credit Company, which we often refer to by its New York Stock Exchange ticker E-A-R-N or EARN for short.

Please turn to Slide 3. The credit markets generally rallied during the third calendar quarter, supported by a dovish shift from the Federal Reserve, which delivered its first interest rate cut for the year in September. Most corporate credit and CLO spreads tightened overall, as shown here on Slide 3, and that was even despite some notable pockets of weak credit performance in the high-yield corporate bond and leveraged loan markets. Major equity index is also advanced on expectations of further monetary easing.

Turning now to Slide 4. Ellington Credit delivered another strong quarter against this backdrop. Our CLO portfolio ramp-up continued at a steady pace, and our net investment income rose accordingly. Our results also benefited from several CLO note redemptions at par on discounted purchases as well as our robust trading activity with more than 90 distinct CLO trades executed during the quarter.

Finally, I'm very pleased to announce that Ellington Credit Company achieved full dividend coverage from net investment income in September, underscoring the earnings power of our portfolio as we get closer to being fully invested.

Active trading remains at the core of our investment approach. And we believe it enables us to capitalize on mispricing to manage risk more effectively and to continually reposition the portfolio for optimal relative value.

This past quarter, we saw yield compression between the CLO debt tranche markets and the leveraged loan markets, and that led us to reposition our portfolio in 2 important ways: First, this yield compression led us to increase our portfolio allocation to mezzanine debt, gaining more attractive yields on a relative value basis, especially with the downside protection they offer. Second, the yield compression led us to reduce our exposure to new issue equity. Instead, we gained similar exposures, but at better pricing in secondary market acquisitions of longer duration equity.

Another advantage of frequent trading is that it provides more accurate and more actionable information on real-time market conditions and it improves our valuation process, as Greg will discuss later. Our predisposition towards active trading also highlights an advantage of EARN's relatively modest size with $225 million of equity to invest rather than say, $1 billion or more, we can remain nimble, rotate the portfolio decisively and be highly selective in our investments without feeling compelled to own the market.

Our portfolio maneuvers this past quarter echoed many of our moves from the prior quarter. Looking back over the last 2 quarters, so dating back to our April 1 conversion to a closed-end fund, approximately 70% of our net CLO purchases have been of mezzanine debt tranches, reflecting our deliberate move up in credit quality. We believe that mezzanine debt tranches currently offer a compelling combination of yield and downside protection, complementing the equity positions we hold.

We've also leaned more heavily into the secondary market where relative value opportunities are often more compelling than a new issue. As I mentioned, we've been especially favoring secondary market acquisitions in the case of CLO equity.

As shown on Slide 7, as of September 30, our $380 million CLO portfolio was almost evenly split between mezzanine debt and equity tranches with about 14% of total investments in Europe.

With that, I'll hand it over to Chris to review our financial results in more detail. Chris?

Thanks, Larry, and good morning, everyone. Please turn back to Slide 4. For calendar Q3, we reported GAAP net income of $0.11 per share and net investment income of $0.23 per share. The weighted average GAAP yield for the quarter on our CLO portfolio was 15.5%.

On Slide 6, you can see a breakout of our portfolio net income by CLO subsector, $0.13 from U.S. CLO debt, $0.03 from European CLO debt $0.08 from U.S. CLO equity and a slight net loss from European CLO equity. Strong net investment income across subsectors was complemented by net realized and unrealized gains on CLO debt and partially offset by net realized and unrealized losses on CLO equity and credit hedges.

In the U.S. leveraged loan market, overall index prices were broadly unchanged, but performance diverged sharply by credit quality. Lower triple -- sorry, lower quality, CCC-rated loans felt several points amid isolated default concerns, while B-rated loans advanced on sustained CLO demand, further highlighting the theme of credit dispersion. Callable higher-quality loans continue to be repriced at lower rates with price premiums on those loans giving way to new issuance at par with tighter spreads.

In Europe, leveraged loan prices lagged the U.S., largely due to more extensive repricing activity. Despite the mixed loan backdrop, U.S. and European CLO debt spreads generally tightened, supported by steady capital inflows and limited new CLO issuance. Seasoned mezzanine debt outperformed as loan prepayment and repricing activity remained elevated. CLO equity also benefited from tightening debt spreads, enabling equity investors to refinance or reset liabilities and lower coupons, though this was partially offset in both the U.S. and Europe by continued loan repricing and isolated default concerns.

