Douglas Harter

Douglas Harter inquired about the sensitivities and factors that could influence Enact's 2026 capital return goal, specifically what might cause it to exceed or fall short of the initial $500 million target.

Answer

CFO Dean Mitchell stated confidence in delivering $500 million but noted that the company would continue to evaluate market dynamics, including business and loss performance, the macroeconomic environment, and potential regulatory changes (PMIERs, state regulations) throughout 2026.

Douglas Harter asked about the sensitivities influencing Enact's 2026 capital return goal, specifically what factors could lead to exceeding or needing to reduce the initial $500 million target.

Answer

Dean Mitchell, Chief Financial Officer and Treasurer, explained that the company is confident in the $500 million target but will evaluate business performance, loss performance, the macroeconomic environment, and any changes in the regulatory landscape throughout 2026.

Douglas Harter of UBS Group AG inquired about the performance seasoning of recent mortgage origination vintages and how regional home price weakness might affect them.

Answer

EVP, CFO & Treasurer Dean Mitchell stated that overall credit performance remains strong, supported by a resilient economy and significant embedded home price appreciation (HPA). While acknowledging softness in specific markets like Cape Coral, he explained that the company's risk-based pricing model adjusts for both current and future home price expectations. President & CEO Rohit Gupta added that borrowers highly value homeownership and prioritize mortgage payments, suggesting that slight regional price declines do not directly correlate to higher defaults, especially with a strong labor market.

Douglas Harter asked for insights into the mortgage insurance pricing dynamics that have led to recent market share shifts among competitors and questioned how sensitive the market is to price adjustments.

Answer

President and CEO Rohit Gupta explained that Enact's market participation has remained stable, emphasizing that market share is an outcome of their risk and return discipline, not a primary target. He noted that shifts in market share across the industry can be influenced not only by pricing but also by the specific business mix and origination volumes of a company's lender partners, which can cause fluctuations independent of competitive positioning.

Douglas Harter asked about the dynamics behind recent market share shifts in the mortgage insurance industry and questioned how sensitive the market is to pricing changes.

Answer

President and CEO Rohit Gupta responded that Enact's market participation has been stable and that market share is an outcome of its risk and return discipline, not a direct target. He noted that shifts can be caused not only by pricing but also by specific lender relationships and their origination mix, such as a focus on purchase versus refinance activity.

Douglas Harter from UBS asked about the expected impact of portfolio seasoning on 2025 credit quality, specifically delinquencies and claim rates, and also inquired about the performance of the 2023 origination vintage.

Answer

Hardin Mitchell, Chief Financial Officer and Treasurer, stated that as the portfolio's average age approaches the 3-4 year mark, the rate of new delinquency formation is expected to slow, subject to macroeconomic conditions. He and Rohit Gupta, President and Chief Executive Officer, noted that while the 2023 vintage has different credit characteristics due to a higher mix of purchase loans (higher LTV, lower FICO), its performance is tracking in line with expectations with no signs of emerging deterioration.

Douglas Harter of Credit Suisse asked about the current competitive dynamics in the mortgage insurance industry, specifically regarding pricing and the market share gains of a competitor.

Answer

President and CEO Rohit Gupta responded that Enact finds the MI pricing environment to be both competitive and constructive. He stated that expected returns on new business remain attractive and within the company's risk appetite. Gupta emphasized satisfaction with the $13.5 billion of new insurance written in the quarter, highlighting its strong pricing and high underwriting quality.

Douglas Harter asked about Rithm Capital's capital allocation plans given its current REIT structure and focus on growing asset management, and whether shedding REIT status would catalyze a change. He also inquired about opportunities to apply the 'Paramount playbook' (raising capital around synergistic platforms) to Genesis, and sought an update on capital raising for the Paramount acquisition, including magnitude, structure, and timing.

Answer

Michael Nierenberg, Chairman, CEO and President of Rithm Capital, stated that a C Corp conversion is needed for asset management growth, potentially leading to a separately listed asset management business or mortgage company, but emphasized performance first. He explained that the 'Paramount playbook' is being applied to Rithm Property Trust (RPT) to grow its permanent capital base through Genesis's multifamily and residential transitional loan origination. Regarding Paramount, Michael Nierenberg noted that capital raising is fluid, exploring funds, permanent capital, and JV partnerships, with no rush given $1.7 billion in cash and liquidity, and mentioned recent key hires in asset management and capital formation.

Douglas Harter asked about the long-term implications of Rithm Capital's REIT structure versus a C Corp, its impact on capital allocation, and the potential for a separate asset management or mortgage company. He also sought an update on capital raising for the Paramount acquisition, including magnitude, structure, and timing.

Answer

Michael Nierenberg (Chairman, CEO and President, Rithm Capital) stated that Rithm Capital will eventually need to transition to a C Corp to grow its asset management business, potentially leading to separately listed entities for asset management or the mortgage company. He highlighted the Rithm Property Trust (RPT) as a vehicle for growing permanent capital through Genesis origination. Regarding Paramount, he noted that capital raising is fluid, exploring a combination of fundraises, permanent capital, and JV partnerships, with $1.7 billion in cash and liquidity providing flexibility, and mentioned recent key hires in asset management and capital formation.

Douglas Harter of UBS Group asked for details on the new residential transition lending (RTL) SMA, including production allocation and replicability, and also inquired about the strategy for scaling the Rithm Property Trust REIT.

Answer

Chairman, President & CEO Michael Nierenberg positioned the SMA as a key strategic partnership to attract more third-party capital, explaining that Rithm must balance allocating assets to funds versus its own balance sheet. To scale the REIT, he ruled out a near-term equity raise and said growth would come from M&A, likely executed with large institutional partners, mirroring the strategy used to build New Residential.

Douglas Harter from UBS inquired about the new SMA for residential transition lending (RTL), asking about the allocation of new production, the balance between third-party funds and the balance sheet, and the strategy's replicability. He also asked how Rithm intends to scale its externally managed REIT, Rithm Property Trust.

Answer

Michael Nierenberg, Chairman, President & CEO, explained that Rithm must utilize both its balance sheet and third-party funds to grow corporate earnings while expanding the asset management platform. He characterized the SMA as a key strategic partnership. To scale the REIT, he stated they would not raise equity at current prices but would instead seek to bring in third-party capital partners for large-scale transactions, mirroring the strategy used to build New Residential.

Douglas Harter of UBS inquired about which assets Rithm finds attractive for scaling up its REIT, the opportunities in investor property loans, and whether scaling the REIT would require raising additional capital.

Answer

Michael Nierenberg, Chairman, CEO, and President, responded that scaling the REIT would involve 'more of the same,' focusing on assets like MSRs, agency mortgages, and non-QM assets produced by Genesis. He noted that Rithm is well-positioned for any potential privatization of GSEs due to its capital base and mortgage company. Regarding capital, he stated that scaling could be done through a combination of existing capital and new raises, but emphasized that M&A in the REIT space is also a possibility.

Douglas Harter of UBS Group AG asked about the specific assets Rithm finds attractive for scaling its REIT, the potential impact of regulatory discussions around GSEs, and whether scaling the REIT would necessitate raising additional capital.

Answer

Michael Nierenberg, Chairman, CEO, and President, identified MSRs, non-QM assets, and loans from Genesis Capital as key growth areas for the REIT. He asserted that Rithm is well-positioned for any potential GSE privatization. On capital needs, he stated that scaling could involve a combination of existing capital and new fundraising, noting the potential for M&A activity.

Douglas Harter asked about Invesco Mortgage Capital's perspective on its capital structure and future capital raising capabilities, specifically in light of recent modest common stock issuance and preferred buybacks.

Answer

John Anzalone, CEO, stated that the company feels its capital structure is improving. He explained that the ATM is selectively accessed when common stock issuance provides clear shareholder benefits, considering both price to book and the availability of accretive investment opportunities. Brian Norris, CIO, added that qualitative aspects like economies of scale and improving stock liquidity also factor into ATM utilization decisions.

Douglas Harter asked about Invesco Mortgage Capital's capital structure strategy, including the rationale behind recent modest common stock issuance and preferred buybacks, and their outlook on future capital raising.

Answer

CEO John Anzalone explained that the company feels its capital structure is improving and selectively uses the ATM for common stock issuance when it provides clear benefits to shareholders and is the most efficient mechanism. He noted modest issuance in Q4 and better conditions in Q1, with more details to follow.

Douglas Harter asked about the rationale behind reducing leverage in April during a volatile period and inquired about the current returns on an incremental basis.

Answer

Brian Norris, Chief Investment Officer, explained that leverage was reduced by about 0.5x due to increased uncertainty regarding monetary, fiscal, and trade policy, which could delay demand for mortgages. He noted that while they let leverage drift, it reached the high end of their range, prompting a gradual reduction. Norris also stated that levered ROEs on higher coupon investments are currently in the low 20s.

Douglas Harter inquired about the risk-reward trade-off between Agency Residential Mortgage-Backed Securities (RMBS) and Agency Commercial Mortgage-Backed Securities (CMBS), and the company's confidence in maintaining the current dividend level.

Answer

Chief Investment Officer Brian Norris explained that while Agency CMBS was attractive early in Q4, the current environment favors Agency RMBS as spreads have compressed and volatility has declined. CEO John M. Anzalone addressed the dividend, stating the board's decision considers current and projected ROEs, historical performance, and the competitive landscape, with a formal decision to be made in the next month.

Douglas Harter of UBS asked about the company's thinking on the dividend, particularly in light of the more challenging start to the fourth quarter.

Answer

CEO John M. Anzalone responded that the dividend is determined by the Board and is primarily driven by the return on equity (ROE) available on target assets. He mentioned it was too early to make a decision for the next quarter but that they also balance the decision with the need to remain competitive and meet investor expectations.

Douglas Harter asked about the return expectations for the interest rate strategy, specifically how PennyMac Mortgage Investment Trust plans to offset declining profitability from potentially elevated prepayments to reach its target range.

Answer

Daniel Perotti, CFO and Senior Managing Director, explained that the MSRs have limited responsiveness to higher interest rates. He noted that a combination of increased recapture from PFSI and a dilution of prepayment impact through the year, due to the portfolio's composition, would help. He also highlighted the complementarity between MSRs and offsetting Agency MBS, which has led to elevating returns on equity in recent quarters, maintaining the interest rate-sensitive strategy's annualized ROE at 12.5%.

Douglas Harter from UBS inquired about PennyMac Mortgage Investment Trust's return expectations for its interest rate strategy, specifically how the company plans to offset potential profitability declines given elevated prepayment expectations.

Answer

Daniel Perotti, PennyMac Mortgage Investment Trust's Chief Financial Officer, explained that a limited portion of MSRs are highly responsive to interest rate changes. He highlighted expected growth in recapture rates from PFSI and the dilutive impact of prepayments over the year. Perotti also emphasized the complementary nature of MSRs and Agency MBS within the overall interest rate-sensitive strategy, which maintained a 12.5% annualized ROE.

