Matthew Howlett • B. Riley Securities

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Executive Thomas Majewski detailed a multi-pronged strategy to increase NII by rotating from CLO debt to equity, issuing accretive preferred stock, and keeping cash fully deployed, while noting loan spread compression was a recent headwind. He affirmed that CLO cash flows are historically robust and less impacted by defaults than perceived. He explained the supplemental dividend was discontinued because tax deductions from recent CLO resets eliminated the anticipated spillover taxable income for the current year.

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Executive Andrew Ahlborn outlined ~$90 million in expected cash from MSR, platform, and asset sales over the next few quarters. CEO Thomas Capasse stated that while they are positioned to handle the 2025 maturity with cash, they are actively exploring all refinancing options. He agreed the stock is attractive for buybacks and expects activity 'in the upcoming months.' He also detailed the long-term strategy to potentially spin off the scaled SBA tech platform as a tax-free distribution to shareholders.

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Co-Chief Investment Officer Mark Tecotzky noted that new preferred issuance is currently unattractive and debt is a better option to lower the cost of capital. CEO Laurence Penn stated that while the company prefers a shorter duration portfolio, it is not afraid of longer duration assets like those in the reverse mortgage space. Regarding Longbridge's value, Penn agreed that once it demonstrates stable earnings, it could command a valuation based on a multiple of earnings rather than book value. He emphasized that the immediate focus is on consistently covering the dividend, which was achieved in Q3.

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CFO Brandon Filson confirmed the 15-20% loss-adjusted leverage yield and acknowledged the potential for earnings to cover and exceed the dividend. He outlined a strategy to call lower-yielding securitizations from 2019 and 2022 in the coming year to redeploy capital into higher-return assets. CEO Sreeniwas Prabhu added that despite competition, Angel Oak's consistent market presence and service-driven model provide a competitive advantage beyond just pricing.

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CFO Brandon Filson projected long-term ROEs in the mid-to-high teens to low 20s, with a potential for higher returns on the next few securitizations. CEO Sreeniwas Prabhu noted that mortgage rates are currently flat due to market volatility but expects the industry to lower them soon. Filson confirmed the new capital could support approximately $1 billion in loan acquisitions. Prabhu described the competitive field as having been 'cleaned out,' positioning Angel Oak as a leader with limited competition, mainly from selective insurance companies.

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Executive Patrick Maciariello responded that the portfolio is now largely at an equilibrium regarding supply chains, producing in a manner roughly equal to consumer demand without significant overbuilding or draining inventory. Executive Elias Sabo addressed the dividend, stating that the Board's current position is to continue paying the dividend and that no strategic change is currently being considered.

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Executive Patrick Maciariello responded that, portfolio-wide, the supply chain is now largely at equilibrium, with production roughly matching consumer demand, and he does not anticipate a significant tailwind from destocking. Executive Elias Sabo stated that the dividend policy is determined by the Board and that the company's current position is to continue paying a dividend every quarter, a practice maintained since going public, with no strategic change being considered.

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Executive Elias Sabo confirmed they remain comfortable taking leverage up by a half to three-quarters of a turn for the right asset, citing the strong, stable growth from Lugano, Boa, and PrimaLoft. While not providing specific product details, he emphasized that the 'innovation engine is stronger than ever' across the portfolio. Both Sabo and Patrick Maciariello affirmed their belief that The Honey Pot Company is a long-term double-digit grower, explaining that a temporary slowdown during the initial integration and 'CODI-ization' process is not unusual before growth re-accelerates.

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Executive Elias Sabo reaffirmed their comfort in taking leverage up by a half to three-quarters of a turn for the right asset, citing the strength of Boa, PrimaLoft, and Lugano. On innovation, he stated that all subsidiaries have robust product roadmaps and a daily focus on maintaining a competitive lead. Executive Patrick Maciariello expressed confidence that HoneyPot will be a double-digit grower long-term. Sabo added that a temporary slowdown during the initial integration period is normal before investments in infrastructure accelerate growth.

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Executives Andrew Murstein and Anthony Cutrone emphasized a commitment to shareholder returns but declined to commit to a specific annual dividend growth rate, preferring to opportunistically balance dividends, buybacks, and portfolio growth. Mr. Cutrone reported the adjusted tangible book value was $10.17 per share. He noted that while new CD costs are slightly above the portfolio average, the margin is supported by new consumer loans being originated at high rates (16%+), which replace runoff from a portfolio with an average life of 36-42 months. Mr. Murstein added that the goal is to cautiously add one or two new fintech partners every 6 to 12 months.

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CEO Michael Mazzei stated that he expects funding costs on CLOs to tighten commensurately with, or even faster than, loan spreads, allowing the company to target mid-teens ROEs on new deals. As a key differentiator, Mazzei highlighted BrightSpire's vertically integrated asset management and its status as a rated special servicer on its own CLOs. He emphasized that this internal, high-touch approach from origination to resolution provides a significant advantage and has earned the company a strong brand reputation with both borrowers and investors.

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Head of Originations Adam Siper stated spreads on high-quality new acquisitions are in the high 200s to low 300s. CEO Brian Harris confirmed that CLO economics work at these levels, yielding around a 15% ROE for the issuer, but noted that owning levered AAA securities can be more attractive. He confirmed Ladder would consider BBB securities but prefers AAAs for the better leverage and liquidity. On the market, Harris believes valuations are normalizing from inflated 2021-22 levels and doesn't see widespread trouble for banks outside of office exposure. He expressed interest in M&A but is wary of buying 'other people's headaches' from externally managed REITs.

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Executive Daniel Perotti confirmed that the current reduction in MSR retention is a deliberate move to free up capital for securitization opportunities. Executive David Spector stated that while delivering high returns is the priority, he would like to achieve a better balance between the credit and interest-rate sensitive segments over time. Regarding debt, Daniel Perotti noted that while significant refinancing has been completed, further opportunities are dependent on future market spread tightening.

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President & CFO Michael Policarpo confirmed the pro forma fixed income mix remains around 25% and noted New Energy Capital's positive quarter was due to a successful fundraise. CEO David Brown described the post-Amundi M&A environment as a "golden era of consolidation." He stated Victory will have a highly flexible balance sheet to pursue larger transactions, using various tools like debt and equity. The focus will be on acquiring great, culturally-aligned companies rather than targeting specific asset classes.

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Jonathan Molot (Chief Investment Officer) explained that the high returns were not due to a single outlier but represented a 'smattering' of positive case resolutions from across the portfolio, including trial wins and favorable settlements. He emphasized that this quarter's results reflect the ongoing, positive activity within the portfolio. Molot cautioned that returns can 'bounce around' quarterly depending on the mix of settlements versus adjudications but stated this quarter's performance did not surprise him based on the portfolio's potential.

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