Ellington Credit expands offering capacity to $190 million

Ellington Credit Company (NYSE:EARN), a real estate investment trust with a market capitalization of $191 million, has amended its equity distribution agreements to increase its sales capacity, according to a recent filing with the Securities and Exchange Commission.

According to InvestingPro data, the company’s stock currently trades at $6.55, showing signs of being slightly overvalued based on Fair Value analysis. The amendment, made on Monday, allows the company to offer and sell common shares with a maximum aggregate offering price of up to $190 million, up from the previous limit. Notably, EARN maintains a strong dividend track record, having paid dividends consistently for 13 consecutive years, with a current impressive yield of 14.66%.

The shares are available for sale through a group of agents, including Citizens JMP Securities, LLC, Ladenburg Thalmann & Co. Inc., B. Riley Securities, Inc., and Armstrong Securities LLC, in what is considered "at the market" offerings. These transactions could occur directly on the New York Stock Exchange, through a market maker, or in negotiated transactions.

As of Monday afternoon, Ellington Credit had already sold approximately $125.4 million worth of shares prior to the amendment. The company retains the flexibility to decide whether to sell any shares under the new terms and can suspend offers at any time.

Armstrong Securities LLC, one of the agents and an affiliate of Ellington Credit, may receive up to 2.00% of the gross proceeds from the sale of the shares. The agents and their affiliates have previously provided various services to Ellington Credit and are expected to continue doing so, receiving customary fees and commissions.

The amendment was made to existing sales agreements that were originally established in November 2023 and subsequently modified in April 2024 and January 2025. This move is part of Ellington Credit’s ongoing capital management strategy and is detailed in a prospectus supplement filed with the SEC.

The company’s decision to increase its offering capacity provides it with additional financial flexibility to pursue its business objectives. The legal opinion regarding the shares’ legality was provided by Venable LLP, as included in the SEC filing.

In other recent news, Ellington Credit Company announced solid Q3 results, reporting a net income of $0.21 per share and adjusted distributable earnings (ADE) of $0.28 per share. The company’s strategic shift towards corporate collateralized loan obligations (CLOs) has contributed to a 10.8% annualized economic return and a reduced debt-to-equity ratio. In addition, Ellington Credit has expanded its equity offering to $130 million, providing the flexibility to raise capital through the sale of additional shares when needed.

The company also set a monthly dividend of $0.08 per share, demonstrating its ongoing efforts to optimize shareholder value. Meanwhile, the firm received approval from shareholders to convert into a Delaware registered closed-end fund, a move anticipated to be completed by or before April 1, 2025. This transformation aligns with the company’s strategic pivot towards CLO investments and away from residential mortgage-backed securities.

Piper Sandler, an independent financial services firm, maintained an Overweight rating on Ellington Credit, recognizing the company’s strategic pivot and strong core results. However, the firm noted the challenges ahead as the company seeks additional shareholder votes to approve its proposed changes.

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