SEC Filing | Ellington Financial Inc.

View:

Download DOC

Download PDF

Download XLS

tm2319691-3_s4a - block - 39.4478421s

TABLE OF CONTENTS

As filed with the Securities and Exchange Commission on October 23, 2023

Registration No. 333-273309

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 1 to
FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Ellington Financial Inc.

(Exact Name of Registrant as Specified in its Charter)

	Delaware			6500			26-0489289
	(State or Other Jurisdiction of Incorporation or Organization)			(Primary Standard Industrial Classification Code Number)			(I.R.S. Employer Identification No.)

53 Forest Avenue
Old Greenwich, Connecticut 06870
(203) 698-1200

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Laurence Penn, Chief Executive Officer and President
53 Forest Avenue
Old Greenwich, Connecticut 06870
(203) 698-1200

(Address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Daniel M. LeBey
K. Stancell Haigwood
Zachary A. Swartz
Vinson & Elkins L.L.P.
1114 Avenue of the Americas, 32nd Floor
New York, New York 10036
Tel (212) 237-0000

Richard E. Konzmann
Executive Vice President, Chief Financial Officer and Treasurer
Arlington Asset Investment Corp.
6862 Elm Street, Suite 320
McLean, VA 22101
(703) 373-0200

Steven M. Haas
James A. Kennedy
Robert K. Smith
Hunton Andrews Kurth LLP
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219
Tel (804) 788-8200

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement is declared effective and upon the satisfaction or waiver of all other conditions to consummation of the merger described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☒			Accelerated filer ☐			Non-accelerated filer ☐			Smaller reporting company ☐
										Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

If applicable, please an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

TABLE OF CONTENTS

The information in this proxy statement/prospectus is subject to completion and amendment. A registration statement relating to the securities described in this proxy statement/prospectus has been filed with the U.S. Securities and Exchange Commission. These securities may not be sold nor may offers to buy these securities be accepted prior to the time the registration statement becomes effective. This proxy statement/ prospectus shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities law of any such jurisdiction.

PRELIMINARY — SUBJECT TO COMPLETION

DATED OCTOBER 23, 2023

PROXY STATEMENT/PROSPECTUS

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

[•], 2023

To the Shareholders of Arlington Asset Investment Corp.:

The board of directors (the “Arlington Board”) of Arlington Asset Investment Corp. (“Arlington”), a Virginia corporation, and the board of directors (the “EFC Board”) of Ellington Financial Inc. (“EFC”), a Delaware corporation, each have adopted and approved an Agreement and Plan of Merger, dated as of May 29, 2023 (including the related plan of merger and as amended from time to time, the “Merger Agreement”), by and among EFC, EF Merger Sub Inc., a Virginia corporation and a direct wholly owned subsidiary of EFC (“Merger Sub”), Arlington and, solely for the limited purposes set forth in the Merger Agreement, Ellington Financial Management LLC, a Delaware limited liability company (“EFC Manager”), pursuant to which Arlington will merge with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving corporation of the Merger. Immediately following the Merger, the surviving corporation of the Merger will be contributed to Ellington Financial Operating Partnership LLC, a Delaware limited liability company and EFC’s operating partnership subsidiary (the “EFC Operating Partnership”), in exchange for limited liability company interests in the EFC Operating Partnership. As a result of the contribution, the surviving corporation of the Merger will become a wholly owned subsidiary of the EFC Operating Partnership. The closing of the Merger will occur as promptly as practicable following satisfaction of all closing conditions set forth in the Merger Agreement, but, under certain circumstances, either EFC or Arlington may terminate the Merger Agreement if the closing of the Merger has not occurred by December 29, 2023. Upon completion of the Merger, EFC will continue to operate under the “Ellington Financial Inc.” name and its shares of common stock, par value $0.001 per share (“EFC Common Stock”), will continue to trade on the New York Stock Exchange (the “NYSE”) under the symbol “EFC.”

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of Class A common stock, par value $0.01 per share, of Arlington (“Arlington Common Stock”) (other than shares held by EFC, Merger Sub or any wholly owned subsidiary of EFC, Merger Sub or Arlington) will be converted into the right to receive: (i) from EFC, 0.3619 (the “Exchange Ratio”) shares of EFC Common Stock; and (ii) from EFC Manager, $0.09 in cash. Cash will be paid in lieu of any fractional shares of EFC Common Stock that would have been received as a result of the Merger.

Upon completion of the Merger, we estimate that former Arlington common shareholders and holders of Arlington’s equity-based awards will own approximately 15% of the issued and outstanding shares of EFC Common Stock, using the Exchange Ratio of 0.3619.

In addition, at the effective time of the Merger, (i) each share of 7.00% Series B Cumulative Perpetual Redeemable Preferred Stock, $0.01 par value per share, of Arlington (“Arlington Series B Preferred Stock”) issued and outstanding immediately prior to the effective time of the Merger will be automatically converted into the right to receive one share of newly designated 7.00% Series D Cumulative Perpetual Redeemable Preferred Stock, $0.001 par value per share, of EFC, which will be listed on the NYSE under the symbol EFC PRD upon completion of the Merger, and (ii) each share of 8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share, of Arlington (“Arlington Series C Preferred Stock”) issued and outstanding immediately prior to the effective time of the Merger will be automatically converted into the right to receive one share of newly designated 8.250% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.001 par value per share, of EFC, which will be listed on the NYSE under the symbol EFC PRE upon completion of the Merger.

Arlington will hold a special meeting of its shareholders (the “Arlington special meeting”), which will be held solely by means of remote communication live over the Internet on December 12, 2023, at 9:00 a.m., Eastern Time. Holders of Arlington Series B Preferred Stock and Arlington Series C Preferred Stock will not be entitled to vote on any matter at the Arlington special meeting.

TABLE OF CONTENTS

At the Arlington special meeting, the Arlington common shareholders will be asked to consider and vote on (i) a proposal to approve the terms of the Merger Agreement, which provides for, among other things, the Merger (the “Arlington Merger Proposal”), (ii) a non-binding advisory proposal to approve the compensation that may be paid or become payable to Arlington’s named executive officers that is based on or otherwise relates to the Merger (the “Arlington Non-Binding Compensation Advisory Proposal”) and (iii) a proposal to adjourn the Arlington special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies for the approval of the Arlington Merger Proposal (the “Arlington Adjournment Proposal”). The Arlington Board has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are in the best interests of Arlington and Arlington’s shareholders, (ii) adopted and approved the Merger Agreement and declared that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, (iii) directed that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, be submitted to the holders of Arlington Common Stock for their approval at the Arlington special meeting and (iv) resolved to recommend that the holders of Arlington Common Stock approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. The Arlington Board unanimously recommends that the Arlington common shareholders vote “FOR” the Arlington Merger Proposal, “FOR” the Arlington Non-Binding Compensation Advisory Proposal and “FOR” the Arlington Adjournment Proposal. Only those matters included in the notice of the Arlington special meeting may be considered and voted upon at the Arlington special meeting.

This proxy statement/prospectus provides detailed information about the Arlington special meeting, the Merger Agreement, the Merger and other related matters. A copy of the Merger Agreement is included as Annex A to this proxy statement/prospectus. We encourage you to read this proxy statement/prospectus, the Merger Agreement and the other annex to this proxy statement/prospectus carefully and in their entirety. In particular, you should carefully consider the discussion in the section of this proxy statement/prospectus entitled “Risk Factors” beginning on page 29. You may also obtain more information about each company from the documents they file with the Securities and Exchange Commission (the “SEC”).

Whether or not you plan to attend the virtual Arlington special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope. You may also authorize a proxy to vote your shares over the Internet using the Internet address on the enclosed proxy card or by telephone using the toll-free number on the enclosed proxy card. If you authorize a proxy to vote your shares through the Internet or by telephone, you will be asked to provide the company number and control number from the enclosed proxy card. If you attend and vote at the Arlington special meeting virtually over the Internet, your vote by ballot will revoke any proxy previously submitted.

Thank you in advance for your continued support.

Sincerely,

J. Rock Tonkel, Jr.
President, Chief Executive Officer and Director
Arlington Asset Investment Corp.

Neither the SEC nor any state securities regulatory agency has approved or disapproved of the securities to be issued in connection with the Merger or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated [•], 2023, and is first being mailed to the shareholders of Arlington on or about [•], 2023.

TABLE OF CONTENTS

ARLINGTON ASSET INVESTMENT CORP.
6862 Elm Street, Suite 320
McLean, Virginia 22101
(703) 373-0200

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 12, 2023

NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the “Arlington special meeting”) of Arlington Asset Investment Corp., a Virginia corporation (“Arlington”), will be held solely by means of remote communication live over the Internet on December 12, 2023, at 9:00 a.m., Eastern Time, for the following purposes:

to consider and vote on a proposal (the “Arlington Merger Proposal”) to approve the terms of the Agreement and Plan of Merger, dated as of May 29, 2023, by and among Arlington, Ellington Financial Inc., a Delaware corporation (“EFC”), EF Merger Sub Inc., a Virginia corporation and a direct wholly owned subsidiary of EFC (“Merger Sub”), and, solely for the limited purposes set forth therein, Ellington Financial Management LLC, a Delaware limited liability company and the external manager of EFC (“EFC Manager”) (including the related plan of merger and as amended from time to time, the “Merger Agreement”), which, among other things, provides for the merger of Arlington with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving corporation of the Merger, a copy of which is attached as Annex A to the proxy statement/prospectus accompanying this notice;

to consider and vote on a non-binding advisory proposal to approve the compensation that may be paid or become payable to Arlington’s named executive officers that is based on or otherwise relates to the Merger (the “Arlington Non-Binding Compensation Advisory Proposal”); and

to consider and vote on a proposal to approve the adjournment of the Arlington special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies for the approval of the Arlington Merger Proposal (the “Arlington Adjournment Proposal”).

Arlington will transact no other business at the Arlington special meeting or any adjournment thereof. Please refer to the attached proxy statement/prospectus for further information with respect to the business to be transacted at the Arlington special meeting. The board of directors of Arlington (the “Arlington Board”) has fixed the close of business on October 13, 2023, as the record date (the “Arlington Record Date”) for the determination of the holders of shares of Class A common stock, par value $0.01 per share, of Arlington (“Arlington Common Stock”) entitled to notice of, and to vote at, the Arlington special meeting and any adjournment thereof. Accordingly, only Arlington common shareholders at the close of business on the Arlington Record Date are entitled to notice of, and to vote at, the Arlington special meeting and any adjournment thereof. No appraisal or dissenters’ rights will be available with respect to the Merger or the other transactions contemplated by the Merger Agreement.

The Arlington Board has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are in the best interests of Arlington and Arlington’s shareholders, (ii) adopted and approved the Merger Agreement and declared that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, (iii) directed that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, be submitted to the holders of Arlington Common Stock for their approval at the Arlington special meeting and (iv) resolved to recommend that the holders of Arlington Common Stock approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. The Arlington Board

TABLE OF CONTENTS

unanimously recommends that the Arlington common shareholders vote “FOR” the Arlington Merger Proposal, “FOR” the Arlington Non-Binding Compensation Advisory Proposal and “FOR” the Arlington Adjournment Proposal.

Your vote is very important, regardless of the number of shares of Arlington Common Stock you own. Whether or not you plan to attend the virtual Arlington special meeting, please authorize a proxy to vote your shares of Arlington Common Stock as promptly as possible to make sure that your shares are represented at the Arlington special meeting. Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Arlington Merger Proposal, “FOR” the Arlington Non-Binding Compensation Advisory Proposal and “FOR” the Arlington Adjournment Proposal.

To ensure your representation at the Arlington special meeting, you are urged to vote your shares of Arlington Common Stock (1) by phone, (2) via the Internet or (3) if you have requested the proxy materials by mail, by marking, signing, dating and promptly returning the proxy card in the enclosed postage-paid envelope for that purpose. Whether or not you plan to attend the virtual Arlington special meeting, we urge you to vote in advance of the Arlington special meeting by one of the methods described above. Any Arlington shareholder attending the virtual Arlington special meeting may vote at the Arlington special meeting even if such shareholder previously submitted a proxy. If your shares of Arlington Common Stock are held by a broker, bank or other nominee, please follow the instructions from your broker, bank or other nominee to have your shares voted.

Please note that if you hold shares of Arlington Common Stock in different accounts, it is important that you vote or authorize a proxy to vote the shares of Arlington Common Stock represented by each account. If you attend the Arlington special meeting virtually over the Internet, you may revoke your proxy and vote electronically at the Arlington special meeting, even if you have previously returned your proxy card or authorized, through the Internet or by telephone, a proxy to vote your shares of Arlington Common Stock. We note that virtual attendance alone will not revoke a previously authorized proxy. Please carefully review the instructions in the enclosed proxy statement/prospectus and the enclosed proxy card or the information forwarded by your broker, bank or other nominee regarding each of these options.

