Randy Binner

Randy Binner requested an update on Figure's securitization process for HELOC loan products and asked whether newer products would require a longer period to gather sufficient volume before being placed into securitizations.

Answer

CFO Macrina Kgil highlighted the benefit of AAA ratings from S&P and Moody's for securitizations, leading to higher gain on sale premiums. She confirmed that newer products like first lien (which had its second securitization in Q4) take several months and require several hundred million in volume before securitization. CEO Michael Tannenbaum clarified that auto loans from Agora would use Agora's existing shelf, and Figure would earn a fee, not hold the loans on its balance sheet.

Randy Binner requested an update on Figure's HELOC securitization process, asking if newer products would require a longer period to gather loans before securitization, and specifically if the auto product would be direct or held for securitizations over time.

Answer

CFO Macrina Kgil explained that Figure's AAA rating on HELOC securitizations has significantly boosted gain on sale premiums. For newer products like first lien (which had its second securitization in Q4), it typically takes several months to gather sufficient volume (hundreds of millions) before moving from whole loan direct sales to a securitization vehicle. She clarified that new products under $100 million this quarter would require several quarters of seasoning. CEO Michael Tannenbaum added that for auto loans, Agora already has its own securitization shelf, and Figure's role is to standardize the approach on blockchain rails, leveraging its registry to prevent issues like double pledging and improve execution through Democratized Prime and Connect. Figure will not take these auto loans onto its balance sheet, nor will it hold DSCR loans; instead, it works with partners and rating agencies to build shelves, earning a fee when partners contribute assets to securitizations.

Randy Binner of B. Riley Securities inquired about the recent increase in European investments and its significance. He also asked about the outlook for the portfolio's all-in yield, particularly if the Fed cuts rates, and the primary factors behind recent yield compression.

Answer

CEO Thomas Majewski stated that while they have selectively increased European CLO exposure to between 5-10% due to attractive opportunities, it is not a material driver of the overall strategy. He clarified that interest rate changes have little impact on ECC's cash flow, as both assets and liabilities are floating rate. The primary cause of lower effective yields has been significant loan spread compression, which the company actively counteracts by executing CLO resets and refinancings to reduce liability costs.

Randy Binner inquired about the sustainability of the high pace of CLO resets and refinancings (nine resets and seven refis in Q1) and sought clarification on the difference between the $190M in new investments and the $95M of net capital deployed.

Answer

CEO Thomas Majewski stated that the Q1 reset/refi activity was actually light and expects the pace to continue, with a significant pipeline of opportunities due to over 36% of their CLOs having wide AAA spreads. CFO Kenneth Onorio clarified that the $190M figure was gross investment, while the $95M was the net figure after accounting for sales of CLO debt during their portfolio rotation and other asset conversions.

Randy Binner of B.Riley Securities asked for more detail on the all-in yield of the CLO debt portfolio and how it might react to potential Fed rate cuts and subsequent spread widening through the end of the year.

Answer

Chairperson & CEO Thomas Majewski and Senior Principal & Portfolio Manager Daniel Ko responded. Majewski explained that while the portfolio is floating rate and would see lower income from rate cuts, a small move isn't a major event. Ko added that CLO BBs historically maintain a high single-digit yield, so spreads would likely widen to compensate for lower base rates, maintaining a premium over assets like high-yield corporate bonds.

Asked for clarification on the dividend reduction, questioning why it was necessary when recurring cash flows appeared sufficient to cover the previous rate and seeking to understand the policy relationship between core earnings, cash flows, and the distribution level.

Answer

The dividend reduction was primarily driven by the significant drop in the SOFR rate, which directly impacts the earnings of the company's CLO debt portfolio. While strong cash flows and realized gains helped for a time, the new distribution rate is more aligned with the company's near-to-medium-term GAAP earnings potential in the current lower interest rate environment. The company's earnings power is expected to fluctuate with short-term rates.

Randy Binner of B. Riley Securities questioned the rationale behind the dividend reduction, noting that recurring cash flows appeared adequate to cover the previous rate, and asked about the policy relationship between core earnings and distributions.

