Ellington Residential Mortgage (EARN) has disclosed a new risk, in the Debt & Financing category.
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Ellington Residential Mortgage faces significant prepayment and reinvestment risk as part of its CLO portfolio management. Cash flows from asset repayments and sales are reinvested, but if the new assets have lower yields, distributions to CLO equity tranches diminish. Furthermore, prepayment rates, influenced by interest rate shifts and uncontrollable external factors, impact the life expectancy of CLO tranches. Additionally, CLO debt investors bear the risk of premature repayment if equity tranche holders initiate CLO calls or refinancing.
The average EARN stock price target is $7.00, implying 10.24% upside potential.
To learn more about Ellington Residential Mortgage’s risk factors, click here.