You will be able to virtually attend the Arlington special meeting by first registering at https://www.viewproxy.com/AAICSM/2023 no later than 11:59 p.m., Eastern Time, on December 9, 2023. After registering, you will receive a meeting invitation and password via email with your unique link to join the Arlington special meeting. Holders of Arlington Common Stock that have registered to attend will be able to listen, vote and submit questions during the Arlington special meeting.

If you are an Arlington shareholder of record, you must:

•

Register at https://www.viewproxy.com/AAICSM/2023 by 11:59 p.m., Eastern Time, on December 9, 2023. After registering, you will receive a meeting invitation and password via email with your unique link to join the Arlington special meeting.

•

On the day of the Arlington special meeting, if you have properly registered, you may enter the Arlington special meeting by logging in using the link and password you received via email in your registration confirmation.

•

You will need the virtual control number included on your proxy card if you choose to vote during the Arlington special meeting.

If you are a street name Arlington shareholder (i.e., you hold your shares of Arlington Common Stock beneficially through a broker, bank or other nominee):

•

Register at https://www.viewproxy.com/AAICSM/2023 by 11:59 p.m., Eastern Time, on December 9, 2023. After registering, you will receive an email confirming your registration, as well as the password to attend the Arlington special meeting.

•

TABLE OF CONTENTS

receive a virtual control number in the email confirming your registration. Please note that if you do not provide a copy of the legal proxy, you may still attend the Arlington special meeting but you will not be able to vote shares electronically at the Arlington special meeting.

•

If you encounter difficulties accessing the virtual Arlington special meeting, please call 1-866-612-8937 or email virtualmeeting@viewproxy.com for technical support.

This notice and the enclosed proxy statement/prospectus are first being mailed to Arlington shareholders on or about [•], 2023.

By Order of the Board of Directors,

D. Scott Parish
Senior Vice President, Chief Administrative Officer and Corporate Secretary

McLean, Virginia

[•], 2023

TABLE OF CONTENTS

ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about EFC and Arlington from other documents that EFC and Arlington have filed with the SEC and that are not included in or delivered with this proxy statement/prospectus. For a listing of documents incorporated by reference herein and additional information on how you can obtain copies of these documents free of charge from EFC or Arlington, please see the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 209 of this proxy statement/prospectus. This information is also available for you to review free of charge through the SEC’s website at www.sec.gov.

You may request copies of this proxy statement/prospectus and any of the documents incorporated by reference herein or other information concerning EFC or Arlington, without charge, upon written or oral request to the applicable company’s executive offices. The respective addresses and telephone numbers of such executive offices are listed below.

For information about EFC:
Ellington Financial Inc.
53 Forest Avenue
Old Greenwich, Connecticut 06870
Attention: Secretary
(203) 409-3585

For information about Arlington:
Arlington Asset Investment Corp.
6862 Elm Street, Suite 320
McLean, Virginia 22101
Attention: Investor Relations
(703) 373-0200

Investors may also consult the websites of EFC or Arlington for more information concerning the Merger and the other related transactions described in this proxy statement/prospectus. The website of EFC is www.ellingtonfinancial.com and the website of Arlington is www.arlingtonasset.com. Information included on these websites is not incorporated by reference into this proxy statement/prospectus. The references to these websites are intended to be inactive textual references only.

If you would like to request any documents, please do so by December 5, 2023 (which is five business days before the date of the Arlington special meeting), in order to receive them before the Arlington special meeting.

In addition, if you have questions about the Merger or the accompanying proxy statement/prospectus, would like additional copies of the proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, please contact:

Arlington Asset Investment Corp.
6862 Elm Street, Suite 320
McLean, Virginia 22101
(703) 373-0200
Attention: Investor Relations

Alliance Advisors, LLC
200 Broadacres Drive, 3rd Floor
Bloomfield, New Jersey 07003
(855) 600-2575
Email: AAIC@allianceadvisors.com

For a more detailed description of the information incorporated by reference in this proxy statement/prospectus and how you may obtain it, see the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 209 of this proxy statement/prospectus.

TABLE OF CONTENTS

ABOUT THIS DOCUMENT

This proxy statement/prospectus, which forms part of a registration statement on Form S-4 (Registration Statement No. 333-273309) filed by EFC with the SEC, constitutes a prospectus of EFC for purposes of the Securities Act of 1933, as amended (the “Securities Act”), with respect to (i) the shares of EFC Common Stock to be issued to Arlington common shareholders in exchange for shares of Arlington Common Stock, (ii) the shares of EFC Series D Preferred Stock to be issued to holders of Arlington Series B Preferred Stock and (iii) the shares of EFC Series E Preferred Stock to be issued to holders of Arlington Series C Preferred Stock, in each case pursuant to the Merger Agreement. This proxy statement/prospectus also constitutes a proxy statement for Arlington for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, it constitutes a notice of special meeting with respect to the Arlington special meeting.

No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated [•], 2023, and you should not assume that the information contained in, or incorporated by reference into, this proxy statement/prospectus is accurate as of any date other than that date (or, in the case of documents incorporated by reference, their respective dates). Neither the mailing of this proxy statement/prospectus to Arlington shareholders nor the issuance of EFC Common Stock, EFC Series D Preferred Stock or EFC Series E Preferred Stock to Arlington shareholders in the Merger pursuant to the Merger Agreement will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or to any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in or incorporated by reference into this proxy statement/prospectus regarding EFC has been provided by EFC and information contained in or incorporated by reference into this proxy statement/prospectus regarding Arlington has been provided by Arlington. EFC and Arlington have both contributed to the information relating to the Merger contained in this proxy statement/prospectus.

TABLE OF CONTENTS

	Page
FREQUENTLY USED TERMS		1
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER		5
SUMMARY		17
The Companies		17
The Merger		19
The Arlington Special Meeting		22
Opinion of Arlington’s Financial Advisor, Wells Fargo Securities		22
Directors and Management of EFC After the Merger		23
Interests of EFC’s Directors and Executive Officers in the Merger		23
Interests of Arlington’s Directors and Executive Officers in the Merger		24
Conditions to Complete the Merger		24
Regulatory Approvals Required for the Merger		24
Listing of EFC Capital Stock and Deregistration of Arlington Capital Stock and Arlington Notes		25
Accounting Treatment		25
Comparison of Rights of EFC Stockholders and Arlington Shareholders		25
Appraisal Rights		25
No Solicitation; Change in Recommendation		25
Termination of the Merger Agreement		26
Termination Fee and Expenses		27
Material U.S. Federal Income Tax Considerations		27
Description of EFC Capital Stock		28
RISK FACTORS		29
Risks Related to the Merger		29
Risks Related to the Combined Company Following the Merger		33
General Tax Risks		36
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		46
THE COMPANIES		48
THE ARLINGTON SPECIAL MEETING		50
PROPOSALS SUBMITTED TO THE ARLINGTON SHAREHOLDERS		54
Proposal 1: Arlington Merger Proposal		54
Proposal 2: Arlington Non-Binding Compensation Advisory Proposal		54
Proposal 3: Arlington Adjournment Proposal		55
Other Business		55
THE MERGER		56
General		56
Background of the Merger		56
Recommendation of the Arlington Board and Its Reasons for the Merger		67
The EFC Board’s Reasons for the Merger		71
Opinion of Arlington’s Financial Advisor, Wells Fargo Securities		73
Certain EFC Unaudited Prospective Financial Information		80
Certain Arlington Unaudited Prospective Financial Information		82

TABLE OF CONTENTS

	Page
Interests of Arlington’s Directors and Executive Officers in the Merger		85
Interests of EFC’s Directors and Executive Officers in the Merger		91
Regulatory Approvals Required for the Merger		92
Accounting Treatment		92
Appraisal Rights		92
Exchange of Shares of Stock in the Merger		92
Dividends		93
Listing of EFC Capital Stock		94
Deregistration of Arlington Capital Stock and Arlington Notes		94
THE MERGER AGREEMENT		95
The Merger		95
Closing; Effective Time of the Merger		95
Organizational Documents		95
Consideration for the Merger		95
Tax Withholding		96
No Dissenters’ Rights		96
Exchange Procedures		97
Representations and Warranties		97
Material Adverse Effect		101
Conduct of Business by Arlington Pending the Merger		102
Conduct of Business by EFC Pending the Merger		105
Agreement to Use Reasonable Best Efforts		107
No Solicitation; Change in Recommendation		108
Arlington Employee Releases		111
Arlington Rights Agreement		111
Shareholder Meeting		111
Shareholder Vote		111
Directors’ and Officers’ Indemnification and Insurance		112
Listing and Classification		112
Trust Preferred Securities and Arlington Notes		112
Conditions to Complete the Merger		112
Termination of the Merger Agreement		114
Termination Fee and Expenses		115
Directors and Management of EFC After the Merger		116
Amendment and Waiver		116
Specific Performance		117
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS		118
COMPARATIVE SHARE PRICES		155
DESCRIPTION OF EFC CAPITAL STOCK		157
COMPARISON OF RIGHTS OF EFC STOCKHOLDERS AND ARLINGTON SHAREHOLDERS		180
DESCRIPTION OF POLICIES OF EFC		194
PRINCIPAL AND MANAGEMENT STOCKHOLDERS OF EFC		202

TABLE OF CONTENTS

	Page
PRINCIPAL AND MANAGEMENT SHAREHOLDERS OF ARLINGTON		204
EXPERTS		206
LEGAL MATTERS		207
SHAREHOLDER PROPOSALS		208
WHERE YOU CAN FIND MORE INFORMATION AND INCORPORATION BY REFERENCE		209
MULTIPLE SHAREHOLDERS SHARING ONE ADDRESS		212
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION		213
ANNEX A AGREEMENT AND PLAN OF MERGER		A-1
ANNEX B OPINION OF WELLS FARGO SECURITIES, LLC		B-1

iii

TABLE OF CONTENTS

FREQUENTLY USED TERMS

Certain terms that are defined in and frequently used throughout this proxy statement/prospectus may be helpful for you to have in mind at the outset. Unless otherwise specified or if the context so requires, the following terms have the meanings set forth below for purposes of this proxy statement/prospectus:

•

“Arlington” refers to Arlington Asset Investment Corp., a Virginia corporation.

•

“Arlington 2011 LTIP” refers to the Arlington Asset Investment Corp. 2011 Long-Term Incentive Plan, as amended from time to time.

•

“Arlington 2014 LTIP” refers to the Arlington Asset Investment Corp. 2014 Long-Term Incentive Plan, as amended from time to time.

•

“Arlington 2021 LTIP” refers to the Arlington Asset Investment Corp. 2021 Long-Term Incentive Plan, as amended from time to time.

•

“Arlington 2025 Notes” refers to Arlington’s 6.75% Senior Notes due 2025.

•

“Arlington 2026 Notes” refers to Arlington’s 6.000% Senior Notes due 2026.

•

“Arlington Adjournment Proposal” refers to the proposal to approve the adjournment of the Arlington special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies for the approval of the Arlington Merger Proposal.

•

“Arlington Board” refers to the board of directors of Arlington.

•

“Arlington Bylaws” refers to Arlington’s Amended and Restated Bylaws, as amended from time to time.

•

“Arlington Charter” refers to the Amended and Restated Articles of Incorporation of Arlington, as amended and supplemented from time to time.

•

“Arlington Common Stock” refers to each outstanding share of Class A common stock, par value $0.01 per share, of Arlington.

•

“Arlington DSU” refers to an award of “deferred stock units” with respect to shares of Arlington Common Stock granted under any Arlington Equity Plan.

•

“Arlington Equity-Based Awards” refers to any of the Arlington Restricted Shares, Arlington DSUs, Arlington Performance RSUs and Arlington Stock Price Performance RSUs.

•

“Arlington Equity Plans” refers to any of the Arlington 2021 LTIP, Arlington 2014 LTIP, Arlington 2011 LTIP and the Arlington Non-Employee Director Stock Compensation Plan.

•

“Arlington Merger Proposal” refers to the proposal to the Arlington shareholders to approve the terms of the Merger Agreement, which provides for, among other things, the Merger.

•

“Arlington Non-Binding Compensation Advisory Proposal” refers to the non-binding advisory proposal to approve the compensation that may be paid or become payable to Arlington’s named executive officers that is based on or otherwise relates to the Merger.

•

“Arlington Non-Employee Director Stock Compensation Plan” refers to Arlington’s Non-Employee Director Stock Compensation Plan, as amended from time to time.

•

“Arlington Notes” refers, collectively, to the Arlington 2025 Notes and the Arlington 2026 Notes.