Slide 7 provides detail on our CLO portfolio, highlighting the continued sequential growth. In total, the CLO portfolio increased by 20% to $380 million. During the quarter, we made new purchases totaling $160 million, 62% of that in CLO debt and 38% in CLO equity and sold $29 million of CLOs, consistent with our active trading approach. At September 30, CLO equity represented 51% of total CLO holdings, down from 53% coming into the quarter, while European CLO investments accounted for 14%, roughly unchanged quarter-over-quarter.

Slide 8 provides an overview of the corporate loans underlying our CLO investments. The collateral remains predominantly first lien floating rate leverage loans, representing roughly 95% of the underlying assets. Industry exposure is well diversified, led by tech, financial services and health care with no single sector exceeding 11%. Maturities are spread over several years with the largest concentrations in 2028 and 2031 and limited near-term maturities, producing a weighted average loan maturity of 4.2 years. Facility sizes skewed towards lower borrowers with 42% in facilities over $1.5 billion with a weighted average size of $1.6 billion supporting liquidity.

Slide 9 provides further detail on our underlying loan collateral.

Slide 10 presents a snapshot of our credit hedges as of September 30. During the quarter, we increased our corporate credit hedges alongside the growth of our loan portfolio. At quarter end, we also maintained a foreign currency hedge portfolio to manage exposure associated with our European CLO investments.

Turning to Slide 11. At September 30, our NAV was $5.99 per share and cash and cash equivalents totaled $20.1 million. Our NAV-based total return for the quarter was 9.6% annualized.

With that, I'll pass it over to Greg to discuss how the portfolio market has performed, how we positioned our CLO portfolio and our market outlook.

Thanks, Chris. It's a pleasure to speak with everyone today. Calendar Q3 played out almost as a mirror image of Q2. We began with robust performance in July, but momentum faded as the quarter went on. Growing concerns about idiosyncratic credit issues, coupled with continued loan coupon spread compression weighed on CLO equity and even pressured some of the more credit-sensitive mezzanine tranches. Even against this backdrop, both our mezzanine and equity positions contributed positively to performance.

As we've mentioned before, we have been concerned throughout the year about the widening gap between strong and weak credits in both the CLO and broader corporate credit markets. Whether it is the prolonged impact of elevated interest rates on floating rate borrowers or the volatility around winners and losers created by AI, tariffs and changing trade dynamics, we've been deliberate and cautious about owning first loss credit risk.

CLO equity has continued to experience muted return, not only due to default and distressed exchanges and some weaker credits, but also due to prepayments and stronger credits, reducing returns at both ends of the underlying loan portfolios. For CLO equity, the combination of these 2 factors has more than offset the positive impact of tightening liability costs and deals.

On the margin, we generally continue to favor CLO mezzanine tranches as a more attractive balance of risk and return in the portfolio. The subordination and structural protections they offer help insulate us from the dispersion and idiosyncratic concerns mentioned earlier.

That said, almost any investment becomes attractive at the right price, and we are continuing to see opportunities in both parts of the capital structure when they're offered at the right level. We are continuing to find the secondary markets far more compelling than primary markets, as has been the case for most of the year.

We only participated in on new issues equity transaction in calendar Q3. Meanwhile, we saw an uptick in CLO trades for EARN from 79 in Q2 to 92 in Q3, emphasizing our trading-focused flexible approach. In our view, this is something that very much differentiates us from our competitors and should be a source of comfort for investors.

Credit issues such as First Brands have roiled the credit markets, and that has led to selling pressure on the stock of CLO closed ends funds including EARN. Similar to what we've seen with BDC stock prices, I believe this is often due to investor uncertainty about the true condition of the underlying portfolio, including the portfolio marks.

By trading our portfolio so actively, we possess a great deal of confidence in our underlying portfolio marks. Not only do we have a strong sense of where the market transacts, but it has been relatively straightforward to value our positions because many of them trade frequently, which makes us highly confident in the accuracy of our reported NAV. While we continue to favor mezzanine tranches, EARN has been able to take advantage of some interesting opportunities in the CLO equity market. We expect to continue to see compelling special situations, especially in the secondary market, where we find that our strong relationships and reputation as an active trading counterparty often give us early and differentiated access.

While some CLO managers and dealers are willing to offer incentives to entice investors to commit to funding new issue CLO equity investments. We think it's critical to evaluate those incentives in the context of the manager's quality, the deal structure and the underlying collateral and only commit capital when the overall opportunity clears our risk/reward bar.

Now back to Larry.

Thanks, Greg. I'm very pleased with EARN's results this quarter. The steady growth of our net investment income enabled us to achieve full dividend coverage in September, which is an important milestone that reflects the earnings power of our portfolio. While our net investment income can fluctuate month-to-month, as deals are called, distributions are reinvested or profits are taken through trading, we feel confident about our ability to maintain dividend coverage over the long term.