Douglas Harter of UBS Group inquired about the performance of non-agency securitization returns during the volatile second quarter and the strategy behind the higher percentage of retained interest on the jumbo securitization.

Answer

Daniel Perotti, Senior MD & CFO, explained that while rate volatility led to a minor fair value decline, the underlying income returns for non-agency subordinate MBS remained in the low-to-mid teens. He noted the higher retention on the jumbo deal was an opportunistic deployment of capital following a recent debt raise. David Spector, CEO & Chairman, added that the portfolio is managed dynamically, allowing the team to recycle capital from retained tranches as needed.

Douglas Harter of UBS Group inquired about the non-agency securitization opportunity, asking how returns progressed during the volatile quarter and how PMT is positioning the risk of these holdings. He also asked for the rationale behind the higher percentage of retained interest in the recent jumbo securitization.

Answer

CFO Daniel Perotti explained that while rate volatility caused a slight fair value decline, the underlying income from non-agency subordinate MBS remained in line with mid-teens return expectations. Regarding the jumbo deal, Perotti stated that retaining a senior mezzanine tranche was an opportunistic decision to deploy capital following a recent debt raise. CEO David Spector added that the portfolio is managed dynamically, allowing the team to recycle capital from these tranches if necessary.

Douglas Harter of UBS questioned the outlook for the dividend given the lower run-rate earnings guidance and followed up on how the current yield curve dynamics are incorporated into that run-rate expectation.

Answer

EVP & CFO Daniel Perotti affirmed the dividend is expected to remain stable at $0.40, attributing the run-rate decline to yield curve compression impacting interest rate-sensitive strategies, which he expects to normalize over time. He explained the run-rate is a moving target but confirmed that a steeper yield curve, either from higher long-term rates or lower short-term rates, would increase the expected return potential.

Douglas Harter of UBS asked about the profitability of the non-agency securitization business in comparison to the traditional conventional correspondent business.

Answer

Executive Daniel Perotti noted that while non-agency securitizations can improve margins, the significant gain in Q4 was driven by a specific tightening of execution spreads. Executive David Spector added that the investor loan product is particularly strong because it has multiple execution paths: securitization, whole loan sales, and delivery to the GSEs, which provides valuable flexibility.

Douglas Harter from UBS inquired why second liens were not mentioned as a near-term securitization opportunity and how close their execution is to hurdle rates. He also asked about the amount of capital available for these opportunities and the resulting impact on MSR retention levels.

Answer

Executive David Spector explained that for second liens, the whole loan bid from other market participants remains too strong, making securitization returns unattractive for now. He stated that capital from the runoff of CRT investments can be redeployed into new credit-sensitive strategies. He also expressed confidence in raising additional capital in the future as performance continues, which would support both securitization efforts and MSR investments.

Douglas Harter asked about the potential risks and benefits that could push mortgage spreads to the high or low end of the new ranges and how these factors influence AGNC's current leverage decisions.

Answer

Peter Federico, President, CEO, and CIO, identified the GSEs' full portfolio capacity utilization as a key factor in tightening spreads. He suggested potential positive actions like changing GSE portfolio caps or Fed balance sheet adjustments, and negative risks such as streamlined refinance or G-fee changes. He emphasized that leverage decisions are contingent on greater insight into the sustainability and stability of future government actions affecting spreads.

Douglas Harter inquired about the factors that could push mortgage spreads to either the high or low end of the new ranges and how this outlook influences AGNC's current leverage decisions.

Answer

Peter Federico explained that the GSEs' announcement to use their full portfolio capacity was a key driver for tighter spreads. Potential positive factors for tighter spreads include changes to GSE portfolio caps, a shift in the Fed's balance sheet policy, and further improvements in the funding market via the Fed's standing repo program. Negative factors could include streamlined refinance, G-fee changes, or mortgage portability, which could accelerate prepayment risk and widen spreads. He emphasized that AGNC is looking for greater spread stability to inform leverage decisions, noting that leverage has been reduced consistent with spread tightening.

Douglas Harter of UBS Group AG inquired about AGNC's strategy for capitalizing on the attractive investment environment, asking whether the company would prioritize raising additional capital or increasing leverage.

Answer

Peter Federico, President, CEO & CIO, explained that AGNC has a favorable outlook and will take a patient, measured approach to deploying its existing capital. He stated that the company has the capacity both to raise more accretive capital and to operate with slightly higher leverage, supported by a strong unencumbered cash position of 65% of equity. The ultimate decision on which lever to pull will be dictated by market developments.

Douglas Harter asked about the risk of mortgage spreads widening further before normalizing and whether AGNC was considering changing the composition of its hedge portfolio due to swap spread volatility.

Answer

Peter Federico, President, CEO, and CIO, acknowledged the risk of further widening but stated that current mortgage-versus-swap spreads are at unsustainable levels driven by technicals, not fundamentals. He said AGNC is prepared for more volatility. Regarding hedges, he mentioned that while the current mix is about 60% swaps, a more balanced 50/50 mix of swaps and treasuries might be a better long-term base case for diversification.

Douglas Harter asked for an outlook on the company's dividend, specifically how management views the economics of mark-to-market returns in relation to the dividend policy. He also questioned how interest rate volatility and its associated costs are factored into their return calculations.

Answer

Peter Federico, Director, President and CEO, stated that the dividend is evaluated against a total cost of capital hurdle rate of approximately 16.5-16.7%. He noted that current expected gross ROEs of 17-18.5% align well with this hurdle, supporting the dividend. He added that AGNC's outlook is for lower interest rate volatility, which should translate to lower hedging costs going forward.

Douglas Harter from UBS inquired about AGNC's defensive posture ahead of the election, specifically asking about plans for delta hedging, portfolio sizing, and leverage. He also asked about the conditions under which AGNC might shift its hedge composition back towards more SOFR-based swaps.

Answer

Peter Federico, President and CEO, stated that while he doesn't anticipate adjusting leverage, the company will be more active with delta hedging to manage its duration gap. Regarding hedges, he confirmed a long-term expectation to revert to a higher mix of swap-based hedges (from 60% today to a more typical 70-80%), but this move is delayed due to current market focus on government deficits, making Treasury hedges more prudent for now.

Douglas Harter inquired about Redwood Trust's strategy for managing total corporate expenses to maximize overall ROE and the expected ROE for third-party investments.

Answer

CFO Brooke Carillo emphasized that operating expenses should be evaluated in the context of operating leverage and productivity, noting that Redwood manages $20 billion of assets with approximately 300 employees. She stated that the primary path to earnings creation involves further scaling the operating model and resolving legacy capital, rather than reducing infrastructure. For third-party investments, the focus remains limited to assets that meet their cost of capital, aligning with the strategic pivot towards core operating businesses.

Douglas Harter from UBS Group asked for a breakdown of the $0.79 per share loss, questioning how much was an acceleration of future losses versus a charge for disposing of under-earning assets, and requested a conceptualization of the payback period.

Answer

CFO Brooke Carillo attributed the loss primarily to older vintage multifamily bridge loans, reflecting near-term resolutions and challenged fundamentals. CEO Christopher Abate added that the marks reflect active resolution strategies and that the payback is rapid, driven by redeployment into accretive share buybacks and scaling the operating platforms. Carillo highlighted the EAD ROE on the legacy book was -22%, making redeployment into 20%+ ROE businesses highly attractive.

Douglas Harter inquired about Redwood's hedging strategy that led to book value growth during the volatile month of April 2025 and asked about the impact of market conditions on Sequoia's gain-on-sale spreads.

Answer

CEO Christopher Abate explained that their strategy involves rapid capital turnover, moving risk quickly through loan sales and securitizations, and utilizing non-marginable facilities, lessons learned from the COVID-19 period. He noted that while April was volatile, spreads have since normalized, and they remain confident in achieving margins at or above their 75-100 basis point target range for the year.

Douglas Harter of UBS inquired about the conviction that banks will continue selling mortgage assets and whether the driver is more related to interest rate risk management or regulatory pressures.

Answer

CEO Christopher Abate stated the primary driver is the current interest rate environment and banks' dimmed prospects for origination growth, which makes holding fixed-rate mortgages less attractive. He noted that the potential for bank M&A is another catalyst, positioning the trend as a strategic risk/reward decision for banks rather than a reaction to potential regulatory changes.

Douglas Harter from UBS questioned the noticeable decline in Home Equity Investment (HEI) income and the outlook for the segment's return on capital, which at 12% remains below long-term targets.

Answer

CFO Brooke Carillo explained the HEI income decline was due to moderating home price appreciation (HPA) assumptions compared to the first half of the year. CEO Christopher Abate acknowledged the 12% return, stating that while it is solid, they see significant long-term upside in the portfolio driven by the national housing undersupply and efficient financing.

Douglas Harter inquired about PennyMac Financial's appetite for continued share repurchases and how the recent MSR sale to Annaly Capital Management influences this capital allocation strategy. He also asked about the sustainability of the lower effective tax rate reported for the quarter.

Answer

CFO Dan Perotti explained that share repurchases are part of an active capital allocation strategy, pursued when share pricing offers attractive returns compared to other opportunities, such as deploying capital into higher-rate MSRs with excellent recapture potential. He noted the Annaly transaction freed up capital for these higher-returning MSR investments. Chairman and CEO David Spector added that capital is also needed to support growth in the broker channel and maintain target non-funding debt-to-equity levels. Dan Perotti clarified that the lower tax rate was partly due to option executions creating a permanent tax difference, and the go-forward tax rate is expected to be a couple hundred basis points higher.

Douglas Harter inquired about PennyMac Financial's appetite for continued share repurchases and how the MSR sale to Annaly Capital Management might influence this strategy. He also asked about the sustainability of the quarter's lower tax rate.

Answer

Dan Perotti, CFO, and David Spector, Chairman and CEO, explained that share repurchases are part of an active capital allocation strategy, pursued when share pricing is attractive compared to other opportunities, such as deploying capital into higher-rate MSRs. The Annaly transaction freed capital for higher-return MSRs. David Spector added that maintaining a non-funding debt to equity ratio around 1.5x is also a consideration. Dan Perotti noted the Q3 tax rate was lower due to option executions, expecting a slightly higher rate over time.

Douglas Harter from UBS Group asked about the company's leverage, specifically noting that non-funding debt to equity was trending above its target, and questioned if this posed any constraints.

Answer

CFO Daniel Perotti stated there are no concerns with the current leverage level, explaining that the higher ratio is expected due to the increased emphasis on the MSR asset in the current rate environment. CEO David Spector added that while the company is always mindful of leverage, the current level was anticipated and is being managed carefully without constraining the business.