•

“Arlington Notes Indentures” refers to: (a) that certain Indenture, dated as of May 1, 2013, between Arlington and Wells Fargo Bank, National Association, as trustee, as supplemented by the First Supplemental Indenture, dated as of May 1, 2013, the Second Supplemental Indenture, dated as of March 18, 2015, between Arlington and Wells Fargo Bank, as original trustee, and The Bank of New York Mellon, as series trustee, and as otherwise modified or supplemented prior to the date of the Merger Agreement; (b) that certain Indenture, dated as of January 10, 2020, between Arlington and The Bank of New York Mellon, a New York banking corporation, as trustee, as supplemented by the First Supplemental Indenture, dated as of July 15, 2021, and as otherwise modified or supplemented prior to the date of the Merger Agreement; and (c) that certain Indenture, dated as of January 10,

TABLE OF CONTENTS

2020, between Arlington and The Bank of New York Mellon, a New York banking corporation, as trustee, and as otherwise modified or supplemented prior to the date of the Merger Agreement.

•

“Arlington Performance RSUs” refers to each award of performance restricted stock units granted under any Arlington Equity Plan.

•

“Arlington Portfolio Securities” refers to any mortgage-backed securities (including “To Be Announced” agency mortgage-backed securities), U.S. Treasuries, MSRs or other assets or securities permitted under Arlington’s investment guidelines, including derivative securities and other instruments used for the purpose of hedging interest rate risk.

•

“Arlington Preferred Stock” refers to Arlington Series B Preferred Stock and Arlington Series C Preferred Stock, collectively.

•

“Arlington Record Date” refers to the close of business on October 13, 2023.

•

“Arlington Restricted Shares” refers to each share of Arlington Common Stock issued by Arlington under any Arlington Equity Plan that is unvested and/or is subject to a repurchase option or obligation, risk of forfeiture or other restriction.

•

“Arlington Rights Agreement” refers to that certain Rights Agreement, dated as of June 5, 2009, by and between Arlington and American Stock Transfer & Trust Company, LLC, as rights agent, as amended by that certain First Amendment to Rights Agreement, dated as of April 13, 2018, and that certain Second Amendment to Rights Agreement, dated as of April 11, 2022.

•

“Arlington Series B Preferred Stock” refers to Arlington’s 7.00% Series B Cumulative Perpetual Redeemable Preferred Stock, $0.01 par value per share.

•

“Arlington Series C Preferred Stock” refers to Arlington’s 8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share.

•

“Arlington special meeting” refers to the special meeting of Arlington’s common shareholders to be held virtually on December 12, 2023, at 9:00 a.m., Eastern Time.

•

“Arlington Stock Price Performance RSUs” refers to awards of certain Arlington Performance RSUs that vest based on achievement of certain stock price thresholds.

•

“Cancelled Shares” refers to all shares of Arlington Common Stock held by EFC or Merger Sub or by any wholly owned subsidiary of EFC, Merger Sub or Arlington immediately prior to the effective time of the Merger.

•

“Closing” refers to the closing of the Merger.

•

“Code” refers to the Internal Revenue Code of 1986, as amended.

•

“Combined Company” refers to EFC and its subsidiaries, including the surviving corporation of the Merger, after the Closing.

•

“DGCL” refers to the General Corporation Law of the State of Delaware.

•

“EFC” refers to Ellington Financial Inc., a Delaware corporation.

•

“EFC Board” refers to the board of directors of EFC.

•

“EFC Bylaws” refers to EFC’s Amended and Restated Bylaws, as amended from time to time.

•

“EFC Charter” refers to the certificate of incorporation of EFC, as amended from time to time.

•

“EFC Common Stock” refers to the common stock, par value $0.001 per share, of EFC.

•

“EFC Common Stock Issuance” refers to the issuance of shares of EFC Common Stock to holders of Arlington Common Stock and the Arlington Equity-Based Awards, as contemplated by the Merger Agreement.

•

“EFC Management Agreement” refers to the Seventh Amended and Restated Management Agreement, by and among EFC, EFC Operating Partnership and EFC Manager, dated as of March 13, 2018.

TABLE OF CONTENTS

•

“EFC Manager” refers to Ellington Financial Management LLC, a Delaware limited liability company and EFC’s external manager.

•

“EFC OP Units” refers to common units of the EFC Operating Partnership.

•

“EFC Operating Partnership” refers to Ellington Financial Operating Partnership LLC, a Delaware limited liability company and EFC’s operating partnership subsidiary.

•

“EFC Preferred Stock” refers to EFC Series A Preferred Stock, EFC Series B Preferred Stock, EFC Series C Preferred Stock, EFC Series D Preferred Stock and EFC Series E Preferred Stock, collectively.

•

“EFC Series A Preferred Stock” refers to EFC’s 6.750% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.001 par value per share.

•

“EFC Series B Preferred Stock” refers to EFC’s 6.250% Series B Fixed-Rate Reset Cumulative Redeemable Preferred Stock, $0.001 par value per share.

•

“EFC Series C Preferred Stock” refers to EFC’s 8.625% Series C Fixed-Rate Reset Cumulative Redeemable Preferred Stock, $0.001 par value per share.

•

“EFC Series D Preferred Stock” refers to EFC’s to be classified 7.00% Series D Cumulative Perpetual Redeemable Preferred Stock, $0.001 par value per share.

•

“EFC Series E Preferred Stock” refers to EFC’s to be classified 8.250% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.001 par value per share.

•

“EFC Stock Issuance” refers to the collective issuance of shares of EFC Common Stock, EFC Series D Preferred Stock and EFC Series E Preferred Stock pursuant to the Merger Agreement.

•

“EMG” refers to Ellington Management Group, L.L.C. and its affiliated investment advisory firms.

•

“Exchange Ratio” refers to 0.3619.

•

“GAAP” refers to the accounting principles generally accepted in the United States of America.

•

“Great Ajax” refers to Great Ajax Corp., a Maryland corporation.

•

“Great Ajax merger agreement” refers to the Agreement and Plan of Merger, dated as of June 30, 2023, by and among EFC, Great Ajax merger sub and Great Ajax, as amended from time to time.

•

“Great Ajax merger sub” refers to EF Acquisition I LLC, a Maryland limited liability company and a wholly owned subsidiary of EFC.

•

“Investment Company Act” refers to the Investment Company Act of 1940, as amended.

•

“Merger” refers to the merger of Arlington with and into Merger Sub, with Merger Sub continuing as the surviving corporation of the Merger, pursuant to the Merger Agreement.

•

“Merger Agreement” refers to the Agreement and Plan of Merger, dated as of May 29, 2023, by and among EFC, Merger Sub, Arlington and, solely for the limited purposes set forth therein, EFC Manager, including the related plan of merger and as amended from time to time, a copy of which is attached as Annex A to this proxy statement/prospectus.

•

“Merger Consideration” refers to the aggregate amount of Per Share Common Merger Consideration, the aggregate amount of Per Share Series B Preferred Merger Consideration and the aggregate amount of Per Share Series C Preferred Merger Consideration.

•

“Merger Sub” refers to EF Merger Sub Inc., a Virginia corporation and a wholly owned subsidiary of EFC.

•

“MSRs” refers to mortgage servicing rights.

•

“MSR Entity” refers to each of (a) Seneca Excess LP, a Delaware limited partnership, and (b) Seneca Excess FR LP, a Delaware limited partnership.

•

“MSR Investment” refers to any interest held, directly or indirectly, by Arlington or any of its subsidiaries in any MSR, whether in whole or in part (including any base servicing spread, reference

TABLE OF CONTENTS

servicing spread, or excess servicing spread, any obligations relating thereto and any investment in any MSR Entity), and regardless of whether such interest is in MSRs or a contractual or financial arrangement made in reference to particular residential MSRs.

•

“NYSE” refers to the New York Stock Exchange.

•

“ordinary course of business” means the ordinary course of business consistent with past custom and practice.

•

“Per Share Cash Consideration” refers to a cash amount to be paid by EFC Manager equal to $0.09 per share of Arlington Common Stock.

•

“Per Share Stock Consideration” refers to a number of shares of EFC Common Stock equal to the Exchange Ratio.

•

“Per Share Common Merger Consideration” refers to the Per Share Stock Consideration together with the Per Share Cash Consideration.

•

“Per Share Series B Preferred Merger Consideration” refers to the right of each share of Arlington Series B Preferred Stock to receive one share of EFC Series D Preferred Stock.

•

“Per Share Series C Preferred Merger Consideration” refers to the right of each share of Arlington Series C Preferred Stock to receive one share of EFC Series E Preferred Stock.

•

“Preferred Merger Consideration” refers to the Per Share Series B Preferred Merger Consideration and the Per Share Series C Preferred Merger Consideration.

•

“REIT” refers to a real estate investment trust as defined in Section 856 of the Code.

•

“Virginia Commission” refers to the State Corporation Commission of the Commonwealth of Virginia.

•

“VSCA” refers to the Virginia Stock Corporation Act, as amended.

•

“Wells Fargo Securities” refers to Wells Fargo Securities, LLC.

TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers are intended to address certain commonly asked questions regarding the Merger Agreement, the Merger and the Arlington special meeting. These questions and answers do not address all questions that may be important to you as a shareholder of Arlington. Please refer to the “Summary” beginning on page 17 and the more detailed information contained elsewhere in this proxy statement/prospectus, the annexes to this proxy statement/prospectus and the documents incorporated by reference in this proxy statement/prospectus, which you should read carefully.

What is the Merger?

EFC, Merger Sub, Arlington and EFC Manager (solely for the limited purposes set forth in the Merger Agreement) have entered into the Merger Agreement pursuant to which, and subject to the terms and conditions of the Merger Agreement, Arlington will merge with and into Merger Sub, with Merger Sub continuing as the surviving corporation of the Merger and, following its contribution to the EFC Operating Partnership immediately following the Merger, as a wholly owned subsidiary of the EFC Operating Partnership. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus. In order to complete the Merger, among other conditions described in the Merger Agreement and this proxy statement/prospectus, common shareholders of Arlington must approve the Arlington Merger Proposal.

Why are EFC and Arlington proposing the Merger?

The EFC Board and the Arlington Board have determined that the Merger will provide a number of significant strategic opportunities and benefits and will be in the best interest of EFC, with respect to the EFC Board, and Arlington and Arlington’s shareholders, with respect to the Arlington Board. At the Closing, the Combined Company will have a larger capital base, which is expected to support continued growth across EFC’s targeted asset classes and position EFC to capitalize on an opportunistic investment environment post-Closing. The Combined Company is expected to provide improved scale, liquidity and capital alternatives for EFC stockholders as a result of the increased equity capitalization and the increased stockholder base of the Combined Company. To review the Arlington Board’s reasons for the Merger in greater detail, see “The Merger — Recommendation of the Arlington Board and Its Reasons for the Merger” beginning on page 67. To review the EFC Board’s reasons for the Merger in greater detail, see “The Merger — The EFC Board’s Reasons for the Merger” beginning on page 71.

What happens if the market price of EFC Common Stock or Arlington Common Stock changes before the Closing?

Changes in the market price of EFC Common Stock or Arlington Common Stock at or prior to the effective time of the Merger will not change the number of shares of EFC Common Stock that Arlington common shareholders will receive in the Merger because the Exchange Ratio is not based on the market price of EFC Common Stock or Arlington Common Stock.

Are there any conditions to completion of the Merger?

Yes. In addition to the approval of the Arlington Merger Proposal by the Arlington common shareholders, there are a number of conditions that must be satisfied or waived for the Merger to be consummated. For a description of all of the conditions to the Merger, see “The Merger Agreement — Conditions to Complete the Merger” beginning on page 112.

When is the Merger expected to be consummated?

The Merger is expected to be consummated in the fourth quarter of 2023. Because the Merger is subject to a number of conditions, including the approval of the Arlington Merger Proposal by the requisite vote of the Arlington common shareholders, the exact timing of the Merger cannot be determined at this time and EFC and Arlington cannot guarantee that the Merger will be completed at all.

TABLE OF CONTENTS

How does the Merger relate to the Great Ajax merger agreement?

On October 20, 2023, EFC and Great Ajax entered into a Termination Agreement (the “Termination Agreement”), pursuant to which, among other things, EFC and Great Ajax mutually agreed to terminate the Great Ajax merger agreement pursuant to Section 8.1(a) of the Great Ajax merger agreement, effective as of the date thereof. Pursuant to the terms of the Termination Agreement, EFC has agreed to pay Great Ajax $16,000,000 of which $5,000,000 is payable in cash and $11,000,000 was paid as consideration for the purchase by EFC of approximately 1.666 million shares of Great Ajax’s common stock, at a per share price of $6.60.