Taking a step back, volatility and credit dispersion have remained defining features of the corporate credit markets in general this year and the CLO market, in particular. Uneven impacts from AI and tariffs have definitely factored greatly into the volatility and credit dispersion, but the recent Tricolor and First Brands bankruptcies first brands being a widely held CLO credit, by the way, underscores that the corporate credit markets are also vulnerable to idiosyncratic volatility and credit dispersion.

Given that corporate credit spreads overall remained relatively tight during the quarter, we continued to expand our credit hedging portfolio as we ramped our investment portfolio.

As shown on Slide 10, we increased our credit hedge portfolio to roughly $90 million of high-yield CDX bond equivalents by the end of the quarter. To put that in perspective, that $90 million equates to about 40% of our NAV as of September 30. So it's a very significant position. And following quarter end, we've continued to increase our credit hedges. This synthetic short position reached more than $150 million in high-yield equivalent as of October 31, as detailed in our October tear sheet that we released last night.

While these hedges, like most hedge, can be expensive to maintain, the downside protection they provide is well worth the cost in our view, especially given where overall corporate credit spreads currently stand. If credit spreads widen, these corporate credit hedges should generate substantial gains to help offset any declines in our long CLO portfolio.

Finally, I'll note that while high-profile defaults like First Brands tend to grab a lot of headlines, they also give you a real-world look at how CLO structures are designed to work and how our approach is meant to protect investors. In EARN, the impact from First Brands on our portfolio was quite modest. Our mezzanine debt tranches were largely protected by their equity buffers. And while some of our equity positions were affected, the overall fundamental effects for us was quite limited and was felt more in shorter-dated deals as opposed to the longer reinvestment period CLOs, where most of our equity exposure sits. And that's really the point of the diversification that the CLO market offers investors. You avoid taking outsized exposure to any one borrower.

That principle, combined with our recent focus on CLO debt tranches served us well through the third calendar quarter. As we move forward, if corporate defaults were to become more widespread, our credit hedges will become even more important as another layer of downside protection.

Looking ahead, with a balanced mix of mezzanine debt and equity tranches and robust credit hedging, I believe we're well positioned for both upside and resilience as market conditions evolve. We expect elevated repricing activity and ongoing credit dispersion to continue to create opportunities for outperformance through active portfolio management, further reinforcing our confidence in delivering strong total returns for shareholders.

And since we're now close to being fully invested, our likely next step is to raise long-term unsecured notes, which we hope to complete in the coming weeks, market conditions permitting. We expect this additional capital to be accretive to both net investment income and GAAP earnings.

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

[Operator Instructions] We'll take our first question from Crispin Love with Piper Sandler.

My question is on the hedges and the recent moves. As you said, you had a pretty meaningful move in credit hedges from the end of September to end of October. Can you just discuss what you're seeing? What drove the increase versus the end of September? You think spreads are too tight today? And then, of course, we've been hearing some of the -- all the macro noise in credit, private credit. So just curious on your thoughts there and what you're seeing in your portfolio and just more broadly?

Sure. I'll take the first crack at that. Greg, if you don't mind. Just the increase in the size of the credit hedges was mostly a function of just the increase in the portfolio size and the increase in the leverage in terms of just on an absolute dollar basis in terms of how much debt we have through repo. So a major component of how we size our credit hedges is to make sure that in a severe market downturn, we'll have enough liquidity through the profits on our credit hedges to manage any liquidity issues arising from our repo.

So that's really where most of it comes from. But -- and then in terms of timing the market, I'll pass that to Greg. We obviously do have the ability and we like to also adjust size of the credit hedge portfolio in terms of how tight credit spreads are on a historical basis. Greg?

Sure. To echo Larry's point, I think it's important to remember these hedges are here to really sort of protect against a drawdown. It's not a short position, we're necessarily taking. And so early on when we weren't financing our positions as much or if we were more heavy in CLO equity, which we're not necessarily financing the way we'll finance CLO mezzanine positions, they aren't as necessary as we've increased financing on CLO mezzanine position since we've tended to favor those, we've needed to add more protection in these drawdown scenarios from a liquidity point of view.

Now that said, we're constantly trading these hedges around as positions come up and down. If we are selling out of something, we may adjust them down to be careful not to be running shorter than we would like either. But you're right, I think that as we see some of these sales have grown in areas of the corporate credit market, we still think that tail risk is attractively priced. And so entering into some of those hedges at these levels versus where we could enter into long investments with some financing, that equation, we think, works out well for EARN generally.