Douglas Harter from UBS Group AG inquired about the outlook for continued cost efficiencies in both the servicing and origination businesses, and the specific role that technology, including AI, might play in achieving scale.

Answer

Executive David Spector confirmed a strong focus on driving down costs through technology, particularly AI, highlighting partnerships with Google and Amazon and an internal AI team. He cited specific examples of current AI-driven savings, such as the 'Mac Chat' system saving over $2 million annually in servicing and automated document processing saving $7 per loan for consumers in the TPO channel. Spector expressed confidence that these efforts will continue to yield benefits and improve customer experience.

Douglas Harter inquired about the performance of PFSI's mortgage servicing rights (MSR) hedge in the fourth quarter, seeking details on what drove the larger-than-expected hedge loss and an update on the current hedging strategy.

Answer

Daniel Perotti, an executive at PFSI, explained that while the hedge performed largely as expected, the company adjusted its hedge ratio back to a 90-100% target as interest rates rose. He noted that the net negative result was influenced by costs from option-based hedges and higher-than-modeled prepayment activity flowing from the third quarter's lower rates.

Douglas Harter asked about recent trends in consumer direct lock volumes as interest rates have backed up and inquired about the company's strategy for managing production capacity amid these fluctuations.

Answer

David Spector (executive) acknowledged that consumer direct lock volume was down approximately 30% from its recent highs but noted that the company had already increased capacity and views maintaining some excess capacity as a cost-effective alternative to hedging the MSR. Daniel Perotti (executive) added that loan officers can pivot to second lien opportunities in a higher rate environment, providing another lever for managing capacity and activity.

Douglas Harter of UBS Group AG inquired about the market dynamics causing CLO AAA spreads to lag the recovery seen in underlying loan spreads. He also asked if Ellington Credit's portfolio allocation would continue to favor debt over equity if this trend persists.

Answer

Portfolio Manager Gregory Borenstein explained that the slower recovery in AAA spreads is a technical factor driven by slightly reduced demand compared to earlier in the year, possibly due to rate cut expectations and some investor rotation. He noted that CLO AAAs were priced very tightly before and are now only about 10-15 basis points wider. Borenstein confirmed that if the new issue arbitrage remains challenging, the company would likely maintain its recent preference for CLO debt over equity.

Douglas Harter of UBS Group inquired about the market dynamic where AAA CLO spreads have not fully retraced compared to underlying loan spreads. He also asked if Ellington Credit's portfolio allocation would continue to favor debt over equity if this trend persists.

Answer

Portfolio Manager Gregory Borenstein explained that the lag in AAA CLO spreads is a technical issue driven by slightly lower relative demand compared to earlier in the year, possibly due to rate cut expectations. He noted that while loans have rallied, fewer are trading above par than before. Borenstein agreed that if the new issue arbitrage remains challenged, the company's allocation would likely continue to favor CLO debt over new issue equity.

Douglas Harter of UBS Group AG inquired about the market dynamic causing CLO AAA spreads to not retrace as fully as underlying loan spreads and asked if this would lead to a continued portfolio allocation favoring debt over equity.

Answer

Gregory Borenstein, Portfolio Manager, explained that reduced demand for floating-rate AAA CLOs, potentially due to rate cut expectations, has kept spreads wider compared to earlier in the year. He noted that while loans have rallied, fewer are trading above par than before. Borenstein confirmed that if the new issue arbitrage remains challenged by this dynamic, the company would likely continue to favor CLO debt over equity, focusing on opportunities in the secondary market.

Douglas Harter of UBS Group inquired about the market dynamics causing CLO AAA spreads to lag the recovery seen in underlying loan spreads and asked how this environment would affect the company's future allocation between CLO debt and equity.

Answer

Portfolio Manager Gregory Borenstein explained that the lag in AAA spreads is a technical factor driven by slightly reduced demand compared to earlier in the year, possibly due to investor rotation ahead of potential rate cuts. He confirmed that if this arbitrage environment persists, where new issue CLO creation is less attractive, the company would likely maintain its recent focus on CLO debt over new issue CLO equity.

Douglas Harter of UBS Group inquired about the market dynamics causing CLO AAA spreads to not fully retrace like underlying loan spreads and asked if the portfolio allocation would continue to favor debt over equity given this environment.

Answer

Gregory Borenstein, Portfolio Manager, explained that the lag in AAA spreads is a technical issue driven by slightly lower demand compared to earlier in the year, possibly due to expectations of a rate cut. He noted that CLO AAAs had been priced very tightly before. Borenstein agreed that if the new issue arbitrage remains challenged, the company would likely continue to favor CLO debt over new issue equity.

Douglas Harter inquired about the amount of capital to be freed up for deployment on April 1 after the agency portfolio sale and asked how recent market volatility has impacted returns and pricing across the CLO market.

Answer

CEO Laurence Penn confirmed that approximately 28% of capital would be freed up, viewing the current volatile market as a timely opportunity for deployment, with a full ramp-up expected by mid-year. Head of Corporate Credit Gregory Borenstein added that CLO equity prices have declined by several points, attributing it more to widening discount rates and technical factors than a significant increase in expected credit losses.

Douglas Harter of UBS inquired about the company's continued appetite for raising capital through its At-The-Market (ATM) program, given its activity during the quarter.

Answer

CFO Christopher Smernoff acknowledged a minor $0.04 dilution from the ATM but noted it would be accretive to G&A ratios. CEO Laurence Penn added that the capital was raised at prices very close to book value, making it accretive to earnings. He stated that future use of the ATM is 'very price dependent' and would not be considered at the stock's current levels.

Douglas Harter of UBS Group questioned how the company plans to handle potential increases in loan volume while maintaining low leverage and what their appetite is for raising capital, particularly through the unsecured debt market.

Answer

CEO Laurence Penn identified issuing more long-term unsecured debt as the logical next step for EFC's capital structure. He explained this would replace shorter-term repo financing, enhance balance sheet stability, and allow for capital deployment into higher-yielding assets without increasing risk. Penn confirmed that the unsecured debt market is 'very deep' and accessible to the company.

Douglas Harter inquired about the specific drivers and expected timing for the anticipated increase in SBA loan origination volumes. He also asked about the company's plans for its upcoming unsecured debt maturities, questioning if the market still makes sense given the current high-cost environment.

Answer

CEO Thomas Capasse and CFO Andrew Ahlborn explained that SBA volume was constrained by pending warehouse capacity approvals from the SBA. They expect a full ramp-up in the second half of the year, driven by a capital markets transaction to clear existing warehouse lines. Regarding debt, Ahlborn stated that while the unsecured market will be used, the majority of the $650 million in maturing debt will likely be refinanced via secured issuances, acknowledging the higher cost will pressure earnings.

Douglas Harter inquired about the potential impact of recent market volatility on Ready Capital's expectations for significant noncore asset liquidations scheduled for the second quarter.

Answer

Andrew Ahlborn, an executive, stated that he does not anticipate a material impact on the planned exits, as the company is already in purchase and sale agreements with parties who have completed due diligence. CEO Thomas Capasse added that the multifamily sector remains a relative outperformer with strong fundamentals and is attracting significant opportunistic capital, which supports an active secondary market for distressed bridge loan portfolios.

Douglas Harter asked for the rationale behind acquiring the distressed UDF portfolio, given the credit challenges experienced with prior acquisitions. He also questioned how investors could be confident that further significant reserving actions would not be needed for the remaining core assets.

Answer

CEO Thomas Capasse and Executive Andrew Ahlborn defended the UDF merger by highlighting the aggressive discount on the asset basis and the company's decade-long experience with similar pristine-performing loans in the same projects. Regarding credit risk, Chief Credit Officer Adam Zausmer explained the bifurcation of the portfolio into 'core' and 'non-core' assets. He detailed the strong credit metrics of the $6 billion core portfolio, including a 9.7% average debt yield, which Capasse noted is well above the 8% required for agency refinancing, suggesting a low risk of negative migration.

Douglas Harter asked about the expected trajectory of delinquencies and non-accrual assets within the originated portfolio, focusing on the balance between resolutions and new problem assets. He also sought insight into how the differing movements in short-term versus long-term rates would impact the commercial real estate market recovery.

Answer

Chief Credit Officer Adam Zausmer stated that while delinquency will remain volatile, it has likely peaked, emphasizing the 'denominator effect' where portfolio payoffs are outpacing new delinquencies. Executive Andrew Ahlborn added that declining short-term rates will benefit modified loans by improving debt service coverage, while elevated long-term rates could present a headwind for permanent takeouts via GSE financing.

Douglas Harter of UBS Group AG followed up on the buyback discussion, asking about how Essent sizes its repurchases, the limitations on cash flow to the holding company, and how the company balances returning capital today versus preserving it for future strategic opportunities.

Answer

Mark Casale, Chairman & CEO, detailed that capital return is limited by cash flow from both U.S. Holdings and Essent Re, with a practical payout ratio likely not exceeding 100% of net income. He explained their capital framework extends beyond PMIERs to include rigorous stress tests (e.g., Moody's S4, GFC), ensuring they can withstand severe stress and remain opportunistic, justifying the current level of buybacks given the capital buildup and stock valuation.

Douglas Harter of UBS asked about Essent's strategy for pacing capital returns to shareholders versus preserving capital for growth, especially in light of an anticipated pause in industry-wide insurance in-force growth.

Answer

Chairman and CEO Mark Casale indicated that 2025 presents a 'decent opportunity' to return capital due to the growth pause, strong operating cash flow, and a robust capital position. He emphasized that the company feels confident about near-term credit performance and its ability to withstand a severe stress scenario, making capital return via buybacks and dividends a prudent strategy. He also mentioned the special dividend remains a tool.

Douglas Harter of UBS Group AG asked if Essent changed its claim rate assumptions during the quarter and questioned if the vintage mix of new default notices had shifted.

Answer

Mark Casale, Chairman and CEO, confirmed that there were no real changes to the claim rate assumptions in the quarter. He also noted that the vintage mix for new notices has remained 'pretty consistent.'

Douglas Harter of UBS inquired about Rocket's appetite for further MSR acquisitions pending the Mr. Cooper deal closure. He also asked about the long-term potential for AI to impact origination capacity and core expenses.

Answer

CFO Brian Brown explained that the MSR market has been muted but Rocket remains opportunistic, bidding on assets with high recapture potential. He noted the combined entity will have 'option value' and won't need to chase deals. CEO Varun Krishna addressed AI, stating he expects progress to 'geometrically accelerate' as they build a platform for 'infinite capacity' where scale is no longer constrained by cost or headcount, citing measurable results in operations and client experience.

Douglas Harter inquired about the near-term outlook for the Rocket Pro channel and the company's ability to narrow the market share gap, given recent investments in technology and personnel.

Answer

CEO Varun Krishna expressed strong optimism for the broker channel, outlining a three-pronged strategy: providing choice, empowering brokers with technology like the redesigned dashboard and ARIVE platform integration, and enabling their long-term business growth. He highlighted positive early results from these initiatives and stated that he expects momentum in the channel to accelerate in the coming months.

