Core Insights - Tech companies are preparing to borrow hundreds of billions of dollars for AI investments, prompting lenders and investors to seek protection against potential defaults [1] Group 1: Credit Derivatives and Market Activity - Demand for credit protection has more than doubled the cost of credit derivatives on Oracle Corp.'s bonds since September, with trading volume for credit default swaps tied to Oracle reaching approximately $4.2 billion over six weeks ending November 7, up from less than $200 million in the same period last year [2] - There is a renewed interest in single-name credit default swaps (CDS) among clients, particularly as hyperscalers have increased their borrowing and exposure [3] - The overall volume for credit derivatives tied to individual companies has increased by about 6% over the six weeks ending November 7, reaching approximately $93 billion compared to the same period a year ago [12] Group 2: Market Trends and Future Projections - Investment-grade companies are projected to sell around $1.5 trillion in bonds in the coming years, with significant recent bond sales tied to AI, including Meta Platforms Inc. selling $30 billion in late October and Oracle offering $18 billion in September [5] - Tech companies, utilities, and other AI-related borrowers have become the largest segment of the investment-grade market, displacing banks [6] - Some of the largest buyers of single-name CDS on tech companies are banks, reflecting their increased exposure to the tech sector [7] Group 3: Investor Sentiment and Concerns - There is a growing concern among money managers and lenders regarding the effectiveness of generative AI projects, with a report indicating that 95% of organizations are seeing no return from these initiatives [9] - Recent trading activity in credit default swaps for Meta Platforms Inc. and CoreWeave has increased, indicating heightened market interest following significant bond sales [10]

Financial Performance - GAAP Net Income was $102 million or $027 per share[11] - NAV-Based Total Return was 197% annualized[11] - Net Investment Income was $65 million or $017 per share[11] - Adjusted Net Investment Income was $66 million or $018 per share[11] - Net Asset Value was $2297 million or $612 per share as of June 30 2025[11] Investment Portfolio - The CLO portfolio grew by 27% to $3169 million as of June 30 2025 from $2499 million as of March 31 2025[11, 18] - CLO debt investments totaled $1489 million with 79% in the U S and 21% in Europe[11] - CLO equity investments totaled $1680 million with 92% in the U S and 8% in Europe[11] - The company purchased $906 million of CLO investments and sold $159 million[11] - The weighted average GAAP yield for the quarter based on amortized cost was 156% on the total CLO portfolio[11] Distributions - The company received $159 million in recurring cash distributions from the investment portfolio or $042 per share[11] - The distribution rate was 172% based on the August 18 2025 closing stock price of $559 and a monthly distribution of $008 per common share declared on August 7 2025[11]

Financial Data and Key Metrics Changes - For calendar Q1, the company reported a net loss of $0.23 per share and adjusted distributable earnings of $0.26 per share [10] - The overall net interest margin increased by 20 basis points to 5.27, supported by a growing capital allocation to CLOs [10][11] - The economic return for the quarter was negative 3.2%, with book value per share at $6.08 [11] Business Line Data and Key Metrics Changes - The CLO portfolio increased by 46% to $250 million, while capital allocated to CLOs expanded to 81% from 72% [12] - The agency mortgage portfolio decreased slightly to $504 million from $512 million at the end of the previous quarter [12] - The portfolio P&L by strategy showed a negative $0.24 per share from CLOs and a positive $0.08 from agency [10] Market Data and Key Metrics Changes - The market experienced turbulence in March, with credit spreads widening and prices declining across high yield, investment grade, and CLO debt tranches [8] - Significant tariff de-escalations in May led to credit spreads and prices reversing course, retracing a significant portion of the March and April moves [9] Company Strategy and Development Direction - The company successfully completed its conversion to a registered closed-end fund and changed its fiscal calendar to begin on April 1 [5][6] - The strategy focuses on increasing the CLO portfolio while maintaining liquidity and flexibility in response to market conditions [23][30] - The company plans to add corporate debt to its liability structure later this year, which should be accretive to net investment income [30] Management's Comments on Operating Environment and Future Outlook - Management noted that while there were mark-to-market losses in calendar Q1, most price declines were driven by credit spread widening rather than realized credit losses [23] - The company is optimistic about deploying capital in a compelling market and believes it is well-positioned to drive strong earnings moving forward [30] Other Important Information - The company plans to issue monthly updates on portfolio metrics and net asset value on its website [27] - The company maintained high levels of liquidity, with approximately 18.8% of the total portfolio in cash and cash equivalents as of April 30 [28] Q&A Session Summary Question: How does the yield on newly acquired CLOs compare to the previous $250 million? - Management indicated that the weighted average yield varied from slightly wider to potentially hundreds of basis points back, depending on the type of assets purchased [34][35] Question: Do you have dry powder to deploy? - Management confirmed that they still have good dry powder available for deployment [37] Question: What are the latest thoughts on the ADE trajectory? - Management stated that they might be a little short this quarter but are on track for coverage in the third quarter [56]