Pursuant to the Termination Agreement, EFC and Great Ajax will each bear their respective costs and expenses related to the Great Ajax merger agreement and the transactions contemplated thereby in accordance with the terms of the Great Ajax merger agreement and the Termination Agreement. Therefore, the Great Ajax merger agreement is no longer in effect and will have no effect on the Merger. The foregoing description of the Termination Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Termination Agreement, which was previously filed as Exhibit 10.1 to EFC’s Current Report on Form 8-K filed on October 20, 2023 and which is incorporated by reference herein.

What are the material U.S. federal income tax consequences of the Merger to Arlington shareholders and EFC stockholders?

The Merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Code, and the Closing is conditioned on the receipt by each of Arlington and EFC of an opinion from its respective tax counsel to that effect. Assuming that the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, U.S. holders (as defined in “Material U.S. Federal Income Tax Considerations” beginning on page 118) of shares of Arlington Common Stock will recognize gain (but not loss) in an amount equal to the lesser of (i) the amount by which the sum of the fair market value of the shares of EFC Common Stock and cash (other than cash received in lieu of a fractional share of EFC Common Stock) received by such holder in exchange for its Arlington Common Stock (such cash including such holder’s share of the aggregate Per Share Cash Consideration) exceeds such holder’s adjusted basis in its shares of Arlington Common Stock and (ii) the amount of cash (other than the cash received in lieu of a fractional share of EFC Common Stock) received in exchange for its shares of Arlington Common Stock (such cash including such holder’s share of the aggregate Per Share Cash Consideration). A U.S. holder will also recognize gain or loss with respect to cash received in lieu of fractional shares of EFC Common Stock equal to the difference, if any, between the amount of cash received for such fractional share and the holder’s tax basis in such fractional share. Generally, any gain or loss recognized on the exchange will be capital gain or loss, and any such capital gain or loss will be long-term capital gain or loss if the holding period for such shares is more than one year. Assuming the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, U.S. holders of Arlington Preferred Stock generally will not recognize gain or loss for U.S. federal income tax purposes upon receipt of EFC Preferred Stock in exchange for Arlington Preferred Stock. The holders of EFC Common Stock generally will not recognize any gain or loss for U.S. federal income tax purposes.

The tax consequences to you of the Merger will depend on your own situation. You should consult your tax advisor for a full understanding of the tax consequences to you of the Merger. For more information regarding the tax consequences of the Merger to holders of Arlington Common Stock and Arlington Preferred Stock, please see “Material U.S. Federal Income Tax Considerations — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 119.

Following the Merger, what percentage of EFC Common Stock will current EFC stockholders and Arlington shareholders own?

Immediately following the completion of the Merger, based on the number of issued and outstanding shares of EFC Common Stock and Arlington Common Stock (excluding Cancelled Shares) and outstanding Arlington Equity-Based Awards as of June 30, 2023, and the Exchange Ratio of 0.3619:

TABLE OF CONTENTS

•

the shares of EFC Common Stock held by the EFC common stockholders as of immediately prior to the effective time of the Merger are expected to represent in the aggregate approximately 85% of the Combined Company’s outstanding shares of common stock; and

•

Arlington common shareholders and holders of Arlington Equity-Based Awards as of immediately prior to the effective time of the Merger are expected to own in the aggregate the remaining approximately 15% of the Combined Company’s outstanding shares of common stock.

The exact equity stake of EFC common stockholders and Arlington common shareholders in the Combined Company immediately following the effective time of the Merger will depend on the number of shares of EFC Common Stock and Arlington Common Stock issued and outstanding immediately prior to the effective time of the Merger.

What happens if the Merger is not completed?

If the Merger is not completed for any reason, including if the Arlington Merger Proposal is not approved by the Arlington common shareholders, Arlington common shareholders will not have their Arlington Common Stock exchanged for the Per Share Common Merger Consideration, holders of Arlington Series B Preferred Stock will not have their Arlington Series B Preferred Stock exchanged for EFC Series D Preferred Stock and holders of Arlington Series C Preferred Stock will not have their Arlington Series C Preferred Stock exchanged for EFC Series E Preferred Stock. Instead, Arlington and EFC would remain separate companies. Under certain circumstances, Arlington may be required to pay EFC a termination fee, as described under “The Merger Agreement — Termination Fee and Expenses” beginning on page 115.

Are Arlington shareholders entitled to exercise appraisal or dissenters’ rights?

No. No appraisal or dissenters’ rights will be available with respect to the Merger or the other transactions contemplated by the Merger Agreement. For additional information, see “The Merger — Appraisal Rights” beginning on page 92.

Will the Combined Company have the same business strategy as Arlington following the Merger?

No. Upon the Closing, the Combined Company will follow EFC’s strategy of pursuing value across various types of mortgage-related, consumer-related, corporate-related and other financial assets. Some, but not all, of these investment strategies encompass Arlington’s investment strategies. EFC’s targeted assets currently include residential and commercial mortgage loans, reverse mortgage loans, residential and commercial mortgage-backed securities, consumer loans and asset-backed securities backed by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, debt and equity investments in loan origination companies, and other strategic investments.

EFC’s strategy is adaptable to changing market environments, and the deployment of capital by EFC and its targeted asset classes may vary over time in response to market conditions. While EFC has no present intention to change or modify its strategy or investment policies, EFC’s strategy and investment policies may be changed without a vote of EFC’s stockholders.

For more information on EFC’s targeted assets and business strategy, see “Description of Policies of EFC” beginning on page 194.

Will I receive dividend payments after the Merger?

Following completion of the Merger, holders of EFC Common Stock will be entitled to receive dividends or other distributions when, as and if authorized by the EFC Board and declared by EFC out of funds legally available therefor. In addition, holders of the newly issued EFC Series D Preferred Stock and EFC Series E Preferred Stock to be issued to the former holders of Arlington Series B Preferred Stock and Arlington Series C Preferred Stock, respectively, will be entitled to receive dividends or other distributions in accordance with the terms of such EFC Series D Preferred Stock and EFC Series E Preferred Stock, as applicable, when, as and if authorized by the EFC Board and declared by EFC out of funds legally available therefor.

TABLE OF CONTENTS

Are there risks associated with the Merger that I should consider in deciding how to vote?

Yes. There are a number of risks related to the Merger that are discussed in this proxy statement/prospectus in the section entitled “Risk Factors” beginning on page 29.

How can I obtain additional information about EFC and Arlington?

EFC and Arlington each file annual, quarterly and current reports, proxy statements and other information with the SEC. EFC’s and Arlington’s SEC filings are available to the public at the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed by EFC with the SEC will be available free of charge on EFC’s website at www.ellingtonfinancial.com or by contacting EFC’s Secretary at (203) 409-3585. Copies of the documents filed by Arlington with the SEC will be available free of charge on Arlington’s website at www.arlingtonasset.com or by contacting Arlington’s Investor Relations at (703) 373-0200. EFC’s and Arlington’s website addresses are provided as an inactive textual reference only. In addition, the information provided on each company’s website is not part of this proxy statement/prospectus and is not incorporated by reference into this proxy statement/prospectus. For a more detailed description of the information available and information incorporated by reference, please see “Where You Can Find More Information and Incorporation by Reference” on page 209.

The following questions and answers apply to EFC stockholders only:

How will EFC common stockholders be affected by the Merger and the EFC Common Stock Issuance?

Immediately following the Merger, each EFC common stockholder will continue to own the same number of shares of EFC Common Stock that such stockholder held immediately prior to the Merger. As a result, each EFC common stockholder will continue to own common stock in the Combined Company, which will be a larger company with more assets and equity. Because EFC will be issuing new shares of EFC Common Stock to Arlington shareholders in the Merger, each outstanding share of EFC Common Stock immediately prior to the Merger will represent a smaller percentage of the aggregate number of shares of EFC Common Stock outstanding after the Merger.

EFC will also be issuing newly designated series of EFC Series D Preferred Stock and EFC Series E Preferred Stock in the Merger.

Do the EFC directors and executive officers and EFC Manager have any interests in the Merger?

Yes. The Combined Company will continue to be managed by EFC Manager under the terms of the EFC Management Agreement. Under the EFC Management Agreement, EFC Manager provides the day-to-day management of EFC’s operations, including providing EFC with a management team and all other personnel necessary to support its operations. In exchange for its services, EFC pays EFC Manager a management fee and reimburses it for certain expenses incurred by it and its affiliates in rendering management services to EFC. Currently, each of EFC’s executive officers and one of its directors serves as an officer of EFC Manager and is an employee of EMG.

Pursuant to the EFC Management Agreement, EFC pays EFC Manager a quarterly management fee, which includes a “base” component and “incentive” component. The “base” component of the management fee is paid quarterly in arrears in an amount equal to 1.50% per annum of the equity of the EFC Operating Partnership, as calculated pursuant to the EFC Management Agreement. As a result of the Merger and contribution of the surviving corporation of the Merger to the EFC Operating Partnership in exchange for EFC OP Units, the equity of the EFC Operating Partnership will effectively include the additional equity attributable to the acquisition of Arlington, thus the amount of the management fees payable to EFC Manager will also increase, which gives EFC Manager (and therefore, EFC’s management), an incentive, not shared by EFC stockholders, to negotiate and effect the Merger, possibly on terms less favorable to EFC than would otherwise have been achieved.

The EFC Management Agreement was negotiated between related parties, and the terms, including fees and other amounts payable, may not be as favorable to EFC as if they had been negotiated with an unaffiliated third party.

TABLE OF CONTENTS

At the Closing, EFC Manager will make a cash payment (the Per Share Cash Consideration) to the holders of each share of Arlington Common Stock equal to $0.09 per share, which is equal to approximately $3 million in the aggregate.

What regular dividends will EFC be permitted to pay prior to the Closing?

The Merger Agreement permits EFC and its subsidiaries, from the date of the Merger Agreement until the earlier of the effective time of the Merger and the termination of the Merger Agreement, to continue to pay (i) regular monthly dividends with respect to the EFC Common Stock consistent with past practice at a rate not to exceed $0.15 per share, (ii) regular quarterly dividends payable with respect to any EFC Preferred Stock and preferred shares of beneficial interest of Ellington Financial REIT consistent with past practice and the terms of such EFC Preferred Stock and preferred shares of beneficial interest of Ellington Financial REIT, (iii) dividends or other distributions to EFC by any directly or indirectly wholly owned subsidiary of EFC or the EFC Operating Partnership and (iv) without duplication of the amounts described in clauses (i) through (iii), any dividends or other distributions necessary to maintain EFC’s or its subsidiaries (as applicable) REIT qualification under the Code and avoid the imposition of any corporate level tax or excise tax under the Code or required under the organizational documents of EFC or such subsidiary.

What additional dividends will EFC be permitted to pay prior to the Closing?

Pursuant to the Merger Agreement, prior to the effective time of the Merger, EFC is permitted to declare an interim dividend to its stockholders. The per share additional dividend payable by EFC is limited to an amount equal to (i) EFC’s then-most recent monthly dividend (on a per share basis), multiplied by the number of days elapsed since the last dividend record date through and including the day prior to the date of the Closing, and divided by the actual number of days in the calendar month in which such dividend is declared, plus (ii) an additional amount equal to the quotient obtained by dividing (A) the Arlington Special Dividend Amount (as defined below), if any, by (B) the Exchange Ratio. The payment date for this additional dividend, if any, will be the close of business on the last business day prior to the date of the Closing, subject to funds being legally available therefor, and the record date for which will be three business days before the payment date.

The following questions and answers apply to Arlington shareholders only:

Why am I receiving this proxy statement/prospectus?

Arlington is delivering this document to you because it is a proxy statement being used by the Arlington Board to solicit proxies of Arlington’s common shareholders in connection with the approval of the Merger Agreement and related matters.

In order to approve the Merger Agreement, Arlington has called a special meeting of its common shareholders. This document serves as a proxy statement for the Arlington special meeting and describes the proposals to be presented at the Arlington special meeting.

This document is also a prospectus that is being delivered by EFC to holders of Arlington Common Stock, Arlington Series B Preferred Stock and Arlington Series C Preferred Stock because, in connection with the Merger, EFC is issuing shares of EFC Common Stock to the holders of Arlington Common Stock and issuing newly designated shares of EFC Series D Preferred Stock and EFC Series E Preferred Stock to the holders of Arlington Series B Preferred Stock and Arlington Series C Preferred Stock, respectively, upon consummation of the Merger, all as provided in the Merger Agreement and as described in this proxy statement/prospectus.

