Market updates and sector developments

The board of trustees of Ellington Residential Mortgage REIT (EARN) has unanimously approved a strategic transformation of its investment strategy to focus on corporate CLOs. The company intends to build upon its current US$44m CLO portfolio, with an emphasis on secondary CLO mezzanine debt and equity tranches.

In connection with its strategic transformation, EARN has decided to revoke its REIT election for tax year 2024. Later this year, the company intends to convert to a registered closed end fund to be treated as a regulated investment company (RIC), which it believes will enhance its access to the capital markets.

In the meantime, the company will operate as a taxable C-Corp. It plans to take advantage of its significant existing net operating loss carryforwards to offset the majority of its US federal taxable income.

EARN intends to complete all necessary steps for the closed end fund/RIC conversion later this year, subject to receiving shareholder approval of certain matters.

In other news…

Atlas agreement concludes
UBS and Apollo have entered into an agreement pursuant to which ATLAS SP has concluded its transition services agreement with UBS and UBS will close out its investment management agreement with Atlas. As part of this agreement, Apollo will purchase US$8bn of senior secured financing facilities from UBS. The move aligns with UBS’s strategy of winding down and simplifying its non-core and legacy (NCL) portfolio and with Apollo’s continued momentum in growing Atlas as a standalone origination platform.

UBS Group expects to recognise a net gain in 1Q24 of around US$300m from the conclusion of these agreements and the assignment of the senior secured financing facilities, while Credit Suisse is expected to recognise a net loss of around US$900m. The differences reflect adjustments UBS Group made under IFRS as part of the purchase price allocation at the closing of the acquisition of Credit Suisse Group, as well as provisions made by UBS Group in the second and third quarters of 2023 that are not recognised under Credit Suisse’s US GAAP accounting policies.

For Atlas and Apollo, the agreement marks Atlas’ evolution into a fully independent platform focused on investment grade asset-backed origination. Atlas has generated US$24bn originations since inception and has secured capital to support over US$40bn of client assets.

Corinne Smith