Financial Data and Key Metrics Changes - In Q4 2024, the company reported net income of $0.25 per share and adjusted distributable earnings (ADE) of $0.45 per share, which comfortably covered the quarterly dividend of $0.39 per share [7][19] - The ADE increased from $0.28 per share in Q1 2024 to $0.45 per share in Q4 2024, reflecting a 25% year-over-year growth in the credit portfolio [44] Business Line Data and Key Metrics Changes - The Longbridge reverse mortgage segment performed excellently, contributing $0.30 per share to net income, while the credit portfolio generated $0.32 per share [19] - The credit portfolio increased by 5% to $3.42 billion, driven by net purchases of closed-end seconds, HELOCs, commercial mortgage bridge loans, and non-agency RMBS [24] - The Longbridge portfolio decreased by 15% sequentially to $420 million due to the impact of proprietary reverse mortgage securitization [25] Market Data and Key Metrics Changes - The agency strategy generated a modest loss due to rising interest rates and volatility around the presidential election, impacting Agency RMBS performance [22] - The overall debt-to-equity ratio increased to 8.8:1 from 8.3:1, while the recourse debt-to-equity ratio remained unchanged at 1.8:1 [26] Company Strategy and Development Direction - The company aims to continue leveraging its vertical integration to grow its loan origination business and maintain a focus on credit investments rather than agency securities [30][79] - The strategic use of securitizations is viewed as a core competitive advantage, expected to drive strong earnings and support dividend coverage [14][58] Management's Comments on Operating Environment and Future Outlook - Management noted an uptick in residential loan delinquencies, particularly in the non-QM portfolio, but does not expect material losses due to strong underlying real estate security [39] - The company remains optimistic about the demand for proprietary reverse mortgage products and anticipates continued ADE growth to cover dividends moving forward [45] Other Important Information - The company completed four securitization transactions in Q4, capitalizing on favorable market conditions, which included two non-QM deals and a proprietary reverse mortgage securitization [10][12] - The total weighted average borrowing rate on recourse borrowings decreased by 56 basis points to 6.21% due to lower short-term interest rates and tighter financing spreads [25] Q&A Session Summary Question: Can you talk about some of the originator investments and the appetite for non-QM given the commentary around delinquencies? - Management indicated that they have been making small investments in platforms where they have established relationships and can help lower warehousing costs and improve underwriting processes [63][64] Question: Can you contextualize the earnings expectations for Longbridge? - Management suggested a long-term run rate target of approximately $0.09 per share per quarter for Longbridge, with Q4 exceeding this expectation [68][70] Question: Why isn't the agency portfolio more attractive at current valuations? - Management explained that while the agency sector has been good, they believe their capital can be better utilized in credit-focused investments that leverage their vertical integration [76][79] Question: Is there an expectation from investors to buy loans out of the securitization trust? - Management clarified that they expect to work out and resolve loans while they remain in the securitization, rather than buying them out [84] Question: What is the current run rate for net interest income? - Management indicated that the net interest income seen in Q4 is a good run rate moving forward, supported by ongoing improvements in liability management [91][92] Question: What is the impact of staffing cuts at HUD on Longbridge? - Management acknowledged the uncertainty but emphasized that their proprietary business has been driving earnings, and they will have to wait and see how regulatory changes unfold [121][123]