And I'll just add, we'll be filing our NCSR, shortly, which gives a detailed look at our entire portfolio, including our hedges. And you'll see, if you take a look at those when they come out that they're really mostly what we would call tail hedges, right, to protect against tail scenarios.

Okay. That all make sense. But Larry, I get your point on increasing the hedges with the size of the portfolio in the calendar third quarter. But just looking at October, definitely saw a big increase in hedges, but a decrease in the CLO portfolio, if I'm looking at that right. Was that a more cautious view on credit?

Greg, do you have a view on that? I actually -- I would have to take a closer look at that to answer that.

I would need to take a look. We've not looked to necessarily represent a shorter, more cautious view. I think, in general, you may have seen some rotation. And as I said, the hedges are really there when we're financing mezz physicians, just as we're adding leverage, the drawdown with the financing can be something that we pay more attention to.

The other thing too is earlier on, our hedging options were more limited than they are today in terms of setting up agreements with banks in terms of what we're able to trade. We use a lot of different -- we enter into a lot of different types of markets for different types of tail hedges. And so it's possible from a notional standpoint, you may see some things that are just a lower beta or delta that maybe have a higher notional to that point. And so we'd have to look through in terms of notional sizing. But overall, it's not necessarily an uptick in what we think is the actual risk or equivalent risk of the hedges. It might just notionally look different as we've moved from one product to another.

Okay. And then just last question. Just any color -- I'm just looking at the tear sheet for October. Any color on the CLO portfolio decreased a bit to $371 million from $380 million as you're kind of getting to full deployment? Any reason for the decrease there?

Over the course of October?

Yes.

Well, October is a quarterly payment date, too. So the equity portfolio will have distributions and generally a bit of a markdown in prices. And so while that came out and was distributed, I think there was some of that. Also CLO equity did sell off a little bit in October. I think that's what we saw in the market. And so you saw the NAV move to adjust that a little bit.

Crispin, I'll just add that the debt portfolio increased net month-over-month and the equity portfolio decreased mainly driven by what Greg mentioned, the distribution.

We'll go now to Doug Harter with UBS.

You mentioned potentially being in the market for unsecured debt. Can you talk about your appetite for leverage and how you think about where leverage would be kind of for the context of this conversation, we'll hold the asset composition the same just to take that piece of it out of the equation?

Sure. So as I said, we're really close to fully invested right now. I think at 300 -- between $370 million and $380 million, let's call it, we would have room definitely to go up to around $400 million, maybe a little bigger. We are constrained by all of the restrictions of the '40 Act. We're a fully compliant derivative user and that gives -- that does give us a little more flexibility.

So a little less than 2:1 leverage. Again, that's also given our current 2:1 asset to equity leverage. That's given our current portfolio composition as well, right? So the more mezzanine debt that we have, the more we can leverage the more equity we have, the less generally. And if we were to do an unsecured deal, I think you could see, right? So let's just say for argument's sake that it was a $50 million deal, right? So that additional capital, I think just a good rule of thumb again would be something a little less than 2:1 assets to that additional debt capital.

We'll hear next from Eric Hagen with BTIG.

Do you have any perspectives or predictions on the amount of CLO supply we might see next year? And just how sensitive the market could be at higher levels of issuance and maybe just some of the conditions that you feel like will drive the spread environment next year?

Sure. To be honest, I don't have a lot of conviction there. I think some of it will depend on what we see with new issue loan supply. I think if you speak to a lot of market participants, everyone sort of admits that it's been a challenged ARB with loans being so tight. I think similar to this year, you'll see a lot of reset and refinancing activities of existing deals as opposed to proper new issue, just where the market is today. But that said, it's hard to tell what may happen on both the asset and liability side.

Depending what happens with rates, that can force technicals within the loan market, potentially with on the liability side as well. And if you get a situation where some of the loans tend to sell off and maybe widen on spread while AAAs and maybe some of the up the stack tranches hold in better, this may present a good window for new issue -- true new issue to pick back up. But right now, it feels like we will continue in this environment where things are now, where people are getting creative with existing deals, trying to give them new life and extend them out versus newer -- cleaner new issue deals. That's where we see the demand at least today.

Okay. That's interesting. Do you have any general perspectives on the presence of AI-related credits, which show up in the CLO market, especially the middle market CLO zone? And if you think there's like a lot of indirect sensitivity with respect to like the AI narrative just more generally in the connectivity that it has to the flow of credit?

Sure. So addressing the first part of the question, it definitely will have an impact on the loan market. I think that as AI filters through a lot of different -- it isn't even necessarily all about tech. There's going to be a lot of companies where AI can benefit companies in terms of reducing costs. AI could potentially make some companies uncompetitive though.