This proxy statement/prospectus contains important information about the Merger Agreement and the other proposals being considered and voted on at the Arlington special meeting and important information to consider in connection with an investment in EFC Common Stock, EFC Series D Preferred Stock and EFC Series E Preferred Stock. You should read it carefully and in its entirety. The enclosed materials allow you to have your Arlington Common Stock voted by proxy without attending the Arlington special meeting virtually. Your vote is important and Arlington encourages you to authorize your proxy as soon as possible.

TABLE OF CONTENTS

What proposals are Arlington shareholders being asked to approve?

The Arlington common shareholders are being asked to approve the Arlington Merger Proposal. The approval of the Arlington Merger Proposal by the Arlington common shareholders is a condition to the effectiveness of the Merger.

The Arlington common shareholders are also being asked to approve the Arlington Non-Binding Compensation Advisory Proposal and the Arlington Adjournment Proposal, if necessary. The approval of these proposals is not a condition to the effectiveness of the Merger.

What will I receive for my Arlington Common Stock and Arlington Preferred Stock in the Merger?

Under the terms of the Merger Agreement, each share of Arlington Common Stock (other than Cancelled Shares) will be converted into the right to receive (i) from EFC, 0.3619 shares of EFC Common Stock, and (ii) from EFC Manager, $0.09 in cash and without interest. Cash will be paid in lieu of any fractional shares of EFC Common Stock that would have been received as a result of the Merger. Each share of Arlington Series B Preferred Stock will be converted into the right to receive one share of newly designated EFC Series D Preferred Stock. Each share of Arlington Series C Preferred Stock will be converted into the right to receive one share of newly designated EFC Series E Preferred Stock.

How will I receive the Merger Consideration if the Merger is completed?

If you hold physical share certificates of Arlington Common Stock, Arlington Series B Preferred Stock or Arlington Series C Preferred Stock or if you hold your shares of Arlington Common Stock, Arlington Series B Preferred Stock or Arlington Series C Preferred Stock in uncertificated book-entry form, you will be sent a letter of transmittal promptly after the Closing describing how you may exchange your shares for the applicable Merger Consideration, and the exchange agent will forward to you the Merger Consideration to which you are entitled after receiving the proper documentation from you. For more information, see the section entitled “The Merger Agreement — Exchange Procedures” beginning on page 97.

When and where is the Arlington special meeting, and how do I attend?

The special meeting of Arlington common shareholders will be held solely by means of remote communication live over the Internet on December 12, 2023, at 9:00 a.m., Eastern Time. You will be able to virtually attend the Arlington special meeting by first registering at https://www.viewproxy.com/AAICSM/2023 no later than 11:59 p.m., Eastern Time, on December 9, 2023. After registering, you will receive a meeting invitation and password via email with your unique link to join the Arlington special meeting. Holders of Arlington Common Stock that have registered to attend will be able to listen, vote and submit questions during the Arlington special meeting. On the date of the Arlington special meeting, you can virtually attend the Arlington special meeting by accessing the online virtual meeting platform by using the invitation and password you received via email with your unique link to join the Arlington special meeting. However, you are only entitled to vote and/or ask questions at the Arlington special meeting if you were a shareholder of record or beneficial owner as of the Arlington Record Date.

What matters will be voted on at the Arlington special meeting?

You will be asked to consider and vote on the following proposals:

•

the Arlington Merger Proposal;

•

the Arlington Non-Binding Compensation Advisory Proposal; and

•

the Arlington Adjournment Proposal.

Arlington will transact no other business at the Arlington special meeting or any adjournment thereof. Holders of Arlington Preferred Stock will not be entitled to vote on any matter at the Arlington special meeting.

TABLE OF CONTENTS

How does the Arlington Board recommend that I vote on the proposals?

The Arlington Board has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are in the best interests of Arlington and Arlington’s shareholders, (ii) adopted and approved the Merger Agreement and declared that the transactions contemplated by the Merger Agreement are advisable, (iii) directed that the Merger Agreement, and the transactions contemplated by the Merger Agreement, including the Merger, be submitted to the holders of Arlington Common Stock for their approval at the Arlington special meeting and (iv) resolved to recommend that the holders of Arlington Common Stock approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger.

The Arlington Board unanimously recommends that the Arlington common shareholders vote “FOR” the Arlington Merger Proposal, “FOR” the Arlington Non-Binding Compensation Advisory Proposal and “FOR” the Arlington Adjournment Proposal. For a more complete description of the recommendation of the Arlington Board, see “The Merger — Recommendation of the Arlington Board and Its Reasons for the Merger” beginning on page 67.

How do I vote at the Arlington special meeting?

You can vote using the following the methods:

•

By Telephone — You can vote by telephone by calling the toll-free number set forth on the proxy card you received and following the instructions on the proxy card;

•

By Internet — You can vote over the Internet:

•

Before the Arlington special meeting by visiting www.AALvote.com/AAICSM; or

•

During the Arlington special meeting by visiting www.AALvote.com/AAICSM; or

•

By Mail — You can vote by mail by completing, signing, dating and mailing the enclosed proxy card.

If you vote by proxy, the individuals named on the proxy card will vote your shares in the manner you indicate. You may specify whether your shares should be voted for or against each of the proposals. You may also specify that you would like to abstain from voting for or against a proposal. Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote your shares of Arlington Common Stock in accordance with the recommendations of the Arlington Board. Proxies authorized by telephone or via the Internet must be received by 11:59 p.m., Eastern Time, on December 11, 2023.

If your shares of Arlington Common Stock are held in “street name” by a broker, bank or other nominee, please refer to the instructions provided by your broker, bank or other nominee to vote your shares of Arlington Common Stock.

How can I revoke or change my vote?

Any proxy given by an Arlington shareholder of record pursuant to this solicitation may be revoked at any time before the vote is taken at the Arlington special meeting in any of the following ways:

•

authorizing a later proxy by telephone or through the Internet prior to 11:59 p.m., Eastern Time, on December 11, 2023;

•

filing with the Corporate Secretary of Arlington, before the taking of the vote at the Arlington special meeting, a written notice of revocation bearing a later date than the proxy card previously submitted;

•

duly executing a later dated proxy card relating to the same shares of Arlington Common Stock and delivering it to the Corporate Secretary of Arlington before the taking of the vote at the Arlington special meeting; or

•

voting electronically at the Arlington special meeting, although attendance at the Arlington special meeting alone will not by itself constitute a revocation of a proxy.

TABLE OF CONTENTS

Any written notice of revocation or subsequent proxy card should be sent to Arlington Asset Investment Corp., 6862 Elm Street, Suite 320, McLean, Virginia 22101, Attention: Corporate Secretary.

Do the Arlington directors and executive officers have any interests in the Merger?

Yes. In considering the Arlington Board’s recommendation for Arlington shareholders to approve the Arlington Merger Proposal, Arlington shareholders should be aware that the directors and executive officers of Arlington have interests in the Merger that may be different from, or in addition to, the interests of Arlington shareholders generally and that may present actual or potential conflicts of interests. These interests include:

•

treatment of the Arlington Equity-Based Awards held by directors and executive officers;

•

certain executives are entitled to severance benefits upon a qualifying termination of employment, including base salary continuation and COBRA benefits;

•

one current member of the Arlington Board is expected to become a member of the EFC Board following the effective time of the Merger; and

•

continued indemnification and insurance coverage for the directors and executive officers of Arlington in accordance with the Merger Agreement.

The Arlington Board was aware of these interests and considered them, among other matters, in reaching its decision to adopt and approve the Merger Agreement and making its recommendation that Arlington shareholders approve the Arlington Merger Proposal. For additional information, see “The Merger — Interests of Arlington’s Directors and Executive Officers in the Merger” beginning on page 85.

What constitutes a quorum for the Arlington special meeting?

The presence, virtually or by proxy, of the holders of shares of Arlington Common Stock entitled to cast a majority of all the votes entitled to be cast at the Arlington special meeting will constitute a quorum at the Arlington special meeting. Abstentions will be counted for the purposes of determining whether a quorum exists. Broker non-votes will not be counted for purposes of determining whether a quorum exists, unless the broker, bank or other nominee has been instructed to vote on at least one of the proposals.

What vote is required for Arlington shareholders to approve the Arlington Merger Proposal?

Approval of the Arlington Merger Proposal will require the affirmative vote of a majority of the votes cast on the proposal by holders of Arlington Common Stock at the Arlington special meeting, provided a quorum is present.

Holders of Arlington Preferred Stock are not entitled to vote on the Arlington Merger Proposal or any other matter at the Arlington special meeting.

What vote is required for Arlington shareholders to approve the Arlington Non-Binding Compensation Advisory Proposal?

Approval of the Arlington Non-Binding Compensation Advisory Proposal will require the affirmative vote of a majority of the votes cast on the proposal by holders of Arlington Common Stock at the Arlington special meeting, provided a quorum is present.

The vote for the Arlington Non-Binding Compensation Advisory Proposal is advisory only and, therefore, is not binding on Arlington and, if the Arlington Merger Proposal is approved by the Arlington shareholders and the Merger is completed, the compensation that is based on or otherwise relates to the Merger will be payable to Arlington’s named executive officers in accordance with the terms

TABLE OF CONTENTS

and conditions applicable to such compensation, even if the Arlington Non-Binding Compensation Advisory Proposal is not approved.

Holders of Arlington Preferred Stock are not entitled to vote on the Arlington Non-Binding Compensation Advisory Proposal or any other matter at the Arlington special meeting.

What vote is required for Arlington shareholders to approve the Arlington Adjournment Proposal?

Approval of the Arlington Adjournment Proposal will require the affirmative vote of a majority of the votes cast on the proposal by holders of Arlington Common Stock at the Arlington special meeting, provided a quorum is present.

Holders of Arlington Preferred Stock are not entitled to vote on the Arlington Adjournment Proposal or any other matter at the Arlington special meeting.

How are votes counted?

For the Arlington Merger Proposal, holders of Arlington Common Stock may vote “FOR,” “AGAINST” or “ABSTAIN.” Abstaining, failing to vote and broker non-votes, if any, are not treated as votes cast and thus will have no effect on the outcome of the vote, provided that a quorum is otherwise present.

For the Arlington Non-Binding Compensation Advisory Proposal, holders of Arlington Common Stock may vote “FOR,” “AGAINST” or “ABSTAIN.” Abstaining, failing to vote and broker non-votes, if any, are not treated as votes cast and thus will have no effect on the outcome of the vote, provided that a quorum is otherwise present.

For the Arlington Adjournment Proposal, holders of Arlington Common Stock may vote “FOR,” “AGAINST” or “ABSTAIN.” Abstaining, failing to vote and broker non-votes, if any, are not treated as votes cast and thus will have no effect on the outcome of the vote, provided that a quorum is otherwise present.

Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Arlington Merger Proposal, “FOR” the Arlington Non-Binding Compensation Advisory Proposal and “FOR” the Arlington Adjournment Proposal.

In addition, banks, brokers and other nominees that hold their customers’ shares of Arlington Common Stock in street name may not vote their customers’ shares on “non-routine” matters without instructions from their customers. As each of the proposals to be voted upon at the Arlington special meeting is considered “non-routine,” such organizations do not have discretion to vote on any of the proposals. As a result, if you hold your shares in “street name” and you fail to provide your broker, bank or other nominee with any instructions regarding how to vote your shares of Arlington Common Stock, your shares of Arlington Common Stock will not be considered present at the Arlington special meeting and will not be voted on any of the proposals.

Who is entitled to vote at the Arlington special meeting?

All holders of Arlington Common Stock as of the close of business on October 13, 2023, the Arlington Record Date for the Arlington special meeting, are entitled to vote at the Arlington special meeting. As of the Arlington Record Date, there were 28,360,447 issued and outstanding shares of Arlington Common Stock held by approximately 98 holders of record. Each holder of record of Arlington Common Stock on the Arlington Record Date is entitled to one vote per share with respect to each proposal. Holders of Arlington Preferred Stock are not entitled to vote on any matter at the Arlington special meeting.

Will Arlington be required to submit the Arlington Merger Proposal to Arlington common shareholders even if the Arlington Board has withdrawn, modified or qualified its recommendation?

Yes. Unless the Merger Agreement is terminated before the Arlington special meeting, Arlington is required to submit the Arlington Merger Proposal to its shareholders even if the Arlington Board has withdrawn, modified or qualified its recommendation that Arlington shareholders approve the Merger.

TABLE OF CONTENTS

How will Arlington shareholders be affected by the Merger?