Answer

Thomas Majewski, CEO & Chairman, explained that the dividend policy is closely tied to Net Investment Income (NII), which fluctuates directly with the SOFR rate. He stated that while strong cash flows and realized gains had temporarily supported the prior distribution, the recent decline in SOFR necessitated aligning the dividend with the company's lower near-term earnings potential. Majewski emphasized that the vast majority of the portfolio consists of floating-rate CLO BBs, making earnings highly sensitive to short-term interest rate movements.

Randy Binner of B. Riley Securities asked for specific details on how a potential reduction in the GSEs' footprint would create market opportunities for Ellington Financial, beyond generalities.

Answer

Co-CIO Mark Tecotzky clarified that the most immediate opportunity lies in GSE-eligible loans, like second homes and investor properties, where guarantee fees are priced well above the actual credit risk. He explained that the private label market can securitize these loans more efficiently. This differs from the Non-QM market, which serves borrowers who do not qualify for GSE loans in the first place.

An analyst on behalf of Randy Binner of B. Riley Securities asked about the quantifiable capital and timing for REO workouts and the potential for new mainstream competition in the reverse mortgage market.

Answer

CFO JR Herlihy stated the capital to be freed from workouts is not quantified but the total investment in delinquent commercial loans and REO is under $100 million. CEO Laurence Penn added the amount is not 'game-changing' but its resolution will remove a drag on ADE. Regarding competition, Penn highlighted Longbridge's work on developing new, related products for seniors, leveraging its compliance and origination platform to expand its moat.

Randy Binner of B. Riley Securities inquired about the wind-down timeline for one-time acquisition-related costs and the strategic positioning of the expanded fixed income business in the current market.

Answer

CFO Michael Policarpo clarified that of the $53 million in acquisition-related costs, $26 million were one-time deal expenses that will not recur, while others will decline over several quarters. CEO David Brown expressed strong confidence in the fixed income asset class, highlighting its product diversification and the value of active management, positioning it as a key future growth driver.

Randy Binner followed up on the EPS walk to dividend coverage, asking if the negative drag from the Portland property was included in the calculation. He also requested clarification on the $85 million in net proceeds from the loan sale and how recent capital raises impact the pro forma view of the 2026 debt maturity wall.

Answer

CFO Andrew Ahlborn confirmed that the Portland asset's negative carry was already factored into the baseline of his EPS walk. He clarified that the $85 million in net proceeds from the loan sale was the cash remaining after paying down approximately $408 million in financing on the assets. Ahlborn also stated that he does not anticipate refinancing 100% of the maturing debt, as some will be paid down using the company's organic liquidity.

Randy Binner inquired about the interest rate profile for the $275 million pipeline of five term sheets and asked for details on the Park City loan, questioning if it signals a broader geographic expansion.

Answer

CEO Brian Sedrish stated that the pipeline consists of first mortgage loans with spreads currently above the existing portfolio's blended rate. Executive Chairman Leonard Tannenbaum clarified the Park City loan was a smaller participation in a larger deal. Mr. Sedrish added that while the company's focus remains on the Southern U.S., they will pursue opportunistic deals in other growth markets that fit their risk-return profile.

Randy Binner of B.Riley Securities asked for the reason behind the lower-than-expected asset management income in the quarter. He also requested commentary on the ongoing legislative and political debate surrounding the litigation finance industry.

Answer

CFO Jordan Licht explained that some legacy funds have not yet hit performance hurdles and noted the strategic focus has been on growing the balance sheet. CEO Christopher Bogart addressed the political climate, stating that opposition is not new and that Burford's value proposition of leveling the legal playing field is ultimately supported by courts and governments.

Randy Binner of B. Riley Securities sought clarification on the $40 million realized loss reported in the quarter and asked about the board's perspective on potential share buybacks, given the company's cash position.

Answer

CFO Thomas Mayrhofer clarified that the $40 million realized loss stemmed from a previously written-down investment in an InfraBridge fund and that this quarter's event was the final realization, with no new cash flow impact. Regarding capital allocation, Mayrhofer noted that while seeding new investment funds often provides the highest return, the board regularly discusses and evaluates share buybacks for both common and preferred stock as a potential use of cash.

