Ellington Credit Announces Shareholder Approval of Conversion to CLO Closed-End Fund

Rhea-AI Summary

Ellington Credit Company (NYSE: EARN) has received shareholder approval to convert to a Delaware registered closed-end fund, with a focus on corporate CLO investments. The conversion received strong support, with over 93% of votes cast in favor, and excluding abstentions, over 95% approval. The company will be treated as a regulated investment company (RIC) under the Internal Revenue Code.

The conversion process is expected to be completed in the near future, and the company's Series A Preferred Shares were automatically redeemed following the vote. Management believes this strategic transformation will enhance their ability to deliver strong earnings and create additional shareholder value.

Positive

• Over 93% shareholder approval for conversion, showing strong investor support
• Strategic transformation to focus on CLO investments
• RIC tax treatment status to be obtained
• Automatic redemption of Series A Preferred Shares completed

Negative

• None.

Insights

Financial Restructuring Expert

This strategic conversion marks a pivotal transformation for Ellington Credit, shifting from a traditional mortgage REIT structure to a specialized CLO-focused closed-end fund. The 93% shareholder approval demonstrates strong investor confidence in this strategic pivot. The RIC structure offers significant tax advantages, as it eliminates corporate-level taxation when distributing at least 90% of taxable income to shareholders.

The conversion to a CLO-focused strategy is particularly timely given the current market environment. CLOs typically offer floating-rate returns and structural protections that can be advantageous during periods of interest rate volatility. The automatic redemption of Preferred Shares simplifies the capital structure, potentially reducing the cost of capital and improving returns for common shareholders.

For investors, this transformation could mean enhanced portfolio diversification and potentially more stable income streams, as CLOs historically have demonstrated resilience through various market cycles. The RIC structure's tax efficiency combined with CLO exposure positions EARN to potentially deliver improved risk-adjusted returns.

Investment Strategy Analyst

The conversion represents a significant strategic repositioning that aligns with current market opportunities in the CLO sector. CLOs have become increasingly attractive investment vehicles due to their senior secured nature and historical performance in rising rate environments. This move allows EARN to specialize in an asset class that typically offers higher yields than traditional fixed-income investments while providing structural protection through diversification and credit enhancement.

The 95% approval rate (excluding abstentions) suggests strong shareholder alignment with management's vision. The redemption of Preferred Shares removes a layer of leverage and fixed obligations, potentially providing more flexibility in portfolio management. For retail investors, this conversion offers easier access to institutional-quality CLO investments through a regulated structure, with the benefits of professional management and daily liquidity through NYSE trading.

—Conversion to be Completed in the Near Future—

OLD GREENWICH, Conn.--(BUSINESS WIRE)-- Ellington Credit Company (the “Company” or “we”) (NYSE: EARN) announced today that it has received shareholder approval, at a special meeting of shareholders (the “Special Meeting”), for the Company’s conversion (the “Conversion”) to a Delaware registered closed-end fund. The converted entity will focus on corporate CLO investments and will be treated as a regulated investment company (“RIC”) under the Internal Revenue Code. The Conversion is anticipated to become effective in the near future, and will be accompanied by a separate press release.

Over 93% of the votes cast at the Special Meeting were in favor of the Conversion, and excluding abstentions, over 95% of such votes were cast in favor. The holder of the Company’s Series A Preferred Shares (the “Preferred Shares”) cast its votes in proportion to those cast by common shareholders, as required. The Preferred Shares were automatically redeemed following the vote.

Laurence Penn, Chief Executive Officer and President, commented:

“I would like to thank our shareholders for their overwhelming support throughout this conversion process. We believe that completing our strategic transformation will greatly enhance our ability to deliver strong earnings and unlock additional value for our shareholders moving forward.”

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature and can be identified by words such as "anticipate," "estimate," "will," "should," "may," "expect," "project," "believe," "intend," "seek," "plan" and similar expressions or their negative forms, or by references to strategy, plans, or intentions. Forward-looking statements are based on our beliefs, assumptions and expectations of our future operations, business strategies, performance, financial condition, liquidity and prospects, taking into account information currently available to us. These beliefs, assumptions, and expectations are subject to numerous risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations and strategies may vary materially from those expressed or implied in our forward-looking statements. The following factors are examples of those that could cause actual results to vary from those stated or implied by our forward-looking statements: changes in interest rates and the market value of our investments, market volatility, changes in the default rates on corporate loans, our ability to borrow to finance our assets, changes in government regulations affecting our business, our ability to maintain our exclusion from registration under the Investment Company Act of 1940, our ability to pivot our investment strategy to focus on collateralized loan obligations ("CLOs"), a deterioration in the CLO market, our ability to utilize our net operating loss carryforwards, our ability to convert to a closed end fund/RIC, and other changes in market conditions and economic trends, such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations. Furthermore, as stated above, forward-looking statements are subject to numerous risks and uncertainties, including, among other things, those described under Item 1A of our Annual Report on Form 10-K, which can be accessed through the link to our SEC filings under "For Investors" on our website (at www.ellingtoncredit.com) or at the SEC's website (www.sec.gov). Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected or implied may be described from time to time in reports we file with the SEC, including reports on Forms 10-Q, 10-K and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

This release and the information contained herein do not constitute an offer of any securities or solicitation of an offer to purchase securities.

About Ellington Credit Company

Ellington Credit Company, formerly known as Ellington Residential Mortgage REIT, was initially formed as a real estate investment trust ("REIT") that invested primarily in residential mortgage-backed securities ("MBS"). On March 29, 2024, the Company’s Board of Trustees approved a strategic transformation of its investment strategy to focus on corporate CLOs, with an emphasis on mezzanine debt and equity tranches. In connection with this transformation, the Company revoked its election to be taxed as a REIT effective January 1, 2024, and rebranded to Ellington Credit Company. The Company intends to convert to a closed-end fund and complete its transition from an MBS-focused company to a CLO-focused company.

Ellington Credit Company is externally managed and advised by Ellington Credit Company Management LLC, an affiliate of Ellington Management Group, L.L.C.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250120332373/en/

Investors:

Ellington Credit Company

Investor Relations

(203) 409-3773

info@ellingtoncredit.com



or



Media:

Amanda Shpiner/Grace Cartwright

Gasthalter & Co.

for Ellington Credit Company

(212) 257-4170

Ellington@gasthalter.com

Source: Ellington Credit Company

FAQ

What percentage of shareholders approved Ellington Credit's (EARN) conversion to a CLO closed-end fund?

Over 93% of votes cast at the Special Meeting were in favor of the conversion, and excluding abstentions, over 95% of votes supported the transformation.

What will be the new investment focus of Ellington Credit (EARN) after the conversion?

After the conversion, Ellington Credit will focus on corporate CLO investments as a Delaware registered closed-end fund.

What happened to Ellington Credit's (EARN) Series A Preferred Shares after the conversion vote?

The Series A Preferred Shares were automatically redeemed following the shareholder vote on the conversion.

What tax status will Ellington Credit (EARN) have after converting to a closed-end fund?

After the conversion, Ellington Credit will be treated as a regulated investment company (RIC) under the Internal Revenue Code.