Under the terms of the Merger Agreement, each share of Arlington Common Stock issued and outstanding immediately prior to the effective time of the Merger (other than Cancelled Shares) will be converted into the right to receive (i) from EFC, 0.3619 shares of EFC Common Stock, and (ii) from EFC Manager, $0.09 in cash, without interest. Cash will be paid in lieu of any fractional shares of EFC Common Stock that would have been received as a result of the Merger. In addition, after the Merger is completed, Arlington Common Stock will no longer be listed on the NYSE and will be deregistered under the Exchange Act. Arlington shareholders and holders of Arlington Equity-Based Awards, as of immediately prior to the effective time of the Merger, are expected to own in the aggregate approximately 15% of the outstanding shares of EFC Common Stock immediately following the completion of the Merger. Also as a result of the Merger, under the terms of the Merger Agreement, each share of (1) Arlington Series B Preferred Stock will be converted into the right to receive one share of newly designated EFC Series D Preferred Stock and (2) Arlington Series C Preferred Stock will be converted into the right to receive one share of newly designated EFC Series E Preferred Stock.

Have any Arlington common shareholders already agreed to vote in favor of the proposals?

To EFC’s and Arlington’s knowledge, no Arlington common shareholder has entered into any agreement to vote any of their shares of Arlington Common Stock either in favor or against any proposal at the Arlington special meeting.

What happens if I sell my Arlington Common Stock before the Arlington special meeting?

The Arlington Record Date is earlier than the date of the Arlington special meeting and the date that the Merger is expected to be completed. If you sell your shares of Arlington Common Stock after the Arlington Record Date but before the date of the Arlington special meeting, you will retain any right to vote at the Arlington special meeting, but you will have transferred your right to receive the Per Share Common Merger Consideration. In order to receive the Per Share Common Merger Consideration, you must hold your shares of Arlington Common Stock through completion of the Merger.

What is the difference between a shareholder of record and a beneficial owner?

If your shares of Arlington Common Stock are registered directly in your name with Arlington’s transfer agent, you are considered the shareholder of record with respect to those shares.

If your shares of Arlington Common Stock are held in a stock brokerage account, or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name.” As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote the shares that you beneficially own. However, beneficial owners generally cannot vote their shares directly because they are not the shareholder of record; instead, beneficial owners must instruct the broker, bank or other nominee how to vote their shares.

If I am a beneficial owner of Arlington Common Stock, will my broker, bank or other nominee vote my shares for me?

No. If you hold your shares of Arlington Common Stock in a stock brokerage account or if your shares are held by a bank or other nominee (that is, in “street name”), you must provide your broker, bank or other nominee with instructions on how to vote your shares of Arlington Common Stock. Unless you instruct your broker, bank or other nominee to vote your shares of Arlington Common Stock held in street name, your shares of Arlington Common Stock will NOT be voted at the Arlington special meeting. You should follow the procedures provided by your bank, broker or other nominee regarding the voting of your shares.

What regular dividends will Arlington be permitted to pay prior to the Closing?

The Merger Agreement permits Arlington and its subsidiaries to pay (i) quarterly dividends with respect to Arlington Common Stock at a rate not to exceed Arlington’s core earnings (as defined in the Merger Agreement) for such quarter consistent with past practice, (ii) regular quarterly dividends with respect to Arlington Preferred Stock consistent with past practice and the terms of such Arlington

TABLE OF CONTENTS

Preferred Stock, (iii) dividends or other distributions to Arlington by any directly or indirectly wholly owned subsidiary of Arlington, and (iv) without duplication of the amounts described in clauses (i) through (iii), any dividends or distributions necessary for Arlington or its subsidiaries (as applicable) to maintain its status as a REIT under the Code and avoid the imposition of corporate level tax or excise tax under the Code or required under the organizational documents of Arlington or such subsidiary. Arlington does not expect to declare or pay any dividends to the holders of Arlington Common Stock prior to the Closing.

What additional dividends will Arlington be required to pay?

The Merger Agreement requires Arlington to declare a special dividend to its shareholders in an amount necessary, if any, for Arlington to maintain its REIT qualification under the Code and avoid, to the extent possible, the imposition of income tax or excise tax under the Code (such amount, the “Arlington Special Dividend Amount”). The payment date for this dividend, if any, will be the close of business on the last business day prior to the date of the Closing, subject to funds being legally available therefor, and the record date for which will be three business days before the payment date.

Where can I find the voting results of the Arlington special meeting?

The preliminary voting results will be announced at the Arlington special meeting. In addition, within four business days following certification of the final voting results, Arlington will disclose the final voting results on a Current Report on Form 8-K filed with the SEC.

What else do I need to do now?

You are urged to read this proxy statement/prospectus carefully and in its entirety, including its annexes and the information incorporated by reference herein, and to consider how the Merger affects you. Even if you plan to attend the virtual Arlington special meeting, please authorize a proxy to vote your shares by voting via the Internet, telephone or by completing, signing, dating and returning the enclosed proxy card. You can also attend the Arlington special meeting virtually over the Internet and vote, or change your prior proxy authorization. If you hold your shares in “street name” through a bank, broker or other nominee, then you should have received this proxy statement/prospectus from that nominee, along with that nominee’s voting instruction form which includes voting instructions and instructions on how to change your vote. Please see the question “How do I vote at the Arlington special meeting?” on page 11.

Will a proxy solicitor be used?

Arlington has engaged Alliance Advisors, LLC (“Alliance”) to assist in the solicitation of proxies for the Arlington special meeting, and Arlington estimates it will pay Alliance a fee of approximately $27,300. Arlington has also agreed to reimburse Alliance for approved and reasonable out-of-pocket expenses and disbursements incurred in connection with the proxy solicitation and to indemnify Alliance against certain losses, costs and expenses. In addition to mailing proxy solicitation material, Arlington’s directors, officers and employees may also solicit proxies in person, by telephone or by any other electronic means of communication deemed appropriate. No additional compensation, except for reimbursement of reasonable out-of-pocket expenses, will be paid to Arlington’s directors, officers or employees for such services.

Who can answer my questions?

If you have any questions about the Merger, the other matters to be voted on at the Arlington special meeting or how to submit your proxy, or if you need additional copies of this proxy statement/prospectus, the enclosed proxy card or voting instructions, you should contact:

Arlington Asset Investment Corp.
6862 Elm Street, Suite 320
McLean, Virginia 22101
(703) 373-0200
Attention: Investor Relations

TABLE OF CONTENTS

Alliance Advisors, LLC
200 Broadacres Drive, 3rd Floor
Bloomfield, New Jersey 07003
(855) 600-2575
Email: AAIC@allianceadvisors.com

TABLE OF CONTENTS

SUMMARY

The following summary highlights selected information in this proxy statement/prospectus and may not contain all the information that may be important to you with respect to the Merger Agreement, the Merger or the Arlington special meeting. Accordingly, you are encouraged to read this proxy statement/prospectus, including its annexes and the information incorporated by reference herein, carefully and in its entirety. Each item in this summary includes a page reference directing you to a more complete description of that topic. See also “Where You Can Find More Information and Incorporation by Reference” on page 209.

The Companies

Ellington Financial Inc. (Page 48)

Ellington Financial Inc.
53 Forest Avenue
Old Greenwich, Connecticut 06870
(203) 698-1200

EFC is a Delaware corporation that acquires and manages mortgage-related, consumer-related, corporate-related and other financial assets, through investments primarily in securities and loans. EFC’s primary objective is to generate attractive, risk-adjusted total returns for its stockholders by making investments that EFC believes compensate it appropriately for the risks associated with such investments. EFC’s targeted asset classes include residential and commercial mortgage loans, reverse mortgage loans, residential and commercial mortgage-backed securities, consumer loans and asset-backed securities backed by consumer loans, collateralized loan obligations, mortgage-related and non-mortgage-related derivatives, debt and equity investments in loan origination companies, and other strategic investments.

EFC was formed as a Delaware limited liability company in July 2007, commenced operations in August 2007 and completed its conversion to a Delaware corporation on March 1, 2019. EFC elected to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2019. EFC believes that, commencing with such taxable year, it has been organized and operated in a manner so as to remain qualified as a REIT under the U.S. federal income tax laws, and it intends to continue to operate in such a manner. All of EFC’s operations and business activities are conducted through the EFC Operating Partnership. EFC has control of the EFC Operating Partnership and intends to operate the EFC Operating Partnership in a manner consistent with the requirements for EFC’s qualification as a REIT. In general, as a REIT, EFC is not subject to U.S. federal income tax on its REIT taxable income that it distributes to its stockholders. However, EFC’s taxable REIT subsidiaries (“TRSs”) are subject to U.S. federal, state and local income taxes. EFC also operates its business in a manner that permits it to maintain an exclusion from registration under the Investment Company Act.

EFC is externally managed and advised by EFC Manager pursuant to the EFC Management Agreement. EFC Manager is responsible for administering EFC’s business activities and day-to-day operations in conformity with the policies and investment guidelines that are approved and monitored by the EFC Board. Pursuant to a services agreement between EFC Manager and EMG, EFC Manager relies on the resources of EMG to support EFC’s operations. EMG is an investment management firm and registered investment advisor with a 28-year history of investing in a broad spectrum of mortgage-backed securities and related derivatives.

EFC Common Stock is traded on the NYSE under the symbol “EFC.” EFC’s website is www.ellingtonfinancial.com.

EFC’s principal executive offices are located at 53 Forest Avenue, Old Greenwich, Connecticut 06870, and its telephone number is (203) 698-1200.

EF Merger Sub Inc. (Page 48)

EF Merger Sub Inc.
53 Forest Avenue
Old Greenwich, Connecticut 06870
(203) 698-1200

TABLE OF CONTENTS

Merger Sub is a Virginia corporation that was formed on May 25, 2023, solely for the purpose of effecting the Merger, and has jointly elected with EFC to be treated as a TRS of EFC, effective as of its date of formation. Upon the Closing, the Merger will be consummated whereby Arlington will be merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation of the Merger. Merger Sub has not conducted any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement.

Arlington Asset Investment Corp. (Page 49)

Arlington Asset Investment Corp.
6862 Elm Street, Suite 320
McLean, Virginia 22101
(703) 373-0200

Arlington is an investment firm that focuses primarily on investing in mortgage related assets. Arlington’s capital is currently allocated between the following asset classes: (i) MSR-related assets, which represent investments for which the return is based on the economic performance of a pool of specific MSRs; (ii) credit investments, which generally include investments in mortgage loans secured by either residential or commercial real property or mortgage-backed securities collateralized by residential or commercial mortgage loans; and (iii) agency mortgage-backed securities, which consist of residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a U.S. government sponsored enterprise, such as the Federal National Mortgage Association, or “Fannie Mae,” or the Federal Home Loan Mortgage Corporation, or “Freddie Mac,” or by an agency of the federal government, such as the Government National Mortgage Association, or “Ginnie Mae.”

Arlington is a Virginia corporation that was incorporated on November 10, 1997. Arlington is internally managed and does not have an external investment advisor. Arlington has elected to be taxed as a REIT under the Code. As a REIT, Arlington generally is not subject to U.S. federal income taxes on taxable income Arlington distributes to its shareholders, so long as Arlington makes timely distributions sufficient to satisfy the annual distribution requirements. Arlington also operates its business in a manner that permits it to maintain an exclusion from registration under the Investment Company Act.

Arlington Common Stock is traded on the NYSE under the symbol “AAIC,” Arlington Series B Preferred Stock is traded on the NYSE under the symbol “AAIC PrB,” Arlington Series C Preferred Stock is traded on the NYSE under the symbol “AAIC PrC,” the Arlington 2025 Notes are traded on the NYSE under the symbol “AIC” and the Arlington 2026 Notes are traded on the NYSE under the symbol “AAIN.”

Arlington’s principal executive offices are located at 6862 Elm Street, Suite 320, McLean, Virginia 22101, and its telephone number is (703) 373-0200. Arlington’s website is www.arlingtonasset.com.

The Combined Businesses (Page 49)

Upon completion of the Merger, the Combined Company will remain a publicly traded corporation focused on acquiring and managing mortgage-related, consumer-related, corporate-related and other financial assets. The Combined Company will continue to be externally managed by EFC Manager.

Upon completion of the Merger, the Combined Company is expected to have a pro forma total stockholders’ equity capitalization of approximately $1,521.0 million, composed of $1,152.1 million of EFC Common Stock and $368.9 million of EFC Preferred Stock. The common equity capitalization of approximately $1,152.1 million is based on the book values of EFC Common Stock and Arlington Common Stock, which is calculated as total stockholders’ equity less the aggregate liquidation preference of outstanding preferred stock, as of June 30, 2023.

The business of the Combined Company will be operated through EFC and its subsidiaries, which will include the surviving corporation of the Merger and its subsidiaries.

The common stock of the Combined Company will continue to be listed on the NYSE, trading under the symbol “EFC.” The newly issued shares of EFC Series D Preferred Stock will trade under the symbol “EFC PRD” and the newly issued shares of EFC Series E Preferred Stock will trade under the symbol “EFC PRE.”