Douglas Harter inquired about the recapture performance of acquired MSR pools during the recent mini-refinance wave, as compared to organically originated loans.

Answer

CFO Brian Brown reported that the recapture performance for in-the-money loans within the acquired pools was better than their internal expectations. He expressed excitement about this outperformance, reinforcing the company's strategy to continue purchasing MSRs.

Douglas Harter questioned Rocket's expense structure, asking if there was an opportunity to reduce fixed costs given the company's stated $150 billion of excess capacity, and what management considers the 'right level' of spare capacity.

Answer

CFO Brian Brown responded that the focus is on growth and increasing operating leverage by growing into their existing cost base, rather than cutting costs, especially with a positive 2025 outlook. He stressed this strategy avoids the 'yo-yo effect' of hiring and firing common in the industry. CEO Varun Krishna stated that they believe their current capacity is 'perfect' and that ongoing technology investments will continue to enhance team member efficiency, allowing them to scale effectively.

Douglas Harter from UBS Group inquired about the specific strategies and investments, such as headcount or marketing, required to achieve profitable market share growth. He also asked how LoanDepot is balancing these growth investments with its current debt load and the need to preserve capital.

Answer

President, Chairman & CEO Anthony Hsieh explained the primary focus is on regaining scale to cover fixed costs and leveraging technology for efficiency, spearheaded by new leadership. Hsieh noted the direct lending channel is key for rapid scaling. He addressed the balance by highlighting the stability of their servicing and joint venture businesses, while identifying the direct lending channel as the main area for profitable growth, citing the company's past success in growing market share profitably.

Douglas Harter inquired about loanDepot's current cash liquidity position and the company's strategic outlook for its mortgage servicing rights (MSR) portfolio throughout 2025, including the likelihood of future MSR sales.

Answer

Chief Financial Officer David Hayes responded that the company plans to maintain heightened levels of liquidity, targeting around 5% of assets, which it considers an excess level in the current market. Regarding the MSR portfolio, Hayes stated that loanDepot views it as a strategic asset and intends to invest in and grow the portfolio, clarifying that past sales were to meet specific liquidity needs and are not the current strategy.

Douglas Harter sought clarification on the company's statement about achieving 'sustainable profitability' in 2025 under various scenarios and asked about the strategy for growing the servicing portfolio, including how it would be financed.

Answer

President and CEO Frank Martell affirmed that based on MBA forecasts for a $2.3 trillion market in 2025, the company feels well-positioned for profitability, citing pent-up demand and operating leverage from cost-cutting efforts. Chief Investment Officer Jeffrey DerGurahian stated that servicing portfolio growth will be opportunistic, through both organic retention and potential MSR acquisitions, and financed using existing credit lines as needed to support business growth.

Douglas Harter of UBS Group AG inquired about the current competitive landscape, the trend of spread compression, and the potential for a floor on investment spreads.

Answer

CIO Josh Weinstein explained that a scarcity of quality assets and aggressive lending from both banks and non-banks have led to spread compression, though deal structures remain prudent. CEO Michael Sarner added that while spreads have compressed from around 8.50% to 7.50% over two years, they are finding deals around 7% and believe spreads may widen as SOFR declines, suggesting the market might be at a trough.

Douglas Harter of UBS Group AG inquired about the current competitive landscape for lending and the potential for a floor on credit spreads.

Answer

CIO Josh Weinstein and CEO Michael Sarner described a competitive market driven by a scarcity of quality assets and aggressive lending from both banks and non-banks, which has compressed spreads. Weinstein noted that deal structures remain prudent despite the pressure. Sarner added that the weighted average spread is now around 7.5%, with recent deals near 7%, and suggested that spreads may have hit a trough and could widen as SOFR declines.

Douglas Harter of UBS inquired about the new SBA license, specifically the expected timeline to utilize the new capacity and the anticipated funding costs. He also asked about the option cost of the recent convertible note issuance and its potential short-term impact on the stock's trading.

Answer

CFO Michael Sarner stated that Capital Southwest expects to receive its second SBIC license imminently and anticipates a ramp-up period of 2.5 to 3 years, with borrowing costs likely between 4% and 5%. Regarding the convertible notes, Sarner explained the structure minimizes immediate dilution risk as the company can redeem them in cash or shares. He emphasized that the 5.125% coupon was significantly cheaper than a traditional bond, resulting in accretive interest savings for shareholders.

Douglas Harter of UBS inquired about Capital Southwest's appetite to continue raising capital, given the stock's premium to book value and the strong deal pipeline.

Answer

CFO Michael Sarner stated that while the company has nearly $500 million in available capital, it is always opportunistically looking to raise more, particularly to refinance its 2026 debt maturities. He indicated plans to increase secured capacity, pursue unsecured debt activity in the next 6-9 months, and continue utilizing the ATM program to raise approximately $20 million to $40 million per quarter.

Douglas Harter from UBS Group AG requested an update on the resolution timeline for problem and foreclosed assets, the magnitude of unproductive capital tied to them, and the status of the Washington D.C. residential conversion project.

Answer

President Jeffrey DiModica quantified the non-accrual assets at approximately $1.7 billion. He outlined a patient resolution strategy aimed at maximizing shareholder value, with a goal to resolve half the book by 2026. He stated this approach is preferable to selling at distressed prices. Regarding the Washington D.C. project, he confirmed it is currently in the permitting and final drawing phase, with construction not yet underway, and that the company still expects to recover its basis and more upon completion.

Douglas Harter asked about the progress and outlook for resolving Starwood's nonperforming loans, questioning the potential pace of resolutions and the ability to exit these assets with minimal losses.

Answer

President Jeff DiModica and Chairman & CEO Barry Sternlicht responded. DiModica detailed specific assets with resolution timelines expected in 2025, with a few potentially extending into 2026. He noted that a favorable forward interest rate curve aids refinancing efforts. Sternlicht added that the underlying assets are attractive at their current basis, especially given the anticipated slowdown in new multifamily supply. DiModica also expressed confidence in resolving three large office loan maturities occurring in 2025, citing strong leasing prospects and the company's financial capacity to optimize exit timing.

Douglas Harter from UBS inquired about the strategy for funding new property acquisitions, asking whether the company would sell existing assets or deploy its current excess liquidity.

Answer

Chairman and CEO Barry Sternlicht stated that the company would first use its excess liquidity and available borrowing capacity to fund new investments, as it is the most accretive method. He confirmed there would be no need to sell existing assets to fund new purchases in the foreseeable future, given the company's strong liquidity position of $1.8 billion and additional leverage capacity.

Douglas Harter of UBS inquired whether future pipeline growth would be funded by normalizing leverage or by raising additional equity, and also asked for clarification on the Woodstar portfolio's valuation.

Answer

President Jeff DiModica responded that the company has significant debt capacity, given its low leverage and $4.6 billion in unencumbered assets, making further debt issuance the likely path before considering equity. CFO Rina Paniry explained the Woodstar valuation is based on a 12-month lookback of comparable sales, which resulted in the disclosed cap rate.

Douglas Harter from UBS Group requested more details on the market reaction and success metrics for the AI assistant 'Mia' and asked if the quarter's derivative gain was opportunistic or a strategic shift.

Answer

Chairman, CEO & President Mat Ishbia described Mia as a 'huge success' that is actively making thousands of calls and setting appointments for brokers today, not just in theory. He clarified the derivative gain was purely opportunistic, executed to manage MSR valuation risk when interest rates dropped late in the quarter, and not a change in core strategy.

Douglas Harter requested specific numbers around the company's target range for non-funding debt-to-equity leverage, which was mentioned in the prepared remarks.

Answer

Chairman and CEO Mathew Ishbia dismissed the question as not relevant to the core business strategy, stating that all financial ratios are in a 'great position' and that the focus should be on the company's market dominance and technology investments. He asserted that the company has ample room to grow and that metrics like leverage are not a concern.

Douglas Harter from UBS asked about the company's outlook for leverage, given the increase in net funding debt, and inquired about the level of equity management believes is necessary to run the business efficiently.

Answer

CEO Mathew Ishbia emphasized that liquidity is the most critical metric, which he stated is very strong due to cash reserves, credit lines, and the ability to sell MSRs. While not providing specific target ratios, he asserted that all financial ratios are strong and that the company is well-capitalized for current and future operations.

Douglas Harter from UBS asked whether the higher gain on sale margin achieved was due to a difference between purchase and refi gains or if it was driven by UWM's capacity and technology allowing it to capitalize on increased volume opportunities.

Answer

Chairman and CEO Mathew Ishbia attributed the higher gain on sale margin primarily to UWM's capacity to handle volume surges when rates drop. He explained that when refi volume is high, the entire industry sees margin expansion because consumers are less price-sensitive and prioritize speed, and UWM is uniquely prepared to execute.

Douglas Harter of UBS Group AG inquired about the components of the company's current liquidity, the outlook for loan resolutions in the second half of the year, and the potential uses for accumulated capital, including debt reduction and stock buybacks.

Answer

President and CFO Michael McGillis confirmed the $323 million liquidity figure includes the recent New York multifamily loan payoff. Priyanka Garg, EVP of Portfolio & Asset Management, noted that while capital markets are healing, future payoffs will likely be more 'regular way' as the company has already accelerated many resolutions. McGillis added that the primary focus for capital remains deleveraging and addressing the term loan, making stock buybacks a lower priority until financing is secured.

Douglas Harter of Credit Suisse inquired about the status of two large multifamily loans expected to have near-term payoffs and sought an update on the company's strategy for its Term Loan B.

Answer

EVP Priyanka Garg confirmed that the two multifamily loans, with maturities in July and August, are still tracking towards repayment, but noted that market volatility might require evaluating other options. President and CFO Michael McGillis addressed the Term Loan B, which matures in August 2026, stating that Claros Mortgage Trust is evaluating options including an amend-and-extend with a principal paydown or pursuing private credit solutions, which are becoming more attractive.

Douglas Harter from UBS inquired about the repayment outlook for a risk-rated 4 California multifamily asset and the methodology used to set reserve levels for it and another New York asset.

Answer

Priyanka Garg, Executive Vice President, stated that they are in a cooperative, near-term resolution process for the California asset. She explained that for the New York asset, the general reserve was increased to match an agreed-upon discounted payoff. For the California asset, no additional reserve beyond the general reserve was deemed necessary due to its prime location and strong recent leasing activity.

Douglas Harter inquired about the outlook for CMTG's risk-rated 4 loan bucket, asking how these loans might progress through sales, resolutions, or potential downgrades, and about the carrying value of this category.