And so I think that when we speak to CLO managers and we take a look at our own on some of these credits, you will find that a portion of the market will be affected, sometimes good, sometimes bad, by what AI may ultimately end up bringing. This is another point on our concern around dispersion. If it strongly creates winners and losers, this isn't necessarily the best thing for CLO equity.

If the winners prepay out at tighter levels and the losers have fundamental problems, that's not necessarily good for the overall weighted average spread of the portfolio or good for the default rate of the portfolio. And so this dispersion is one of the things we're concerned about.

As far as it relates to the middle market space, I'm not sure I would specifically comment differently. There's been some information and articles recently about some of those areas maybe of sort of the private credit middle market space that have started to reveal some problems in some of the names. There may be some similarities with the same way AI can affect the broadly syndicated loan market.

It will affect these areas of the credit markets as well. It may just take a second to come through as marks don't move as quickly as the underlying loans there are not as actively traded. And that's something that as much as we will go into those markets, we remain much smaller because given our very trading-focused background, it's not as easy for us to assess the day-to-day risk as things move when underlying portfolio -- or some of those portfolios are not reacting to up-to-date information. And so it does lead us to be cautious in some of those areas, to your point, around how quickly if AI leads to an adverse issue in those portfolios that we'll be able to see that information.

Ladies and gentlemen, that was our final question for today. We thank you for participating in the Ellington Credit Company's Second Fiscal Quarter ended September 30, 2025 Results Conference Call. You may disconnect at this time, and have a wonderful rest of your day.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company Fiscal Quarter ended June 30, 2025 Results Conference Call. Today's call is being recorded. [Operator Instructions]

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

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 registration statement on Form N-2. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The company undertakes no obligation to update these forward-looking statements.

Joining me today are Larry Penn, Chief Executive Officer of Ellington Credit Company; Greg Borenstein, Portfolio Manager; and Chris Smernoff, Chief Financial Officer.

Our 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 at the back of the presentation.

With that, I'll turn it over to Larry.

Thanks, Alaael-Deen, and good morning, everyone. We appreciate your time and interest in Ellington Credit Company. Please turn to Slide 3. Ellington Credit had an excellent quarter, which technically was the first fiscal quarter of our new fiscal year. In this, our first full quarter as a registered closed-end fund, we generated an annualized economic return of nearly 20% net and grew NAV per share. Our strong results were driven by excellent performance across both CLO equity and mezzanine investments as well as by the timely redeployment of capital following the April sale of our legacy mortgage-related holdings. Thanks to excellent execution by Mark Tecotzky and his team. We successfully completed the disposition of our remaining mortgage-related investments with minimal NAV impact. and then proceeded to grow our CLO portfolio by 27% quarter-over-quarter to $317 million, as shown on Slide 3.

Please turn now to Slide 4. Market conditions were [indiscernible] wide-ranging in calendar Q2. Following surprise tariff announcements on April 2, heightened macroeconomic uncertainty led to sharply lower prices across the board on risk assets. However, after the April 9 tariff pause, risk sentiment rebounded quickly, sparking a broad market rally. By quarter end, both volatility and credit spreads had fully retraced their earlier up searches and many equity indices reached their all-time highs. As you can see on this slide, credit spreads on both U.S. corporate high-yield and investment-grade bonds tightened overall in the quarter, with May and June's recovery more than offsetting April's weakness.

Turning to the specific sector that we focus on, namely CLOs. You can see on the top of the page that CLO mezzanine tranches, especially BBB-rated tranches also performed well in the quarter, although not quite as well as high-yield corporates. CLO equity also generally performed quite well. As also shown on this slide, CLO issuance remained high by historical standards, but was lower than in recent quarters, reflecting the impact of all that intra-quarter volatility. At EARN, having sold all our remaining agency pools in early April, our timing was fortunate given the contemporaneous risk-off price action. And so we moved quickly to begin redeploying that freed-up capital into CLO investments. While our quickness allowed us to add CLOs at their 2025 lows in April, we also continue to deploy capital into compelling CLO investments throughout the remainder of the quarter. As I noted previously, CLOs didn't actually end up recovering quite as much as high-yield corporate bonds did, and that was a good thing for us, given that we still had more capital to put to work. The key driver of our excellent performance this quarter was strong net investment income from both our CLO equity and CLO mezzanine positions, complemented by opportunistic trading, the redemption at par of 2 mezzanine positions that we had bought at discounts to par and the successful readout of a CLO in which we hold equity, all of which contributed to the growth in our NAV per share. We still have ample dry powder today and putting that to work should boost our net investment income in the coming months. At our current rate of deployment, we project that starting with September, our monthly net investment income will cover our $0.08 monthly distribution. At that point, we'll consider ourselves to be close to fully invested.

