Ellington Credit Company Q4 FY2025 earnings call

• Fourth calendar quarter was most challenging CLO equity market since mid-2022 and COVID crisis, Ellington Credit limited losses to 9% of NAV, outperforming peer set. • CLO equity market impacted by elevated credit dispersion, coupon spread compression, weaker credits underperformed, stronger borrowers refinanced at tighter spreads. • CLO mezzanine debt tranches were more resilient, Ellington increased allocation to them, ~70% of CLO purchases over 9-month period were mezzanine debt. • Identified select CLO equity opportunities in secondary market, avoided new issue CLO equity. • Benefited from mezzanine positions redeemed at par generating realized gains. • Executed 47 unique CLO trades during quarter, actively managed credit hedges, redeployed payments into higher-quality deleveraging mezzanine debt, trimmed less favorable ones, added BB-rated tranches. • NAV was $5.19 per share at year-end, net asset value based total return negative 9.1%. • 2025 was transformative year, converted to CLO closed-end fund, built out CLO portfolio by nearly 50% to $370 million, executed 218 CLO trades, delivered stronger and less volatile earnings stream. • 2026 January and February continued difficult market dynamics, CLO equity under pressure, mezzanine debt held up comparatively well, Ellington added mezzanine debt positions, exercised CLO call options, collapsed certain CLOs, selectively increased CLO equity holdings where value seen, maintained substantial credit hedges, exploring issuance of long-term unsecured debt.

For the fourth calendar quarter, Ellington Credit had a GAAP net loss of $0.56 per share. CLO equity market was challenging with median CLO equity return negative 9% for the quarter and negative 14% for the full year. Ellington Credit limited fund losses to approx 9% of NAV. CLO mezzanine debt tranches were more resilient. CLO equity represented 52% of total CLO holdings at year-end, European CLO investments 12%. Underlying loan collateral is predominantly first lien floating rate leveraged loans, well diversified by industry with no single sector exceeding 11% exposure, weighted average loan maturity 4.3 years, facility size skewed towards larger borrowers. In the quarter, positive realized gains in each subsector. Net interest income declined to $0.21 per share for the quarter due to lower asset yields and portfolio turnover. The weighted average GAAP yield on CLO portfolio was 13.7% down from 15.5% prior quarter. Credit hedges increased to roughly $175 million of high-yield CDX bond equivalents by year-end, approx 90% of NAV.

• Focused on rebuilding net investment income and NAV as deploying capital into distressed market. • Believes recent price declines are reversible as they reflect yield spread widening not fundamental credit impairment. • Exploring issuance of long-term unsecured debt in coming weeks to supply additional dry powder. • Current environment with dislocations and relative value opportunities well suited to active investing and trading approach, look forward to updating progress next quarter.

• Market environment challenges for CLO equity, including elevated credit dispersion, coupon spread compression, weaker credits underperforming, stronger borrowers refinancing at tighter spreads, pressuring leveraged loan prices and reducing excess interest. • Credit hedges have drag, but viewed as indispensable part of portfolio management. • Concerns around software and AI-related credits spreading weakness into broader markets. • Redemptions in asset managers may have knock-on effect on CLO market spread widening. • Defaults and losses in leveraged loans, recovery rates vary deal specific, par burn or loss rate about 75 basis points annually, but can vary with sector-specific concerns.

Q: Ben Graham in for Crispin Love asked about stance on software sector sentiment and other sectors excited about.

A: Greg Borenstein said CLOs are diversified by sector and name, software sector sold off a lot but portfolio is diversified, general view is to keep exposures appropriate.

Q: Jason Weaver asked about proportion of CCC rated or lower loans in portfolio and negative carry from credit hedges.

A: Gregory Borenstein said CLO loan index is about 4.4%, Ellington's exposure not too far off, on credit hedges carry is a drag but protection is for larger drawdown scenarios, drag is 1% to 2% of fund NAV per annum.

Q: Eric Hagen asked about knock-on effect of redemptions on CLO market spread widening and mechanics of working through defaults.

A: Gregory Borenstein said redemptions in ETFs like JAAA create opportunities, for defaults, leveraged loan recoveries are above 0, average par burn or loss rate about 75 basis points annually, varies deal specific, defaults and losses picked up last year, first loss CLOs exposed to defaults.