Answer

Priyanka Garg, EVP of Portfolio and Asset Management, responded that about half of the risk-rated 4 and 5 loans are in the multifamily sector, which the company views constructively. She stated that while they prefer to work with borrowers, they are prepared to take these assets REO. For non-multifamily assets, she noted significant progress on resolutions, with the decision to sell or foreclose being a dynamic capital allocation choice based on long-term value creation.

Douglas Harter of UBS Group asked for details on the drivers of the elevated prepayment activity that is constraining portfolio growth and the rationale for expecting this activity to slow down in 2026.

Answer

President and CIO Sajal Srivastava stated that current prepayments are driven by robust equity fundraising and M&A activity among portfolio companies. He anticipates this will slow in 2026 as older portfolio vintages complete their prepayment cycle and newer fundings have a more delayed prepayment timeline, pushing activity into late 2026 and 2027.

Douglas Harter of UBS asked about management's willingness to utilize share repurchases as a method to increase leverage to its target range, questioning how they weigh that option against making new investments.

Answer

Executive Mike Wilhelms responded that TPVG's target leverage is 1.3x to 1.4x. He stated the company's clear intention is to reach this target by strategically growing the investment portfolio using debt capital, rather than through share repurchases.

Douglas Harter inquired about the expected pacing of raising third-party capital and the potential growth trajectory for the managed accounts business.

Answer

CEO Kyle Brown stated that Trinity has been laying the groundwork for its managed account business for over a year and is now beginning to see the results, with plans to launch a non-traded BDC soon. He emphasized this is a major part of their future strategy to generate accretive fee income for shareholders. COO Gerry Harder added that the recently approved SBIC fund will also be managed under the RIA, contributing to this growth.

Douglas Harter from UBS asked about Trinity's appetite for raising capital through its At-The-Market (ATM) program and the expected pace of deployment needed to maintain the target leverage of approximately 1.0x.

Answer

CEO Kyle Brown described the ATM program as an efficient, "just-in-time" financing tool used accretively when needed. CFO Michael Testa added that Trinity is focused on diversifying its capital sources, highlighting the recent launch of a debt ATM and a private placement debt issuance, to provide greater flexibility for growth and scaling the platform.

Douglas Harter asked about the growth outlook for the RIA channel and its potential impact on operating leverage and shareholder returns.

Answer

CEO Kyle Brown described growing the RIA as a key strategic focus, with the goal of raising capital for both co-investment and vertical-specific funds. He reiterated that all resulting management and incentive fees will flow directly to the BDC, enhancing shareholder returns, though he cautioned that private capital raising is a lengthy process.

Douglas Harter of UBS Group inquired about the dividend strategy post-Home Express closing, the reason for a significant drop in secured financing rates, and the quarter-to-date change in book value.

Answer

President and CEO Phillip Kardis stated the company will balance reinvesting earnings for growth with dividend payouts. CFO Subra Viswanathan attributed the 60 basis point drop in financing rates to an increased allocation to lower-cost Agency RMBS financing. CIO Jack Macdowell reported that book value was down approximately 55 basis points quarter-to-date.

Douglas Harter from Credit Suisse asked for clarification on the quarter-to-date book value change and inquired about the timeline for deploying newly freed-up capital and its potential impact on the dividend.

Answer

Chief Investment Officer Jack Macdowell clarified that book value was down approximately 40 basis points quarter-to-date. He added that about one-third of the newly raised capital has been deployed, primarily into Agency MBS, with the remainder to be allocated over the next 4-8 weeks. CEO Phillip Kardis noted that it was premature to discuss the dividend given market volatility, but it would be a topic for board consideration in the coming month.

Douglas Harter sought clarification on the book value update and asked about the strategy for balancing on-balance-sheet growth versus third-party funds following the Palisades acquisition. He also questioned the sensitivity of earnings (EAD) to lower short-term interest rates.

Answer

President and CEO Phillip Kardis clarified the book value comment, stating most of Q3's gains had been reversed, bringing it closer to Q2 levels. He also explained that Chimera will develop a detailed allocation policy for the Palisades business to benefit all parties. CFO Subramaniam Viswanathan detailed the earnings sensitivity, noting that EAD would react positively to lower rates due to the $2.5 billion in floating-rate liabilities, partially offset by swaps, with further benefits from floating-rate preferreds and reinvestment opportunities.

Douglas Harter from UBS Group inquired if the reiterated full-year guidance accounts for the recent working capital line payoff and share buyback. He also asked about the funding sources for these transactions and the company's long-term capital structure strategy.

Answer

CFO Matthew Engel clarified that while the guidance was achievable without these actions, they provide a tailwind. He detailed a ~$10M annualized interest expense reduction from the debt restructuring and noted the share count impact would be seen in Q4 and 2026. CEO Graham Fleming confirmed the transactions to fund the buyback and a bondholder payment are planned for later in the year. Engel added that the near-term capital priority is retiring existing debt, with the new convertible note expected to eventually become equity.

Douglas Harter of UBS Group AG questioned the company's capital allocation strategy, specifically why it favors new loan originations over share repurchases despite the stock trading at a discount to book value.

Answer

CEO & Director Bryan Donohoe acknowledged the quantitative appeal of repurchases but explained the current priority is investing in new loans to reposition the portfolio, regain scale, and improve expense efficiencies. He stated that recharacterizing the loan book is seen as more rewarding for shareholders in the long term.

Douglas Harter of UBS inquired about the market conditions required for Ares Commercial Real Estate to increase its pace of originations, stabilize leverage, and grow its portfolio.

Answer

CEO Bryan Donohoe stated that the primary catalyst for new deployment is the continued reduction of risk-rated 4 and 5 loans. He noted the broader Ares platform remains active in originations, and ACRE is positioned to participate once its specific asset management goals are further advanced. Another executive added that the balance sheet is purposefully positioned to resolve these loans first before seeking accretive growth opportunities.

Douglas Harter asked about management's comfort level with the current dividend, given the level of distributable earnings excluding realized losses.

Answer

CEO Bryan Donohoe and CFO Jeffrey Gonzales stated that the dividend is a regular discussion with the Board, which evaluates it quarterly. They emphasized that the company's strong liquidity profile provides flexibility and optionality, and their goal is to provide a stable dividend while maximizing total shareholder returns.

Douglas Harter of UBS Group AG inquired about MGIC's strategy for sizing capital returns, the target liquidity level for the holding company, and the primary factors influencing dividend distributions from the MI subsidiary.

Answer

EVP, CFO & Chief Risk Officer Nathan Colson explained that semi-annual dividends from the operating company are driven by strong financial results and organic capital generation, with prudent growth being the top priority. With growth opportunities limited, excess capital is generated. He noted that if current credit conditions and limited growth persist, elevated payout ratios, which exceeded 110% over the last four quarters, are expected to continue. Colson also mentioned that the contingency reserve balance acts as a natural governor on the size of capital returns over the long term, favoring a steady drawdown of excess capital over a large, one-time reset.

Douglas Harter of UBS Group AG inquired about MGIC's strategy for sizing capital returns, the target liquidity level for the holding company, and the primary factors determining dividend distributions from the MI subsidiary. He also asked if the capital return payout ratio could increase further under current market conditions.

Answer

Nathan Colson, EVP, CFO & Chief Risk Officer, explained that capital returns are driven by strong financial results and limited opportunities for prudent growth. He stated that if these conditions persist, elevated payout ratios can continue. Colson noted that while they have sufficient surplus, the contingency reserve balance acts as a natural governor on dividend capacity, and the company prefers a gradual, sustained approach to returning excess capital rather than a large, one-time reset.

Douglas Harter asked for commentary on the pricing environment for new insurance written (NIW) and the competitive dynamics observed during the fourth quarter.

Answer

CEO Timothy Mattke described the current risk-return profile for NIW as 'very favorable,' consistent with what the company has experienced for the better part of the last year. He indicated that Q4 was a good environment for deploying capital into new business, though he declined to share specific pricing details, citing proprietary reasons.

Douglas Harter asked about the recent volatility in MGIC's market share and the reasons for the volume pullback observed in the quarter compared to peers, seeking details on whether the decline was concentrated in specific customer segments or product types.

Answer

CEO Timothy Mattke responded that market share is viewed as an output of their disciplined approach to risk and returns, not a specific target. He characterized the market as highly competitive, leading to natural ebbs and flows quarter-to-quarter. Mattke confirmed they were not surprised by the share loss and do not see it as a trend, adding that the pullback was not concentrated in any one specific area.

Douglas Harter of UBS Group AG inquired about Radian's target liquidity level at the holding company and how it might affect capital return capacity for the rest of the year. He also asked about the sustainability of the dividend from Radian Guaranty into 2026.

Answer

President & CFO Sumita Pandit stated that the holding company's $784 million in liquidity is considered well in excess of the necessary buffer, even after significant, accretive share repurchases. She noted that while no specific target has been set, the company is comfortable with current levels. CEO Rick Thornberry added that there is strong cash flow visibility, with a total of $795 million expected from Radian Guaranty in 2025. Regarding dividend sustainability, Sumita Pandit explained that the 2026 dividend from Radian Guaranty will be determined by its 2025 statutory net income, which serves as the best proxy for future capacity.

Douglas Harter of UBS Group inquired about Radian's target liquidity level at the holding company and how it might affect capital return capacity for the rest of the year. He also asked about the sustainability of the dividend from the operating company into 2026.

Answer

President & CFO Sumita Pandit stated that the holding company's $784 million in liquidity is considered more than sufficient, even after significant opportunistic share repurchases. CEO Rick Thornberry added that with $400 million of an expected $795 million already dividended up from Radian Guaranty in the first half, cash flow visibility is strong. Regarding future dividends, Sumita Pandit explained that the 2026 dividend from the operating company will be determined by its 2025 statutory net income, which serves as the best proxy for future capacity.

Douglas Harter of UBS Group AG inquired about Radian's target liquidity level at the holding company and how it influences the capacity for capital returns in the second half of the year. He also asked about the sustainability of the $795 million dividend from Radian Guaranty into 2026.

Answer

President & CFO Sumita Pandit stated that the current holding company liquidity of $784 million is strong and considered in excess of the necessary buffer, despite being lower due to opportunistic share repurchases. She explained that the 2026 dividend from Radian Guaranty will be determined by its 2025 statutory net income. CEO Rick Thornberry added that the company has strong cash flow visibility, having already received $400 million of the expected $795 million dividend for 2025.

Douglas Harter of UBS Group inquired about Radian's target holding company liquidity level and its implications for future capital returns, as well as the sustainability of the dividend from Radian Guaranty.

Answer

President & CFO Sumita Pandit explained that while there's no specific target, the current holding company liquidity of $784 million is considered more than sufficient, having been used for accretive share buybacks. She noted that the dividend from Radian Guaranty is based on the prior year's statutory net income, making 2025's performance a key indicator for 2026's dividend. CEO Rick Thornberry added that $400 million of the expected $795 million dividend for 2025 has already been received.