With our closed-end fund conversion now behind us, we are now benefiting from all the enhancements that the closed-end fund structure brings us, including the tax efficiency of pass-through RIC taxation and the ability to focus fully on CLO investments. I am confident that our new structure and strategy will support earnings growth and help us capitalize on the compelling opportunities we continue to see in the CLO market.

I'll turn it over to Chris now to walk through some more of the financial details. Chris?

Thanks, Larry, and good morning, everyone. Please turn back to Slide 3. For calendar Q2, we reported GAAP net income of $0.27 per share and adjusted net investment income of $0.18 per share. The weighted-average GAAP yield for the quarter on our CLO portfolio was 15.6%.

Moving now to Slide 6. You can see a breakout of portfolio net income by CLO subsector, $0.12 from U.S. CLO debt, $0.02 from European CLO debt, $0.23 from U.S. CLO equity and a $0.01 loss on European CLO equity. As you can see in the middle of Slide 6, each subsector contributed strong net investment income. In addition, our results benefited significant net realized and unrealized gains on U.S. debt and equity. As Larry mentioned, these gains reflected active trading during the quarter as well as deal calls on 2 mezzanine positions owned at discounts to par and a beneficial reset of a CLO equity position. Detracting only slightly from these gains were net unrealized losses on our European CLO equity and a modest drag from credit hedges designed to protect against downside risk.

In the U.S., leveraged loan prices moved higher quarter-over-quarter despite a sharp early April pullback. Within CLO debt, higher quality, deleveraging profiles posted the strongest performance. However, heavy issuance late in the quarter kept credit spreads from tightening further and we continue to observe elevated loan credit dispersion, particularly among low-quality borrowers. U.S. CLO equity delivered strong results supported by robust investor demand and a decline in market volatility with new or recently reset CLOs featuring long reinvestment periods meaningfully outperforming shorter tenor profile more sensitive to loan prices.

In Europe, leveraged loan prices posted modest gains but lagged the rebound seen in the U.S. Wider credit dispersion weighed-on returns, especially in junior tranches, although stronger investor appetite for non-U.S. credit provided some offset. European CLO equity underperformed U.S. equity over the quarter, reflecting more muted loan market gains and increased dispersion. That said, some investor rotation into European structures helped soften the impact.

Slide 7 provides details on our CLO portfolio, highlighting the sequential growth. In total, the CLO portfolio grew by 27% to $317 million. During the quarter, we had new purchases of $91 million, 88% of which were CLO debt and 12%, which were CLO equity, and we sold $16 million of CLOs consistent with our active trading style. At June 30, CLO equity comprised 53% of our total CLO holdings down from 58% and European CLO investments constituted 14% of our total CLO holdings, roughly unchanged from the prior quarter. As Larry mentioned, we disposed of all of our remaining mortgage positions shortly after our RIC conversion, which was -- which had an effective date of April 1. The net impact of the dispositions on our NAV was only about $0.01 per share.

Slide 8 details -- Slide 8 provides details on the corporate loans underlying our CLO investments. As you can see here, the collateral is heavily weighted towards first lien floating rate leverage loans, which make up 95% of the underlying assets. Industry exposure is well diversified led by tech, financial services and health care with no single sector exceeding 11%. Maturities are spread over several years with the largest concentrations in 2028 and 2031 and a few near-term maturities, resulting in a weighted-average loan maturity of 4.2 years. Facility size is skewed towards larger borrowers with 42% in facilities over $1.5 billion and a weighted-average size of $1.6 billion, supporting liquidity.

Slide 9 shows additional detail on our underlying loans. The porfolio spans 2,205 unique assurers, 95% senior secured loans and carries a B+, B average rating with a 3.34% floating rate spread. Currency exposure is 86% in U.S. and 14% non-U.S, and our CLO equity positions have a weighted-average junior over collateralization cushion of 4.58%.

Slide 10 provides a snapshot of our credit hedges as of June 30. We selectively and opportunistically hedge portions of our CLO portfolio's credit risk using a range of derivative instruments. During the credit -- quarter, as credit spreads tightened, we opportunistically added to our corporate credit hedges, increasing their size significantly. At quarter end, we also maintained a foreign currency hedge portfolio to manage exposure related to our European CLO equity and debt investments.

Turning to Slide 11. At June 30, our NAV was $6.12 per share and cash and cash equivalents totaled $36.6 million. Our NAV-based total return for the quarter was 19.7% annualized.