Randy Binner of B. Riley Securities asked for details on Hippo's reinsurance structure, specifically if the company discloses a per-event catastrophe limit. He also asked for a high-level overview of how Hippo's products are resonating with customers and distribution channels in the current expensive and fragmented homeowners insurance market.

Answer

President and CEO Richard McCathron stated that Hippo does not disclose specific per-event limits but detailed their reinsurance strategy, which includes XOL layers, a corporate catastrophe program over the entire portfolio, and separate reinsurance towers for their MGA partners. CFO Guy Zeltser confirmed the cat loss assumptions for HHIP. McCathron then explained that Hippo resonates with new homeowners and those focused on proactive home maintenance, and that the company's strategy is to build a balanced portfolio to reduce volatility from any single line.

Randy Binner inquired about the specific geographies where the reciprocal is finding the most success, how it's being perceived by agents, and asked for the reciprocal's loss ratio for the quarter.

Answer

CEO Matt Ehrlichman explained that the company is benefiting from market dynamics where other carriers are pulling back, such as in Texas, which creates a significant opportunity. He noted their strong underwriting results make their product attractive to agents. CFO Shawn Tabak disclosed that the reciprocal's gross loss ratio was an "exceptional" 34% in Q2, a stark improvement from 117% in the prior-year quarter. Ehrlichman added that the attritional loss ratio also improved significantly to 8%.

Randy Binner from B. Riley Securities asked about the net investment income guidance, questioning if it was conservative given the current outperformance, and sought details on the reserve development tail for the A&H book compared to casualty lines.

Answer

CFO Jim McKinney clarified that the net investment income guidance is largely on plan and already incorporates potential interest rate cuts in the second half of the year. He confirmed new money is being invested at yields over 4.5%. CEO Scott Egan explained that the A&H book is short-tail (2-3 years) and that their prudent reserving philosophy involves setting cautious initial reserves and letting them season, leading to consistent prior year releases. Jim McKinney added that A&H results are known with confidence much sooner (18-24 months) than casualty lines (4-5 years), explaining the timing of the releases.

Randy Binner from B. Riley Securities asked about the net investment income guidance, which appears conservative given current trends, and sought details on the reserve development profile for the Accident & Health (A&H) business.

Answer

CFO Jim McKinney clarified that the NII guidance is on track with their internal plan, which already incorporates potential interest rate cuts in the second half of the year. CEO Scott Egan described the A&H book as short-tail (2-3 years) and explained their prudent reserving philosophy involves setting cautious initial reserves and allowing them to season, leading to a consistent track record of favorable prior year releases. McKinney added that they gain confidence in A&H results within 18-24 months, much faster than the 4-5 years for casualty lines.

Randy Binner of B. Riley Securities questioned the conservatism in the full-year net investment income guidance given strong current performance and asked for details on the reserve development profile for the Accident & Health (A&H) book of business.

Answer

CFO Jim McKinney stated the net investment income guidance is maintained because it already incorporates potential interest rate cuts in the second half of the year. CEO Scott Egan and CFO Jim McKinney detailed that the A&H business is short-tail (2-3 years) and their prudent reserving philosophy involves setting cautious initial reserves and letting older years season, which has resulted in a consistent track record of favorable prior year releases.

Randy Binner inquired about the net investment income guide, which seems conservative given current trends, and asked for details on the reserve development profile for the Accident & Health (A&H) business.

Answer

The NII guide is maintained as it accounts for potential future rate cuts, but performance is currently at the upper end of the range with new money yields over 4.5%. The A&H business is short-tail (2-3 years), and their prudent reserving philosophy involves setting cautious initial reserves and releasing them as the book seasons, leading to consistent favorable development from that line.

Speaking on behalf of Randy Binner of B. Riley Securities, Tim Bagsdino inquired about current mortgage activity trends in Q3 after a slower Q2 and asked about the company's forward-looking portfolio leverage targets.

Answer

President Nicholas Mah acknowledged that Q2 origination volume moderated due to rate volatility but expressed confidence in long-term growth for BPL originations. Regarding leverage, Mah stated it is market-dependent but projected an overall recourse leverage ratio of around 4.5 times if the agency portfolio grows to 50% of equity, while noting flexibility within different asset classes.

