Ellington Credit Adopts Tax Asset Preservation Plan Designed to Protect Shareholder Value by Preserving the Availability of Its Net Operating Losses While Operating as a C-Corp

Ellington Credit Company (“Ellington Credit” or the “Company”) (NYSE: EARN) announced today that it has adopted a shareholder rights plan designed to protect shareholder value by preserving the availability of the Company’s net operating loss carryforwards (“NOLs”) and other tax attributes under the Internal Revenue Code of 1986, as amended (the “IRC”) (such plan, the “Tax Asset Preservation Plan”).

As previously announced, later this year Ellington Credit intends to convert to a registered closed end fund to be treated as a regulated investment company (“RIC”) under the IRC, subject to receiving shareholder approval of certain matters. In the meantime, the Company is operating as a taxable C-Corp and plans to take advantage of its significant existing NOLs to offset the majority of its U.S. federal taxable income.

The Tax Asset Preservation Plan took effect on April 23, 2024 and will only remain in effect while Ellington Credit operates as a taxable C-Corp, expiring upon the earliest of: (i) conversion to a closed end fund/RIC, (ii) April 23, 2025, and (iii) the occurrence of certain other events, as described in the Rights Plan.

The Tax Asset Preservation Plan is substantially similar to those adopted by numerous other public companies with significant NOLs.

Ellington Credit’s ability to use the NOLs would be substantially limited if any “5-percent shareholders” (determined under Section 382 of the IRC) increase their ownership of the value of the Company’s stock by more than 50 percentage points over a rolling three-year period, which the IRC classifies for purposes of NOL availability as an “ownership change.” The Tax Asset Preservation Plan is intended to reduce the likelihood of such an IRC Section 382 “ownership change” at the Company by deterring any person or group from acquiring beneficial ownership of 4.9% or more of the Company’s outstanding common stock. The Company’s Board of Trustees believes that the adoption of the Tax Asset Preservation Plan is in the best interests of the Company and its shareholders, given the potential value that the NOLs represent.

Under the Tax Asset Preservation Plan, the rights will initially trade with the Company’s common stock and will generally become exercisable only if a person (or any persons acting as a group) acquires 4.9% or more of Ellington Credit’s outstanding common stock. If the rights become exercisable, all holders of rights (other than any triggering person) will be entitled to acquire additional shares of common stock at a 50% discount or the Company may exchange each right held by such holders for one share of common stock.