With that, I'll pass it over to Gregory Borenstein to discuss how the CLO market has performed, how we've positioned our CLO portfolio and our market outlook.

Thanks, Chris. It's a pleasure to speak with everyone today. As Larry mentioned, calendar Q2 was ultimately very profitable for EARN, but the path to get there was highly nonlinear. April was incredibly volatile as the announcement of tariffs sent the market into a tailspin and corporate credit spreads sharply wider to start the month. After the tariffs were paused, which allowed markets to stabilize, credit spreads spent much of May and June grinding back and ended tighter on the quarter overall. In our U.S. CLO portfolio, both equity and mezz tranches saw significant gains, while in Europe, returns were more muted given the higher starting point. That said, European CLOs have delivered solid performance year-to-date for EARN given the outperformance of European CLO notes in Q1. While the drawdown and subsequent retracement in CLO mezz were well correlated to broader market moves in credit, CLO equity saw increased dispersion in a few dimensions. In April, we saw cleaner, longer deals remain well supported, whereas shorter deals that are more sensitive to their underlying loan valuations saw a sharper drawdown as loan prices declined. Additionally, equity tranches where the market had been pricing in resets or refinancings underperformed as those options disappeared as CLO debt spreads widened. As we sit here today, many of those options have recovered, but they remain less in the money than they were at the beginning of the year. This is largely because AAA spreads have struggled to return to January, February levels. On the positive side for CLO equity, post-April loan price decreases reduced prior concerns surrounding loan coupon spread compression and any resulting net interest margin erosion. What's more, loan payment defaults remained low throughout the quarter, ending June 30 at 1.11% on a trailing 12-month basis on the Morningstar/LSTA U.S. Leveraged Loan Index. Overall, we have been focused lately on increasing our portfolios relative concentration to CLO mezz. We believe that increasing exposure to these up in credit positions, along with adding credit hedges, helps to protect the portfolio and serve as nice complements to our CLO equity positions. Additionally, we have also shifted our focus more to the secondary market as compared to the primary market as the dislocation experienced in parts of Q2 created many more secondary market opportunities. In fact, EARN did not participate in any new issue equity transactions in Q2 as we have found better relative value in secondary markets in recent months. As mentioned before, CLO liabilities, specifically AAAs have struggled to return to their tights. Meanwhile, as of July 31, a considerable 46% of the loan market traded above par. Significant repricings in the loan market are reigniting concerns about spread compression, and with AAA spreads still struggling to retraced to their 2025 types, new issue CLO equity arbitrage has come under pressure. Our emphasis on CLO mezz in the current environment also reflects our concern that the persistence of higher base tariff rates, coupled with ongoing uncertainty around future tariff policy will continue to drive dispersion in credit for the foreseeable future. As our results show, EARN took advantage of Q2's market uncertainty, reaping the benefits of active trading during bouts of market volatility. On the quarter, we had 79 unique CLO trades, not counting any deal liquidations or credit hedge trades. I believe the portfolio is well balanced with core positions built for stability and others offering meaningful upside and attractive optionality. We will continue to shift allocations as the market environment changes, be it between mezz and equity, primary and secondary or U.S. and Europe. Now back to Larry.

Thanks, Greg. Calendar Q2 was a great quarter for Ellington Credit Company and a great start to our new form as a closed-end fund. We not only put up strong earnings, but we also ended the quarter with a diversified, high-quality CLO portfolio and ample dry powder to boot. Calendar Q3 is off to a strong start as we delivered another month of excellent results in July, expanded the portfolio and grew NAV further. As of now, our CLO portfolio stands at around $360 million, up from $320 million coming into Q3. Looking ahead, we see multiple ways to continue to drive performance and expand net investment income. Deploying our remaining dry powder is 1 way. And as I mentioned earlier, we project that our net investment income will fully cover our distribution rate starting in September. Another way is by issuing long-term unsecured debt, which we hope to do later this year. The additional leverage supplied by long-term unsecured debt should be accretive to both GAAP earnings and net investment income. But even with our current capital base and debt structure, we expect to increase our CLO portfolio by another $40 million to $400 million or so. I firmly believe that our rigorous approach to CLO investing, our active trading style, and our strategic use of credit hedges give Ellington Credit a unique advantage. With credit markets having recovered so much since early April, we've taken advantage by adding credit hedges at better entry points while still uncovering compelling opportunities in CLO equity and mezzanine debt across the U.S. and Europe. This relative value approach gives us the flexibility to target the best risk-adjusted returns as markets evolve.

