ELLINGTON FINANCIAL INC.
PRELIMINARY PURCHASE PRICE ALLOCATION
As of September 30, 2022, Ellington Financial Inc. (the “Company”) held a 49.6% ownership interest (the "Existing Equity Interest") in Longbridge Financial, LLC (“Longbridge”). On October 3, 2022, the Company acquired an additional 49.6% ownership interest (the "Additional Equity Interest") in Longbridge (the “Subject Transaction”). In combination, the Existing Equity Interest and the Additional Equity Interest constitute a controlling interest in Longbridge.
The total consideration for the Subject Transaction was $77.8 million, which is equal to the cash paid to acquire the Additional Equity Interest and the estimated fair value of the Existing Equity Interest (the “Total Consideration”).
The Company performed a preliminary allocation of the Total Consideration and recorded the underlying assets acquired (including certain identified intangible assets) and liabilities assumed based on their estimated fair values using the information available as of the acquisition date. This allocation is preliminary and subject to change. In conjunction with the preliminary purchase price allocation, the Company recognized a bargain purchase gain of $8.6 million, which is calculated as the recognized amount of the identifiable net assets acquired less: (i) the fair value of the consideration transferred, (ii) the estimated fair value of the previously held 49.6% equity interest in Longbridge, (iii) the fair value of the non-controlling interest, and (iv) the deferred tax liability associated with the bargain purchase gain.
The following table summarizes the Company’s preliminary purchase price allocation as of the acquisition date:
| | | | | | | | |
| | October 3, 2022 |
| Purchase Price: | | (In thousands) |
| Cash | | $ | 38,886 | |
| Investment in unconsolidated entity, at fair value | | 38,886 | |
| Total Consideration | | 77,772 | |
| Allocated to: | | |
| Cash and cash equivalents | | 26,510 | |
| Restricted cash | | 9,785 | |
| Reverse mortgage loans, at fair value | | 7,698,426 | |
| Loan commitments, at fair value | | 3,090 | |
| Mortgage servicing rights, at fair value | | 8,174 | |
| Real estate owned | | 8,511 | |
| Financial derivatives—assets, at fair value | | 978 | |
| Other assets | | 51,741 | |
| Intangible assets, net | | 3,500 | |
| Total assets acquired | | 7,810,715 | |
| HMBS related obligations, at fair value | | 7,448,524 | |
| | |
| Other secured borrowings | | 218,261 | |
| | |
| Interest payable | | 1,273 | |
| Accrued expenses and other liabilities | | 51,592 | |
| Total liabilities assumed | | 7,719,650 | |
| Total identifiable net assets | | 91,065 | |
Non-controlling interests(1) | | 1,662 | |
| Total net assets acquired | | 89,403 | |
| Deferred tax liability related to bargain purchase gain | | 3,081 | |
| Total net assets acquired less deferred tax liability | | 86,322 | |
| Bargain purchase gain | | $ | 8,550 | |
(1)Represents net assets of Longbridge not acquired by the Company.