Douglas Harter of UBS Group inquired about Radian's target liquidity level at the holding company and how it impacts the capacity for capital returns in the second half of the year. He also asked about the sustainability of the $795 million dividend from Radian Guaranty into 2026.

Answer

President & CFO Sumita Pandit stated that while there is no specific target, the current holding company liquidity of $784 million is considered in excess of the appropriate buffer, and opportunistic share repurchases were made at accretive prices. CEO Rick Thornberry added that with $400 million of the expected $795 million dividend already received, there is strong visibility on future cash flow. Regarding sustainability, Sumita Pandit explained that the 2026 dividend capacity will be driven by the 2025 statutory net income, which is the best proxy.

Douglas Harter of UBS Group AG inquired about Radian's target liquidity level at the holding company and how it might affect the capacity for capital returns in the latter half of the year. He also asked about the sustainability of the $795 million dividend from the operating company, Radian Guaranty, into 2026.

Answer

President & CFO Sumita Pandit explained that the holding company's Q2 liquidity of $784 million is considered more than sufficient, even after significant, accretive share repurchases. She noted a deliberate strategy to manage liquidity without setting a specific target. CEO Rick Thornberry added that with $400 million of the expected $795 million already received from Radian Guaranty in H1 2025, there is strong visibility on cash flows. Regarding dividend sustainability, Pandit clarified that the 2026 dividend from Radian Guaranty will be based on its 2025 statutory net income, making the current year's performance the best indicator.

Douglas Harter asked about management's view on the appropriate level of holding company liquidity over time, particularly given the company's reduced debt and lack of near-term maturities.

Answer

President and CFO Sumita Pandit explained that the current holding company liquidity of $834 million is 'much, much higher' than what is required to cover fixed charges and run the business. She emphasized that the company will continue to use this excess liquidity to return capital to shareholders when value is present. CEO Richard Thornberry added that the high transparency of future cash flows from the insurance subsidiary to the parent company provides significant strength and flexibility for capital management.

Douglas Harter sought clarification on the 7.5% assumed claim rate, asking if it was adjusted for hurricane impacts. He also asked if there were any noticeable changes in the characteristics of loans entering default.

Answer

CFO Sumita Pandit clarified that the 7.5% default-to-claim roll rate was a blended rate applied to all new defaults and was not split out for hurricane areas. Derek Brummer, President of Radian Mortgage Insurance, added that the company is not seeing any material changes in the credit characteristics or embedded equity of new defaults. CEO Rick Thornberry also highlighted the consistency of strong cure trends shown on Slide 18 of the presentation.

Douglas Harter of UBS Group asked about New York Mortgage Trust's equity allocation strategy, specifically the 50% target for agency RMBS, the business model for the newly acquired Constructive platform, and the company's book value performance quarter-to-date.

Answer

CEO Jason Serrano described the 50% agency allocation as a medium-term strategy, confirming a continued core holding. President Nicholas Mah explained that while NYMT will keep buying some of Constructive's loans, the primary goal is to grow the platform's gain-on-sale income in a capital-light model. Mah also reported that adjusted book value was down 0% to 1% as of July 29th.

Douglas Harter of UBS asked for the outlook on G&A and portfolio operating expenses for 2025 as the company grows its portfolio, and requested an update on book value performance quarter-to-date.

Answer

CFO Kristine Nario stated that portfolio operating expenses decreased due to resolutions in the nonperforming loan book and projected a G&A run rate of $11 million to $11.5 million per quarter, with opportunities for further reduction. President Nicholas Mah reported that adjusted book value was up between 1% and 2% quarter-to-date.

Douglas Harter of UBS Group AG inquired about Apollo's capital recycling strategy, specifically focusing on the timeline for "The Brook" asset to generate cash flow and be monetized, and whether the ultimate goal is to sell or retain it.

Answer

President, CEO & Director Stuart Rothstein explained that leasing at The Brook is progressing, with the asset expected to turn cash flow positive in early 2026. He confirmed the ultimate plan is to monetize the asset, likely through a sale or by bringing in a partner between Q1 and Q2 of next year, to redeploy the nearly $300 million of capital.

Douglas Harter from UBS asked about the potential impact of recent market volatility on loan repayments and new originations, and also inquired about the perceived vulnerability of various real estate asset classes in a potential recession.

Answer

Executive Stuart Rothstein stated that the credit market remains robust and he does not currently anticipate a slowdown in transaction activity. He identified hospitality as the most vulnerable asset class in a recession due to its short-term lease nature. Conversely, he views multifamily as resilient due to housing needs and noted that while a recession could slow office leasing decisions, activity currently remains encouraging. Rothstein also added that limited new construction supply should be a long-term positive for existing asset values.

Douglas Harter of Credit Suisse inquired about the current status of the Massachusetts hospital loan collateral, the amount of the guarantor payment received, and the specifics behind the downgrade of a German office loan.

Answer

Executive Stuart Rothstein clarified that approximately $60 million in assets remain on the books from the hospital loan, including two closed hospitals and a note from a BBB+ rated entity. He stated he was not at liberty to disclose the specific guarantor payment amount. Regarding the German office loan, Rothstein explained it's a Berlin asset where leasing is slower than underwritten, but they still expect full recovery and are working with the sponsor.

Douglas Harter of UBS Group AG inquired about the future pacing of NMIH's capital return program, specifically asking if the resilient economy and persistent high interest rates might alter the company's share buyback strategy.

Answer

President & CEO Adam Pollitzer responded that NMIH is pleased with its execution, including the $23 million of shares repurchased in Q2. He stated that while there is no set schedule, a quarterly pace of roughly $25 million is a good baseline assumption. Pollitzer emphasized the program remains flexible, with the capacity to be more opportunistic or to slow down based on the risk environment, operating performance, and valuation.

Douglas Harter of Credit Suisse asked if National MI would consider increasing its stock buyback run rate, given the company's growing earnings power and portfolio size.

Answer

President and CEO Adam Pollitzer responded that the current repurchase program provides flexibility for both consistency and opportunistic increases. However, he stated that for now, the company expects to maintain a 'roughly similar cadence' for its buybacks.

Douglas Harter asked for an expansion on the competitive dynamics for new insurance written (NIW), noting that one competitor took significant share, and inquired about current pricing trends for new business.

Answer

President and CEO Adam Pollitzer described the industry pricing environment as generally stable, rational, and balanced. He attributed quarter-to-quarter market share movements to natural fluctuations, such as the performance of specific lender customers and differing risk strategies among competitors. Pollitzer emphasized that, overall, the market remains disciplined and constructive.

Douglas Harter of UBS Group AG inquired about Ares Capital's strategy for funding its growing deal pipeline, specifically how the company balances increasing leverage against issuing new equity via its at-the-market (ATM) program.

Answer

CEO Kort Schnabel explained that it's a continuous balance. He highlighted that raising capital through the ATM program at a premium to book value is accretive to NAV and strategically important for maintaining capital availability. He noted that operating with leverage around 1.0x provides significant financial flexibility to capitalize on market opportunities, especially since core earnings are stable and comfortably cover the dividend.

Douglas Harter asked whether the unrealized marks in the quarter were broad-based or asset-specific and questioned the reason for the sequential decline in dividend income.

Answer

Incoming CEO Kort Schnabel responded that the unrealized marks were more asset-specific and not indicative of a broader trend. He explained that the decline in dividend income was primarily due to a one-time special dividend from Ivy Hill in Q4 2024, which contributed about $0.01 of EPS in that quarter and did not recur.

Douglas Harter inquired about the target leverage for 2025 versus the appetite for raising new equity, and also asked how the company views its large spillover income and the potential for a special dividend.

Answer

Then-CEO Robert DeVeer stated a preference for a higher leverage ratio to drive earnings, especially if rates fall, but noted there is no 'desperate need' given they are out-earning the dividend. Regarding the spillover income, he said the company chose not to pay a special dividend this year, feeling it was better to reserve the capital and reassess in 12 months.

Douglas Harter of UBS Group AG inquired about Two Harbors' leverage, asking if the new level of 7x, which resulted from the litigation reserve, is the new target or if portfolio actions would bring it back down. He also requested an update on the economic return performance for the current quarter-to-date.

Answer

Nicholas Letica, VP & Chief Investment Officer, clarified that the 7x leverage is within their historical operating range of 5x to 8x and that they feel comfortable with the current level, noting it would be 6.3x without the loss reserve. He stated that leverage will continue to be managed based on market opportunities. William Greenberg, President & CEO, added that the quarter-to-date economic return through the previous Friday was approximately 1.5% on the new book value.

Douglas Harter of Credit Suisse inquired about TWO's book value performance through the volatile month of April and asked for details on any portfolio adjustments made in response to the market environment. He also sought clarification on the commentary that return potential is now higher.

Answer

President and CEO Bill Greenberg reported that book value was down approximately 3.5% through late April. Chief Investment Officer Nick Letica detailed the portfolio adjustments, explaining that the firm initially reduced its debt-to-equity ratio from 6.2x to the low 5s to lower risk, before increasing it back towards 6x to capitalize on wider spreads. Letica confirmed that the prospective return potential is now higher, estimating a $0.03 increase to the quarterly return range.

Douglas Harter of UBS Group AG inquired about the reasons for the lower static return on the securities portfolio and asked for an update on quarter-to-date book value changes and incremental return potential.

Answer

Chief Investment Officer Nicholas Letica explained the lower return was due to tighter spreads and a portfolio shift towards more servicing assets. President and CEO Bill Greenberg provided a quarter-to-date book value estimate, noting a decline of 1.5% to 3% through October 18, with further widening since. Letica added that the subsequent reversal in rates and wider spreads would likely increase the return potential on the securities side.

Douglas Harter questioned how management balances its strategy to scale the business with its stated reluctance to issue dilutive common stock, particularly given the current share price.

Answer

Michael Nierenberg, Chairman, President & CEO, explained that significant scale will be achieved through a large-scale transaction rather than incremental deals. He emphasized that such a transaction would likely involve bringing in third-party capital partners, as raising common equity at the current stock price is not a viable option for making a meaningful impact. He stressed patience and a thoughtful approach to deploying capital from the robust pipeline.

Douglas Harter asked about how management balances the need to grow and scale the business against the potential for diluting book value by issuing equity, especially given the stock's current discount.

Answer

Michael Nierenberg, Chairman, CEO, and President, acknowledged the significant discount of the stock price to its $5.40 book value is a primary concern. He suggested that future growth would most likely come from a third-party partnership or an M&A transaction to build scale. While not entirely ruling out an equity issuance for a highly accretive deal, he emphasized their preference to avoid dilution, pointing to the recent preferred stock offering as a strategic choice to protect shareholder value.

Douglas Harter of UBS Group AG asked about the strategy for managing the portfolio and leverage during Q2's volatility, and how the firm balances new investments against raising fresh capital.