To recap, we've built what we view as a high-quality, well-diversified CLO portfolio, while keeping liquidity high and lining up multiple levers for earnings growth. Calendar Q2 was a powerful start for EARN, and we are confident in the opportunities that lie ahead.

Now let's open the floor to Q&A. Operator, please go ahead.

[Operator Instructions] We'll go first this morning to Doug Harter of UBS.

You just talked a little bit about the -- talk about the dynamic where -- why AAA spreads haven't fully retraced while the underlying loan spreads have?

Sure. It's Greg. I'll take that one. I mean to be clear, I think that it is simply, AAAs are not receiving relatively maybe the same demand that they were earlier in the year. Some of the things we've spoken about previously, our focus is around the growth of the ETF market and just a very diverse even foreign buyer base. Perhaps it's with the idea that a rate cut may happen and maybe some rotation around floating rate, AAAs had screened CLO AAAs, the tightest of the cohort when you compare across structured products and credit earlier in the year. And so overall, you could maybe make the argument that they were relatively pricing very tight, and they're simply anywhere from 10 to 15 basis points back now. And so I think, overall, it's just a little bit of a technical, there's just a little bit less demand for a variety of reasons. And the further point I would make is, as much as loans have rallied back around par, you don't see the same amount above par that you did earlier in the year when you were at some point close to 70% above par on the loan side. So I think it's -- while it's been noticeable, it's within a range where there's enough sort of margin for error in terms of the spreads catching up.

Great. Appreciate that. And assuming that dynamic doesn't change, would you expect your allocation to be kind of similar to what it was in the June quarter, more towards debt and equity?

I think that if the [ ARB ] continues to stay challenged to this point, right, there's a number of factors that can obviously come into this if secondary markets become tighter and less attractive, removing that opportunity may also see some rebalancing. But overall, I think that we've tended to not like creating a new issue. And if the assets and liability math calculation doesn't change, it's hard to see why we would allocate more to it. So I would tend to agree with that.

[Operator Instructions] We go next now to Jason Weaver of JonesTrading.

I think in the beginning of your prepared remarks, you were talking about issuance trends and how were muted in the first quarter '26 just due to the volatility. So some of that's come down, some uncertainty has been reduced and we may see some monetary relief on the horizon. Would you expect that trend to reverse into calendar year-end.

In regards to -- your saying CLO issuance?

CLO issuance in general.

Sure. I mean -- I thought that new issue end of the year into the beginning of this year when the ARB looked a little more attractive, I think you were seeing more happen. I think part of it is, right, are you going to see loans versus debt spreads become attractive again to see true new issuance. It's really hard to say. I think that the market has seen much more resets and refis, what could make that change. Perhaps if you see monetary easing and it leads to perhaps a little more spread coming from the asset side in loans that could help reignite the new issue market. But it is hard to say where I think that right now, new issue desks and a lot of investors have simply been focused on sort of refis, resets, liquidations and have struggled to sort of pick back up new issue. But if you see AAAs come in, assets move out, it's just hard to say exactly how those components will change based on some of the uncertainty around what we've seen in the fall.

Got it. And then to just clarify a little bit of what Greg had said on the relative value between mezz and equity here. Any sort of perception of an increased risk to equity tranches? I mean you did mention tariffs in the prepared remarks.

Right. I think if you take a look, tariffs are going to create winners and losers. There's uncertainty around different sectors around different companies. And so I think that we see equity as having more risk and exposure to tariffs being that they're a first loss tranche. So if there's a handful of names which are adversely affected, a subordinated mezz position will remain above the fray from a small amount of losses. If losses become so great that it starts to get through that attachment point and your mezz starts to perhaps look like equity there, which you've seen at certain rare occurrences in the past periods such as COVID or the financial crisis. But if it sort of remains a tail issue, which if you look at credit markets, it's sort of been sort of just a tail of companies that have had problems, that continues to be a lower correlation event. And overall, it's something that would generally force [ fast positions ] such as CLO equity to underperform versus positions further up in the capital structure that are more spread sensitive and maybe less credit or fundamentally sensitive?

Got it. That makes sense. And then just last one, and I'll hop off. Do you have an updated quarter-to-date NAV estimate?

Just want me posted.

Yes. We posted July 31 last night, a range around...

$6 to plus or minus $0.03.

Yes, $6.16. That's right -- is through the end of the [indiscernible].

Thank you. And gentlemen, that was our final question for today. So we'd like to thank you all for participating in the Ellington Credit Company Fiscal Quarter ended June 30, 2025 Results Conference Call. You may disconnect your lines at this time, and have a wonderful day. Goodbye.