TABLE OF CONTENTS

The Combined Company’s principal executive offices will remain at EFC’s location at 53 Forest Avenue, Old Greenwich, Connecticut 06870, and its telephone number will remain (203) 698-1200.

The Merger

The Merger Agreement (Page 95)

EFC, Merger Sub, EFC Manager (solely for the limited purposes set forth in the Merger Agreement) and Arlington have entered into the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/prospectus, which is incorporated herein by reference. EFC and Arlington encourage you to carefully read the Merger Agreement in its entirety because it is the principal document governing the Merger and the other transactions contemplated by the Merger Agreement.

The Merger (Page 56)

Subject to the terms and conditions of the Merger Agreement, Arlington will merge with and into Merger Sub, with Merger Sub continuing as the surviving corporation of the Merger. Immediately following the Merger, the surviving corporation of the Merger will be contributed to the EFC Operating Partnership in exchange for EFC OP Units in the EFC Operating Partnership. As a result of the contribution transaction, the surviving corporation of the Merger will become a wholly owned subsidiary of the EFC Operating Partnership.

Immediately following the effective time of the Merger, based on the number of issued and outstanding shares of EFC Common Stock and Arlington Common Stock (excluding Cancelled Shares) and outstanding Arlington Equity-Based Awards as of June 30, 2023, and the Exchange Ratio of 0.3619:

•

the shares of EFC Common Stock held by the EFC stockholders as of immediately prior to the effective time of the Merger are expected to represent in the aggregate approximately 85% of the Combined Company’s outstanding shares of common stock; and

•

The exact equity stake of EFC stockholders and Arlington shareholders in the Combined Company immediately following the effective time of the Merger will depend on the actual number of shares of EFC Common Stock and Arlington Common Stock issued and outstanding and the actual number of Arlington Equity-Based Awards outstanding immediately prior to the effective time of the Merger.

Consideration for the Merger (Page 95)

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each outstanding share of Arlington Common Stock (other than Cancelled Shares) will be converted into the right to receive:

•

from EFC, the Per Share Stock Consideration of a fixed number of shares of EFC Common Stock equal to the Exchange Ratio; and

•

from EFC Manager, the Per Share Cash Consideration of $0.09 in cash, without interest.

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each share of (i) Arlington Series B Preferred Stock will be converted into the right to receive one newly issued share of EFC Series D Preferred Stock and (ii) Arlington Series C Preferred Stock will be converted into the right to receive one newly issued share of EFC Series E Preferred Stock.

Each outstanding Arlington Restricted Share issued under an Arlington Equity Plan will become fully vested and, as of the effective time of the Merger, be considered outstanding for all purposes of the Merger Agreement, including the right to receive the Per Share Common Merger Consideration.

Each outstanding award of Arlington Performance RSUs, other than outstanding awards of Arlington Stock Price Performance RSUs, issued under an Arlington Equity Plan will become earned and fully vested

TABLE OF CONTENTS

with respect to (x) the number of shares of Arlington Common Stock subject to such award of Arlington Performance RSUs immediately prior to the effective time of the Merger based on the achievement of the applicable performance goals at maximum performance levels, plus (y) the number of shares of Arlington Common Stock attributable to any dividend equivalent rights that have been accrued with respect to such award of Arlington Performance RSUs but are unpaid as of immediately prior to the effective time of the Merger, and, with respect to such number of shares of Arlington Common Stock, will, as of the effective time of the Merger, be treated as a share of Arlington Common Stock for all purposes of the Merger Agreement, including the right to receive the Per Share Common Merger Consideration.

Each outstanding Arlington Stock Price Performance RSU issued under an Arlington Equity Plan will become earned and fully vested with respect to (x) the number of shares of Arlington Common Stock subject to such award of Arlington Stock Price Performance RSUs immediately prior to the effective time of the Merger based on the achievement of the applicable performance goals at the actual level of performance, plus (y) the number of shares of Arlington Common Stock attributable to any dividend equivalent rights that have been accrued with respect to such award of Arlington Stock Price Performance RSUs but are unpaid as of immediately prior to the effective time of the Merger, and, with respect to such number of shares of Arlington Common Stock, will, as of the effective time of the Merger, be treated as a share of Arlington Common Stock for all purposes of the Merger Agreement, including the right to receive the Per Share Common Merger Consideration.

Each outstanding award of Arlington DSUs issued under an Arlington Equity Plan will become fully vested and settled and, as of the effective time of the Merger, be treated as a share of Arlington Common Stock for all purposes of the Merger Agreement, including the right to receive the Per Share Common Merger Consideration.

Based on the number of shares of Arlington Common Stock and the number of Arlington Equity-Based Awards outstanding on June 30, 2023, and the Exchange Ratio of 0.3619, it is expected that approximately 11,711,240 shares of EFC Common Stock will be issued in connection with the Merger. Based on the number of shares of Arlington Series B Preferred Stock outstanding on June 30, 2023, it is expected that approximately 379,668 shares of newly classified EFC Series D Preferred Stock will be issued in connection with the Merger. Based on the number of shares of Arlington Series C Preferred Stock outstanding on June 30, 2023, it is expected that approximately 957,133 shares of newly classified EFC Series E Preferred Stock will be issued in connection with the Merger.

No fractional shares of EFC Common Stock will be issued in the Merger, and the value of any fractional interests to which a holder would otherwise be entitled will be paid in cash.

Recommendation of the Arlington Board and Its Reasons for the Merger (Page 67)

At a meeting held on May 29, 2023, following careful consideration, the Arlington Board unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are in the best interests of Arlington and its shareholders, (ii) adopted and approved the Merger Agreement and declared that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, (iii) directed that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, be submitted to the holders of Arlington Common Stock for their approval at the Arlington special meeting and (iv) resolved to recommend that the holders of Arlington Common Stock approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. Certain factors considered by the Arlington Board in reaching its decision to adopt and approve the Merger Agreement and declare advisable the transactions contemplated by the Merger Agreement, including the Merger, can be found in the section entitled “The Merger — Recommendation of the Arlington Board and Its Reasons for the Merger” beginning on page 67. The Arlington Board unanimously recommends that the Arlington common shareholders vote “FOR” the Arlington Merger Proposal, “FOR” the Arlington Non-Binding Compensation Advisory Proposal and “FOR” the Arlington Adjournment Proposal.

The EFC Board’s Reasons for the Merger (Page 71)

TABLE OF CONTENTS

Stock Issuance, are in the best interests of EFC, and (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger and the EFC Stock Issuance. Certain factors considered by the EFC Board in evaluating the Merger Agreement and the EFC Stock Issuance can be found in the section entitled “The Merger — The EFC Board’s Reasons for the Merger” beginning on page 71.

Summary of Risk Factors Related to the Merger (Page 29)

You should carefully consider the following important risks, together with all of the other information included in this proxy statement/prospectus and the risks related to the Merger and the related transactions described under the section “Risk Factors” beginning on page 29, before deciding how to vote:

•

The Merger is subject to a number of conditions which, if not satisfied or waived in a timely manner, would delay the Merger or adversely impact EFC’s and Arlington’s ability to complete the transaction.

•

Failure to consummate the Merger as currently contemplated or at all could adversely affect the price of EFC Common Stock and/or Arlington Common Stock and the future business and financial results of EFC and/or Arlington.

•

The Merger Agreement contains provisions that could discourage a potential competing acquirer of Arlington or could result in any competing acquisition proposal being at a lower price than it might otherwise be.

•

The pendency of the Merger could adversely affect EFC’s and Arlington’s business and operations.

•

The market value of EFC Common Stock received by Arlington shareholders will fluctuate based on the trading price of EFC Common Stock.

•

The Merger and related transactions are subject to Arlington common shareholder approval.

•

The voting power of Arlington shareholders will be diluted by the Merger.

•

If the Merger is not consummated by December 29, 2023 (the “End Date”), either EFC or Arlington may terminate the Merger Agreement.

•

The market price of EFC Common Stock after the consummation of the Merger may be affected by factors different from those affecting the price of EFC Common Stock or Arlington Common Stock before the Merger.

•

Shares of EFC Common Stock received by Arlington shareholders as a result of the Merger will have different rights from shares of Arlington Common Stock.

•

Directors and executive officers of each of EFC and Arlington may have interests in the Merger that are different from, or in addition to, the interests of EFC stockholders and Arlington shareholders, respectively.

•

Completion of the Merger may trigger change in control or other provisions in certain agreements to which Arlington is a party.

•

An adverse judgment in any litigation challenging the Merger may prevent the Merger from becoming effective or from becoming effective within the expected timeframe.

•

Following the Merger, the Combined Company may be unable to realize the anticipated benefits of the Merger within the anticipated timeframe or at all.

•

Following the Merger, the Combined Company may not pay dividends at or above the rate currently paid by EFC.

•

The Combined Company will have a significant amount of indebtedness and may need to incur more in the future.

•

The Combined Company is expected to incur substantial expenses related to the Merger.

•

The unaudited pro forma condensed combined financial information included elsewhere in this proxy statement/prospectus may not be representative of the Combined Company’s results after the

TABLE OF CONTENTS

Merger, and, accordingly, you have limited financial information on which to evaluate the Combined Company following the Merger.

•

If the Merger does not qualify as a reorganization, Arlington shareholders may recognize additional taxable gain.

•

The U.S. federal income tax treatment of the Per Share Cash Consideration is not entirely clear, and the position taken that the Per Share Cash Consideration is additional Merger Consideration received by Arlington shareholders in exchange for their Arlington Common Stock might be challenged by the U.S. Internal Revenue Service (the “IRS”).

The Arlington Special Meeting (Page 50)

•

Date, Time and Place. The Arlington special meeting will be held solely by means of remote communication live over the Internet on December 12, 2023, at 9:00 a.m., Eastern Time.

•

Purpose. At the Arlington special meeting, the holders of Arlington Common Stock will be asked to consider and vote upon the Arlington Merger Proposal, the Arlington Non-Binding Compensation Advisory Proposal and the Arlington Adjournment Proposal. Pursuant to Virginia law and the Arlington Bylaws, no other matters may be brought before the Arlington special meeting.

•

Record Date; Voting Rights. Holders of record of Arlington Common Stock at the close of business on October 13, 2023, are entitled to receive notice of and to vote at the Arlington special meeting and any adjournment thereof. Each holder of record of Arlington Common Stock on the Arlington Record Date is entitled to one vote per share with respect to each proposal.

•

Quorum. The presence, virtually or by proxy, of the holders of shares of Arlington Common Stock entitled to cast a majority of all votes entitled to be cast at the Arlington special meeting will constitute a quorum at the Arlington special meeting. Abstentions will be counted for the purpose of determining whether a quorum exists. Broker non-votes will not be counted for purposes of determining whether a quorum exists, unless the broker, bank or other nominee has been instructed to vote on at least one of the proposals.

•

Required Vote. Approval of each of the Arlington Merger Proposal, the Arlington Non-Binding Compensation Advisory Proposal and the Arlington Adjournment Proposal requires, provided a quorum is present, the affirmative vote of a majority of the votes cast on the applicable proposal by holders of shares of Arlington Common Stock at the Arlington special meeting.

As of the close of business on the Arlington Record Date, the directors and executive officers of Arlington owned approximately 5.9% of the outstanding shares of Arlington Common Stock entitled to vote at the Arlington special meeting, and the directors and executive officers of EFC owned no shares of Arlington Common Stock. In addition, none of EFC, any subsidiary of EFC, EMG, EFC Manager or any of their respective affiliates or associates owned any shares of Arlington Common Stock as of the close of business on the Arlington Record Date. Arlington currently expects that Arlington’s directors and executive officers will vote their shares of Arlington Common Stock “FOR” the Arlington Merger Proposal, “FOR” the Arlington Non-Binding Compensation Advisory Proposal and “FOR” the Arlington Adjournment Proposal, although none of them are obligated to do so.

Your vote as an Arlington shareholder is very important. Accordingly, please complete, sign, date and return the enclosed proxy card whether or not you plan to attend the virtual Arlington special meeting.

Opinion of Arlington’s Financial Advisor, Wells Fargo Securities (Page 73)

Arlington retained Wells Fargo Securities as its financial advisor in connection with the Merger. At the meeting of the Arlington Board on May 29, 2023, Wells Fargo Securities rendered its oral opinion to the Arlington Board that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Wells Fargo Securities in preparing its opinion, the Per Share Common Merger Consideration to be paid to the holders of Arlington Common Stock in the Merger was fair, from a financial point of view, to such holders. Wells Fargo Securities subsequently confirmed this oral opinion by delivering its written opinion to the Arlington Board, dated May 29, 2023.