Answer

CEO David Finkelstein explained that a strong liquidity position allowed them to manage rate exposure closely while letting leverage drift higher. He emphasized that raising accretive capital was preferable to increasing leverage amid uncertainty, noting that the current low leverage provides flexibility and contributes to smoother returns.

Douglas Harter of UBS Group AG asked about Annaly's strategy for managing the portfolio and leverage during the second quarter's volatility, and how the company balances new investments against market uncertainty.

Answer

CEO & Co-CIO David Finkelstein explained that Annaly entered the quarter with a strong liquidity position and low leverage, allowing them to manage rate exposure without being forced sellers. He emphasized that navigating uncertainty is now the base case and the focus is on keeping rate risk within a tight band. Finkelstein added that raising capital was more advantageous than increasing leverage during the uncertain period, a strategy that has led to smoother returns over the past several quarters.

Douglas Harter of UBS asked about Annaly's leverage strategy, questioning how the company balances the opportunity of wider spreads against the risk of high market volatility.

Answer

CEO David Finkelstein acknowledged the two opposing forces, stating that while wider spreads suggest adding leverage, high volatility warrants caution. He confirmed that leverage has increased modestly but will remain conservative and 'close to home' until volatility subsides. He emphasized that the portfolio is structured to provide rewarding returns if spreads tighten, while prioritizing risk management against further volatility.

Douglas Harter from UBS asked about Annaly's leverage strategy, questioning whether the current wide-spread environment presents an opportunity to increase leverage or if high volatility dictates a more cautious approach.

Answer

CEO David Finkelstein stated that while wider spreads are attractive, the accompanying high volatility makes increasing leverage risky. He confirmed that Annaly is maintaining a conservative posture with leverage inside 6x and will wait for volatility to subside before taking on more risk, noting the portfolio is already well-positioned to benefit from potential spread tightening.

Douglas Harter from UBS asked about the return outlook for Annaly's businesses, how the cost of volatility is factored into those returns, and the company's general outlook for market volatility in the coming year.

Answer

CEO David Finkelstein explained that while volatility can erode nominal returns in the Agency portfolio, their objective is to minimize hedging costs. He noted the Residential Credit and MSR portfolios are less sensitive, and the diversified model provides a buffer. He sees a better outlook for rate volatility and significantly lower spread volatility compared to recent years.

Douglas Harter of UBS Group AG asked for the return outlook across Annaly's businesses, how the cost of volatility is factored into those returns, and the company's general outlook for market volatility in the coming year.

Answer

CEO David Finkelstein explained that while volatility can erode nominal returns in the Agency portfolio, their hedging strategy aims to minimize this impact, and the diversified model with Resi Credit and MSR provides a buffer. He expressed an encouraging outlook, seeing a range-bound rate market and significantly lower spread volatility in the Agency MBS market due to better supply-demand balance.

Douglas Harter from UBS Group AG inquired about ARMOUR Residential REIT's philosophy for managing spread duration risk, particularly during volatile periods like the second quarter.

Answer

Co-Chief Investment Officer Desmond Macauley explained that the firm is comfortable with its current leverage and may modestly increase it due to historically attractive spreads. He stated that duration is managed dynamically, and they recently increased hedges in longer-duration assets to adjust for the steepening yield curve observed in Q2.

Douglas Harter asked about ARMOUR's approach to risk management, specifically regarding leverage levels and the trade-off between selling assets to de-risk versus holding on for a potential recovery in spreads.

Answer

Scott Ulm, an executive, emphasized that "liquidity is king" and is the firm's primary focus in volatile times. He noted that while leverage is monitored closely (running in the 7x to 8x range), it's more of an output than a direct input. Ulm acknowledged the temptation of attractive investment opportunities and share buybacks but reiterated that preserving liquidity is the priority over chasing returns or aggressively buying back stock.

Douglas Harter of Credit Suisse inquired about ARMOUR's approach to risk management, particularly regarding leverage levels and the balance between selling assets for safety versus holding them for a potential spread recovery in a volatile market.

Answer

Executive Scott Ulm emphasized that 'liquidity is king' and is the company's primary focus during volatile periods. He noted that while leverage, currently in the 7x to 8x range, is a key metric, it's viewed more as an output of their strategy. Ulm explained that the core challenge is balancing the maintenance of a strong defensive position against the temptation of very attractive investment opportunities and share buybacks.

Douglas Harter of Crédit Suisse asked about ARMOUR's outlook on market volatility and the potential impact of that volatility on investment returns.

Answer

Sergey Losyev, an executive at ARMOUR, responded that the company has seen a decline in both rate and spread volatility, which serves as a tailwind for the MBS market. He anticipates this trend will continue, with the Federal Reserve on hold leading to a more range-bound rate environment, which is favorable for generating consistent returns.

Douglas Harter of UBS Group inquired about the conditions or catalysts that might bring other investors, such as banks, back into the mortgage-backed securities market and asked for an outlook on swap spreads.

Answer

CIO T.J. Connelly stated that banks would likely need to see actual Fed rate cuts before re-engaging significantly, while money managers are already overweight the sector. He emphasized the growing role of mortgage REITs as a source of capital. Regarding swap spreads, he noted their negative levels add to returns, which Co-CEO Smriti Popenoe affirmed as a favorable long-term risk-return trade-off.

Douglas Harter of UBS sought clarification on the provided book value update and its relation to the upcoming dividend. He also asked about the appropriate leverage range in the current environment and the strategy for using the ATM to raise capital.

Answer

Chief Financial Officer Robert Colligan confirmed the book value estimate included the accrued dividend. Co-CEO and President Smriti Popenoe explained that while returns are attractive, the bar to add risk and increase leverage is high due to the volatile environment. She added that their disciplined ATM strategy depends on accretive risk-adjusted returns, which is evaluated against changes in stock price and book value.

Douglas Harter asked about Dynex Capital's strategy for growing its capital base in 2025, including the approach to issuing shares at a discount versus a premium. He also questioned how the MBS market is currently pricing in risks related to potential GSE reform.

Answer

Co-CEO Smriti Popenoe stated that capital growth is contingent on an accretive investment environment and highlighted the benefits of scale, such as a 70 basis point improvement in the G&A ratio. Regarding GSE reform, she conveyed that the market is pricing in a very low probability of significant change, noting that while a private GSE structure is possible, the path to achieving it is difficult and the benefits are unclear.

Douglas Harter questioned how the recent dividend increase, which raises the cost of capital, impacts the company's strategy for future capital raises. He also asked whether ATM offerings or block trades would be the preferred method for raising capital.

Answer

Co-CEO Smriti Popenoe explained that the dividend was raised based on strong confidence in forward returns, which exceed the new dividend level, and that the discipline for raising capital remains unchanged. CFO Rob Colligan added that the ATM program will likely be the primary source for capital, but attractive block trades would be considered. He noted the stock's proximity to book value removes any negative stigma from raising capital to build scale.

Douglas Harter of UBS inquired about the timeline for reaching target leverage, the current deal pipeline, and how recent investment spreads compare to previous months.

Answer

Co-CEO Kenneth Leonard confirmed a strong Q1 with new investment spreads around 5.49% over SOFR. He noted that despite a Q2 market slowdown due to macro uncertainty, KBDC expects net positive portfolio growth, is still finding opportunities with spreads of 5.00% to 6.00% over SOFR, and remains optimistic about achieving its target leverage range within the next two quarters.

Douglas Harter asked for an updated timeframe on when KBDC expects to achieve its target leverage ratio.

Answer

Co-CEO Kenneth Leonard stated that while a specific quarter is hard to predict, the company is on a positive trajectory to reach its target leverage in the 'coming quarters.' He highlighted strong Q4 origination activity, a substantial pipeline, and a bullish outlook for 2025 driven by pent-up M&A demand, a strong economy, and other macroeconomic factors.

Douglas Harter from UBS inquired about the long-term strategy for the senior loan fund, asking about the potential to continue growing the existing relationship or the possibility of adding other partners in the future.

Answer

Arthur Penn, Chairman and CEO, described the joint venture as very helpful for generating strong returns and stated that the company's strategy could be an 'and both' approach: growing the current JV and potentially adding another one over time. He emphasized that finding the right partner with a compatible credit philosophy is crucial and noted it is 'quite conceivable' that PFLT will add another JV partner in the future.

Douglas Harter asked for an updated perspective on the company's dividend policy, including the primary positive and negative factors influencing future earnings power.

Answer

Chairman and CEO Arthur Penn outlined the key considerations for the dividend. Potential headwinds include declining interest rates, which would impact a floating-rate portfolio, and any unforeseen credit quality issues. Positive drivers for earnings include the opportunity to increase leverage from the current 1.35x to the 1.5x target, realizing gains from the rotation of equity co-investments, and expanding the highly successful joint venture (JV), which generates mid-to-upper teens returns without an additional management fee.

Douglas Harter from UBS asked about NCDL's leverage strategy, questioning if management would consider letting leverage drift above the stated target range to capitalize on current market opportunities, or if growth would be funded primarily through portfolio rotation.

Answer

CFO Shai Vichness responded by reaffirming NCDL's commitment to its target debt-to-equity range of 1.0x to 1.25x. While comfortable operating at the upper end of this range due to the portfolio's high quality and senior loan focus, he stated they do not intend to increase leverage beyond it. Vichness clarified that the company has sufficient dry powder to be opportunistic through the ongoing rotation out of upper middle market assets and the redeployment of cash from loan repayments.

Douglas Harter of UBS inquired about Nuveen Churchill Direct Lending Corp.'s strategy for its supplemental dividend program after the final special dividend is paid.

Answer

CFO Shai Vichness confirmed that NCDL will adhere to its IPO guidance, planning to distribute approximately 50% of excess earnings above the base dividend through a supplemental program. He explained this approach balances shareholder returns with the need to retain capital for NAV growth, and noted that gains from equity realizations could fund additional special dividends or top-ups.

Douglas Harter asked for an update on the potential resolution timeline for the two new nonaccrual loans and inquired about the expected pace of rotating the portfolio from upper middle market loans into traditional middle market loans.

Answer

Shaul Vichness, CFO and Treasurer, explained that it is still early in the process for the two new nonaccruals, but the firm is actively working with sponsors to maximize value, without providing a specific timeline. Regarding the portfolio rotation, Vichness stated they are 'well on our way,' citing the robust pipeline of traditional middle market deals and the higher yield on new investments in Q2 as evidence of this strategy's execution. Kenneth Kencel, CEO, added that the core middle market focus provides the most attractive risk-adjusted returns.

Douglas Harter of UBS Group AG inquired about the normalized loan portfolio yield, seeking to understand the sustainable level after accounting for the recent volatility from prepayment activity.