Randy Binner from B. Riley Securities asked for clarification on the mechanics of calling CLOs, specifically if the debt needs to be replaced. He also inquired about the upcoming NewPoint pro forma financials and the potential impact of GSE privatization.

Answer

Jerome Baglien, CFO & COO, explained that calling CLOs involves re-levering the assets to a target advance rate of around 75% to unlock cash for new originations, which would increase net leverage from its current 2.2x. Michael Comparato, President, addressed the GSE question, stating that while privatization is often discussed, it is unlikely to have a major impact as the government will always want to ensure liquidity in the housing sector.

Randy Binner of B. Riley Securities asked for clarification on the mechanics of calling CLOs, the expected content of the NewPoint pro forma financials, and the potential impact of any GSE privatization on NewPoint's business model.

Answer

Jerome Baglien, CFO & COO, explained that calling CLOs involves re-levering assets with new debt to unlock liquidity and increase the leverage ratio from 2.2x towards a 2.5x target. He noted the upcoming pro forma financials will guide future reporting structure. Michael Comparato, President, added that potential GSE privatization is unlikely to fundamentally impact the business, as the government will always want to ensure liquidity in the housing sector.

Randy Binner of B.Riley Securities asked for details on the value-add strategies for BrightSpire's REO portfolio, focusing on the San Jose Hotel and various multifamily properties.

Answer

CEO Mike Mazzei explained the plan for the San Jose Hotel involves addressing deferred maintenance to capitalize on upcoming major events like the Super Bowl, with a potential sale in 2026. President & COO Andrew Witt added that for the multifamily REO assets, the strategy involves CapEx, unit improvements, and lease-ups to drive value, with most expected to be resolved over the next year.

Randy Binner from B. Riley Securities questioned if the strong non-agency origination growth is due to market opportunity or potential GSE reform. He also sought clarity on the type of insurance M&A being considered and any credit market concerns.

Answer

NewRez President Baron Silverstein attributed the non-agency growth to opportunistic expansion in wholesale and correspondent channels. Chairman, President & CEO Michael Nierenberg clarified the insurance M&A focus is broad (P&C or life and annuities) and aimed at creating a liability funding mechanism. On credit, he stated that mortgage credit remains attractive relative to corporates and the focus is on building out a full suite of credit products.

Randy Binner of B.Riley Securities asked about the drivers behind the significant growth forecast for non-QM originations, questioning if it was due to market opportunity or potential GSE reform. He also sought clarification on the type of insurance M&A Rithm is considering and asked about any credit areas on the firm's watch list.

Answer

Baron Silverstein, President of NewRez, attributed the non-QM growth to opportunistic expansion in wholesale and correspondent channels driven by strong market demand. Michael Nierenberg, Chairman, President & CEO, added that potential insurance M&A would be broad, including P&C or life and annuities, to serve as a liability funding mechanism. Regarding credit, he noted that while corporate spreads are tight, Rithm is focused on building out its offerings, like direct lending, to provide a full suite of products for LPs.

Randy Binner of B.Riley Securities inquired about Ladder Capital's strategy for its CMBS portfolio, asking if the company was selectively selling or aiming to keep the portfolio flat. He also asked for color on the convertibility of the $325 million loan pipeline and the current market dynamics for loan originations.

Answer

CEO Brian Harris explained that Ladder is selectively selling securities, viewing them as a source of liquidity to redeploy into higher-yielding loans. He noted that while Q2 loan origination was slow due to timing, Q3 has already surpassed it in the first three weeks. Harris cautioned that loan closings are generally taking longer across the market, but he expects a high conversion rate for the current pipeline, with timing being the main variable.

Randy Binner from B. Riley Securities questioned the increase in total expenses for the quarter, asking if it represented a new run rate and clarifying if it included hedging costs.

Answer

CFO Gordon Harper stated that the higher expenses were due to increased professional fees and are not expected to be the new run rate going forward. He confirmed that hedging costs are reported separately under the derivatives line item and not within operating expenses.