Answer

Chief Financial Officer Tom Raterman explained that past yield spikes were due to high prepayment levels. He anticipates fewer prepayments going forward, which will lead to a more stable, albeit potentially lower, yield as accelerated income from fees is reduced. Raterman indicated the current core yield, absent prepayment spikes, is a reasonable expectation for the portfolio.

Douglas Harter of Credit Suisse inquired about the status of a legacy commercial mortgage loan set to mature and the capital it would free up, and also asked about the company's capacity to fund new loan acquisitions.

Answer

CEO T.J. Durkin stated the loan is expected to enter a pre-negotiated forbearance with a full payoff anticipated within 2025, which would release approximately $16 million in equity capital. CIO Nick Smith added that MITT has a good amount of runway to rotate capital and increase leverage for new investments in the Home Equity space over the next few quarters.

Douglas Harter requested quantification of the impact from prepayment assumptions on quarterly earnings, the likely financing strategy and deal size for home equity loans, and the specific types of home equity products being targeted.

Answer

CFO Anthony Rossiello confirmed the prepayment assumption was the "majority of the driver" for the EAD decrease. CIO Nicholas Smith added that securitization is the predominant financing method, with typical deal sizes ranging from $275 million to $500 million. Smith clarified that MITT is focused on traditional lending products like closed-end seconds and HELOCs, not home equity appreciation products.

Douglas Harter of Credit Suisse inquired about the timeline for rotating from Agency RMBS to core assets, the expected return difference, and the associated book value risk from the temporary agency holdings.

Answer

CEO and President T.J. Durkin stated the rotation would likely take two to three quarters following the September convertible note maturity. He clarified that the agency portfolio is a temporary, lower-leverage strategy to earn carry, while core originations target mid-to-high teens gross ROEs. Durkin also noted that the reduced leverage on agency assets mutes book value risk compared to a fully levered strategy.

Douglas Harter of UBS followed up on loan resolutions, asking how outcomes are comparing to where the loans were marked. He also asked about the current focus and opportunity within new Business Purpose Loan (BPL) originations.

Answer

CFO Michael Roper and CEO Craig Knutson stated that loan resolutions are generally occurring at or near their marked values, emphasizing that the significant fair value write-downs took place in prior quarters. President and CIO Bryan Wulfsohn explained that new BPL originations are primarily focused on ground-up construction and bridge loans, as the opportunity for quick flips has diminished.

Corey Johnson, on behalf of Douglas Harter, asked for the reasons behind increased delinquencies in single-family and multifamily transitional loans and questioned the historical versus expected loss experience for these portfolios.

Answer

President & CIO Bryan Wulfsohn explained that these asset classes are inherently riskier, leading to higher delinquencies. He noted that while historical net losses were minimal due to significant home price appreciation (HPA), the company now expects future losses to normalize towards their underwriting assumption of 50 to 100 basis points as HPA flattens.

Douglas Harter asked about the execution and returns of the April AOMT 2025-4 securitization, particularly how recent market volatility impacted its performance compared to previous deals.

Answer

CFO Brandon Filson explained that while the deal was executed during volatility, requiring a wider spread on the AAA tranche to 180 over, it was still accretive. He noted the expected yield is now in the 13% to 17% range, slightly lower than the typical 15-20%, but it successfully freed up capital to purchase new, higher-coupon loans.

Douglas Harter of UBS inquired about Angel Oak Mortgage REIT's capacity to issue additional unsecured debt to scale the business, given its current recourse leverage.

Answer

CFO Brandon Filson stated that while issuing more debt is a possibility, the company is focused on prudent growth and is currently deploying capital from its recent raise. Filson noted that about $200 million in committed loan purchases are in progress and that while the balance sheet could support more debt, they will wait for the right timing, potentially capitalizing on recent rate moves for better pricing.

Douglas Harter inquired about how Hercules is balancing the use of increased leverage, raising additional capital, and deploying third-party funds to capitalize on current market opportunities. He also asked for the company's view on the appropriate leverage level within its target range given the volatile environment.

Answer

CEO Scott Bluestein explained that the firm continuously evaluates all capital options to drive shareholder return, noting that leverage remains at the low end of their target range (under 100% GAAP) despite significant portfolio growth. CFO Seth Meyer added that maintaining lower leverage is a deliberate strategy to stay opportunistic, a posture they've held since March 2023. While they intend to keep leverage at the lower end in the current market, they are prepared to increase it for the right investment opportunities.

Douglas Harter of UBS questioned how Hercules balances using leverage, raising capital, and deploying third-party funds for growth, and asked about the ideal leverage level.

Answer

CEO & CIO Scott Bluestein stated the primary goal is maximizing total shareholder return, noting leverage remains at the low end of their target range. CFO Seth Meyer added that in the current environment, they prefer maintaining lower leverage to stay opportunistic but are prepared to increase it for the right investments, a strategy they've held since March 2023.

Douglas Harter of UBS asked about the outlook for portfolio growth in the upcoming quarters and how that growth might be allocated between the BDC's balance sheet and its third-party private funds.

Answer

CEO Scott Bluestein expressed optimism for new commitments and fundings but noted that net portfolio growth on the BDC's balance sheet is highly dependent on the level of early loan repayments, which are expected to remain high. He added that the private fund business continues to operate robustly, citing strong funding volumes in recent quarters.

Douglas Harter of UBS asked for context on the general CECL reserve increase, specifically if it reflects conditions as of March 31 or incorporates early April volatility. He also requested the size of two recent loan resolutions and the strategy for resolving REO assets.

Answer

CFO Tony Marone explained the reserve is calculated as of March 31 and is not designed to capture short-term volatility, so he doesn't anticipate dramatic changes from April's market moves. CEO Katharine Keenan specified the two loan resolutions in process total around $200 million. Regarding REO, she clarified the strategy is to maximize value over time, which may involve longer holds to execute business plans rather than quick dispositions.

Douglas Harter inquired about the expected spreads or IRRs on new loans for Q1 2025 and the company's target leverage level as the portfolio begins to grow again.

Answer

EVP of Investments Austin Pena stated that levered spreads remain consistent with historical levels, around 900-1,000 basis points over, as tighter liability spreads have offset tighter asset spreads. CEO Katharine Keenan reaffirmed the company's target leverage range of 3x to 4x debt-to-equity, noting they are currently at the mid-to-lower end of this range and comfortable growing within it.

Douglas Harter of UBS asked for quantification of the returns on new investments, specifically the return on capital for a new dollar deployed today and how that compares to the returns on loans originated in prior vintages.

Answer

CEO Katie Keenan detailed that 2024 originations feature attractive credit metrics like 60% LTV and over 9% debt yields, generating a return on investment (ROI) of approximately 1,000 basis points over the base rate, which translates to a mid-teens return on equity. She stated that on a same-store basis, these risk-adjusted returns are better than historical levels, especially given they are based on reset property values.

Douglas Harter asked about the strategy for capital redeployment, specifically questioning the level of liquidity the company plans to hold and how future credit migration might affect the pace of new investments.

Answer

CEO Katie Keenan responded that while the company has maintained near-record liquidity, it is no longer the best use of capital given increased market visibility and investment opportunities. She expects liquidity to normalize from these elevated levels as the firm reinvests, even when factoring in potential credit migration scenarios.

Douglas Harter asked about the key drivers required to increase net investment income (NII) from $0.27 per share back above the $0.33 dividend rate, and what a normalized level of income from loan repayments would be.

Answer

Chief Financial Officer Daniel Trolio explained that the path to covering the dividend relies on two main factors: harvesting prepayments and growing the balance sheet. He noted that Q4 was light on prepayments and associated fee income, which impacted NII. Trolio stated that a normalized level of accelerated fee income from prepayments would be approximately $2 million to $4 million per quarter.

Douglas Harter inquired about the status of non-accrual loans, seeking details on the resolution timelines and how the outcomes of Q3 resolutions compared to prior expectations.

Answer

Daniel Devorsetz, COO & CIO, explained that resolutions are ongoing, with some completed in Q3 and others expected in Q4 2024 or H1 2025. He detailed the Nexii resolution, where assets were sold to a third party. Gerald Michaud, President, added that for Evelo, assets were placed in a holding company for monetization, with proceeds flowing to Horizon to pay down its loan.

Douglas Harter of UBS Group AG asked for an update on the company's leverage outlook for the upcoming year, considering the current market environment.

Answer

CEO Jeffrey Levin reiterated the target leverage range of 1.0x to 1.25x debt-to-equity, which the company successfully entered in Q4. However, he stressed that MSDL prioritizes credit quality and capital preservation over strictly maintaining a leverage target in the short term. Levin stated that if deal flow is poor or repayments are high, the company will not deploy capital into unattractive opportunities simply to hit a leverage multiple, emphasizing a long-term investment perspective.

Douglas Harter from UBS asked if the company's cautious stance on near-term deal opportunities implies that leverage could decline, and also inquired about the optimal portfolio mix between liquid investments and private credit loans.

Answer

Chief Investment Officer Angie Long confirmed it is fair to assume leverage could drift lower as the company will be patient and wait for more attractive yields rather than actively deleveraging. She emphasized that a key advantage of their strategy is not having a prescribed mix, which allows them the flexibility to shift between public and private credit to capture the best opportunities as they arise.

Douglas Harter of UBS inquired about the potential maximum allocation to private credit within the portfolio while maintaining its liquid nature, and asked about any observed differences in underwriting quality or covenants between the broadly syndicated and private credit markets.

Answer

President Matt Bloomfield explained that while there is no 'hard cap' on private credit, the firm intends to maintain a significant liquid pool for opportunistic investments. He noted that the private credit allocation could continue its recent growth cadence. Regarding underwriting, Bloomfield stated that high demand for floating-rate loans gives borrowers an advantage in both markets, leading to a low hit ratio for PSBD. He stressed the firm's prudent and careful approach in the current tight-spread environment, seeking value in both primary and secondary markets.

Douglas Harter of UBS inquired about Palmer Square's strategy for balancing its portfolio between liquid and private credit, asking about a potential maximum allocation for private credit and any observed differences in underwriting standards between the two markets.

Answer

Matthew Bloomfield, President, responded that there is no 'hard cap' on private credit allocation as decisions are based on relative value, though the firm intends to maintain a significant liquid portfolio. He noted that while credit quality has been 'okay,' the firm is being prudent and disciplined in the current tight-spread environment, leading to a low 'hit ratio' for new deals in both private and syndicated markets.

Douglas Harter of UBS asked about Mr. Cooper's capacity within its Origination business and its ability to maintain high recapture rates if and when the next mortgage refinancing opportunity arises.

Answer

President Mike Weinbach explained that the company has maintained buffer capacity to handle rate dips and highlighted the significant growth opportunity in home equity loans to utilize current capacity. CEO Jay Bray added that significant investments in componentizing the origination platform over the last few years have made the business's ability to scale 'night and day' compared to two years ago, allowing them to ramp up quickly and efficiently.