TABLE OF CONTENTS

The full text of the written opinion of Wells Fargo Securities, dated May 29, 2023, which sets forth the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Wells Fargo Securities in preparing its opinion, is attached as Annex B to this proxy statement/prospectus and is incorporated herein by reference. Shareholders of Arlington are urged to read the opinion in its entirety. Wells Fargo Securities’ written opinion was addressed to the Arlington Board (in its capacity as such) in connection with and for the purposes of its evaluation of the Merger, was directed only to the fairness, from a financial point of view, to the holders of Arlington Common Stock of the Per Share Common Merger Consideration to be paid to such holders in the Merger and did not address any other aspect of the Merger. The opinion does not constitute a recommendation to any shareholder of Arlington as to how such shareholder should vote with respect to the Merger or any other matter. For a description of the opinion that the Arlington Board received from Wells Fargo Securities, see “The Merger — Opinion of Arlington’s Financial Advisor, Wells Fargo Securities” beginning on page 73 of this proxy statement/prospectus.

Directors and Management of EFC After the Merger (Page 116)

In the Merger Agreement, EFC has agreed to take all necessary corporate action so that upon and after the effective time of the Merger, the size of the EFC Board will be increased by one member to six total members, and Arlington will designate one individual (the “Arlington Director Designee”) to serve on the board of directors of EFC until the 2024 annual meeting of stockholders of EFC. Additionally, EFC has agreed to nominate the Arlington Director Designee to stand for election at the 2024 annual meeting of stockholders of EFC, to serve for a term until the 2025 annual meeting of stockholders of EFC. Each of the executive officers of EFC immediately prior to the effective time of the Merger will continue as an executive officer of the Combined Company following the effective time of the Merger.

Interests of EFC’s Directors and Executive Officers in the Merger (Page 91)

Arlington shareholders should be aware that executive officers of EFC (including one that also serves as an EFC director) have certain interests in the Merger that may be different from, or in addition to, the interests of Arlington shareholders and stockholders of the Combined Company generally and that may present actual or potential conflicts of interest. The Arlington Board and the EFC Board were aware of these interests and considered them, among other matters, in reaching their decision to adopt and approve the Merger Agreement and the transactions contemplated thereby.

The Combined Company will continue to be managed by EFC Manager under the terms of the EFC Management Agreement. Under the EFC Management Agreement, EFC Manager provides the day-to-day management of EFC’s operations, including providing EFC with a management team and all other personnel necessary to support its operations. In exchange for its services, EFC pays EFC Manager a management fee and reimburses it for certain expenses incurred by it and its affiliates in rendering management services to EFC. Currently, each of EFC’s executive officers and one of its directors serves as an officer of EFC Manager and is an employee of EMG.

Pursuant to the EFC Management Agreement, EFC pays EFC Manager a quarterly management fee, which includes a “base” component and “incentive” component. The “base” component of the management fee is paid quarterly in arrears in an amount equal to 1.50% per annum of the equity of the EFC Operating Partnership, as calculated pursuant to the EFC Management Agreement. As a result of the Merger and contribution of the surviving corporation of the Merger to the EFC Operating Partnership in exchange for EFC OP Units, the equity of the EFC Operating Partnership will effectively include the additional equity attributable to the acquisition of Arlington. As a result, following the Merger, the amount of the management fees payable by EFC to EFC Manager will also increase, which gives EMG and EFC Manager (and therefore, EFC’s management), an incentive, not shared by EFC stockholders, to negotiate and effect the Merger, possibly on terms less favorable to EFC than would otherwise have been achieved.

TABLE OF CONTENTS

Interests of Arlington’s Directors and Executive Officers in the Merger (Page 85)

In considering the recommendations of the Arlington Board, Arlington shareholders should be aware that directors and executive officers of Arlington have interests in the Merger that may be different from, or in addition to, the interests of Arlington shareholders generally and that may present actual or potential conflicts of interests. These interests include:

•

treatment of the Arlington Equity-Based Awards held by directors and executive officers;

•

each of Arlington’s executive officers is party to a severance/change in control agreement with Arlington that provides severance and other benefits in the case of a “qualifying termination event” during the two year period following a change in control, which will include the consummation of the Merger, and it is expected that each of Arlington’s executive officers will be terminated upon consummation of the Merger and that such termination will be a “qualifying termination event”;

•

one current member of the Arlington Board is expected to become a member of the EFC Board following the effective time of the Merger and will be entitled to compensation pursuant to EFC’s non-employee director compensation policies; and

•

continued indemnification and insurance coverage for the directors and executive officers of Arlington in accordance with the Merger Agreement.

Conditions to Complete the Merger (Page 112)

A number of conditions must be satisfied or, to the extent permitted by law, waived before the Merger can be consummated. These include, among others:

•

the approval of the Arlington Merger Proposal by Arlington common shareholders;

•

effectiveness of the registration statement on Form S-4, of which this proxy statement/prospectus constitutes a part, and no stop order suspending the effectiveness of the Form S-4 having been issued by the SEC and remaining in effect and no proceeding to that effect having commenced;

•

no injunction or law prohibiting the Merger;

•

approval for listing on the NYSE of the shares of EFC Common Stock, EFC Series D Preferred Stock and EFC Series E Preferred Stock issuable in connection with the Merger, subject to official notice of issuance and the certificates of designations classifying the EFC Series D Preferred Stock and EFC Series E Preferred Stock having been filed with and accepted for record by the Secretary of State of the State of Delaware;

•

accuracy of each party’s representations and warranties, subject in most cases to materiality or material adverse effect qualifications;

•

the absence of a material adverse effect on either EFC or Arlington;

•

the receipt of tax opinions relating to the REIT status of each of EFC and Arlington and relating to the qualification of the Merger as a reorganization under Section 368(a) of the Code;

•

the delivery of certain documents and certificates;

•

the Arlington Director Designee having been appointed to the EFC Board effective as of the effective time of the Merger; and

•

material performance and/or compliance with each party’s covenants.

Regulatory Approvals Required for the Merger (Page 92)

EFC and Arlington are not aware of any material federal or state regulatory requirements that must be complied with, or approvals that must be obtained, in connection with the Merger or the other transactions contemplated by the Merger Agreement.

TABLE OF CONTENTS

Listing of EFC Capital Stock and Deregistration of Arlington Capital Stock and Arlington Notes (Page 94)

It is a condition to the completion of the Merger that the shares of EFC Common Stock, EFC Series D Preferred Stock and EFC Series E Preferred Stock issuable in connection with the Merger be approved for listing on the NYSE, subject to official notice of issuance. After the Merger is completed, the Arlington Common Stock, Arlington Series B Preferred Stock, Arlington Series C Preferred Stock, Arlington 2025 Notes and Arlington 2026 Notes will no longer be listed on the NYSE and will be deregistered under the Exchange Act.

Accounting Treatment (Page 92)

EFC will account for the Merger as a business combination in accordance with the provisions of ASC 805, “Business Combinations,” or “ASC 805.” In applying the acquisition method of accounting, EFC will be treated as the acquiror of Arlington for accounting purposes. The assets and liabilities of Arlington will be recorded at their respective fair values at the effective date of the Merger. If the fair value of the consideration transferred exceeds the fair value of the assets acquired and liabilities assumed, the excess will be recorded as goodwill. Alternatively, if the fair value of the assets acquired and liabilities assumed exceeds the fair value of consideration transferred, the transaction would result in a bargain purchase gain. The consolidated financial statements of the Combined Company issued after the Merger will reflect these fair value adjustments and the combined results of operations subsequent to the effective date of the Merger. Because EFC will be the accounting acquirer, its historical financial statements will become the historical financial statements of the Combined Company upon consummation of the Merger. For more information, see “The Merger — Accounting Treatment” beginning on page 92.

Comparison of Rights of EFC Stockholders and Arlington Shareholders (Page 180)

The rights of Arlington shareholders are currently governed by Virginia law and the governing documents of Arlington. Following the effective time of the Merger, Arlington shareholders receiving shares of EFC Common Stock will become stockholders of EFC, and their rights will be governed by Delaware law and the governing documents of EFC. Arlington shareholders will have different rights once they become stockholders of EFC due to differences between governing law and the governing documents of Arlington and EFC. For more information regarding the differences in rights of EFC stockholders and Arlington shareholders, see “Comparison of Rights of EFC Stockholders and Arlington Shareholders” beginning on page 180.

Appraisal Rights (Page 92)

No dissenters’ or appraisal rights will be available with respect to the Merger or any of the other transactions contemplated by the Merger Agreement.

No Solicitation; Change in Recommendation (Page 108)

From and after the date of the Merger Agreement until the effective time of the Merger or, if earlier, the termination of the Merger Agreement, Arlington will not, and will cause its subsidiaries and will instruct its and their respective affiliates and representatives not to, among other things, directly or indirectly:

•

initiate, solicit or knowingly encourage or facilitate any inquiries, proposals or offers for, or that could reasonably be expected to lead to, any Arlington Competing Proposal (as defined in “The Merger Agreement — No Solicitation; Change in Recommendation” beginning on page 108);

•

enter into or engage in, continue or otherwise participate in any discussions or negotiations with any person regarding or otherwise in furtherance of an Arlington Competing Proposal or any proposal, offer or inquiry that would reasonably be expected to lead to an Arlington Competing Proposal;

•

furnish any non-public information regarding Arlington, its subsidiaries or any of the MSR Entities, or grant access to the properties, assets or employees of Arlington, its subsidiaries or any of the MSR Entities, to any person in connection with or in response to any Arlington Competing Proposal;

•

enter into any binding or nonbinding letter of intent or agreement in principle, or other agreement providing for an Arlington Competing Proposal (other than a confidentiality agreement); or

TABLE OF CONTENTS

•

withhold, withdraw, modify or qualify, or propose publicly to withhold, withdraw, modify or qualify, in a manner adverse to EFC, the Arlington Board’s recommendation that the Arlington shareholders approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, or publicly recommend the approval or adoption of, or publicly approve or adopt, any Arlington Competing Proposal (the taking of any action discussed in this bullet being referred to as an “Arlington Change of Recommendation”).

Prior to the receipt of approval of the Arlington Merger Proposal by holders of Arlington Common Stock at the Arlington special meeting, in response to a bona fide written Arlington Competing Proposal from any person that was not solicited by Arlington at any time following the execution of the Merger Agreement and did not otherwise result from a material breach of the non-solicitation provisions in the Merger Agreement, the Arlington Board may make an Arlington Change of Recommendation or cause Arlington to terminate the Merger Agreement to enter into a definitive agreement with respect to an Arlington Superior Proposal (as defined in “The Merger Agreement — No Solicitation; Change in Recommendation” beginning on page 108), if prior to taking any such action:

•

the Arlington Board (or any committee thereof) determines in good faith, after consultation with its financial advisors and outside legal counsel that such Arlington Competing Proposal is an Arlington Superior Proposal and the failure to terminate the Merger Agreement to enter into a definitive agreement with respect to such Arlington Superior Proposal and/or make an Arlington Change of Recommendation would be inconsistent with its legal duties as directors under applicable law; and

•

Arlington gives notice to EFC that the Arlington Board has received such proposal, specifying the material terms and conditions of such proposal, and stating that Arlington intends to take such action, and either (i) EFC does not propose revisions to the terms and conditions of the Merger Agreement prior to the earlier to occur of the scheduled time for the Arlington special meeting and the third business day after the date on which such notice is given to EFC or (ii) if EFC within the period described in the foregoing clause (i) proposes revisions to the terms and conditions of the Merger Agreement in a manner that would form a binding contract if accepted by Arlington, the Arlington Board (or a committee thereof), after consultation with its financial advisors and outside legal counsel, determines in good faith that the Arlington Competing Proposal remains an Arlington Superior Proposal with respect to EFC’s revised proposal.

Notwithstanding anything to the contrary in the Merger Agreement, Arlington may, at any time prior to the receipt of approval of the Arlington Merger Proposal by holders of Arlington Common Stock at the Arlington special meeting (other than in response to an Arlington Competing Proposal), make an Arlington Change of Recommendation if an Intervening Event (as defined in “The Merger Agreement — No Solicitation; Change in Recommendation” beginning on page 108) has occurred and:

•

if prior to taking such action the Arlington Board (or a committee thereof) determines in good faith, after consultation with outside legal counsel, that the failure to take such action would be inconsistent with its legal duties as directors under applicable law; and

•

Arlington gives notice to EFC that Arlington intends to effect an Arlington Change of Recommendation (which notice will reasonably describe the reasons for such Arlington Change of Recommendation, including a description of the Intervening Event in reasonable detail), and either (A) EFC does not propose revisions to the terms and conditions of the Merger Agreement prior to the earlier to occur of the scheduled time for the Arlington special meeting and the third business day after the date on which such notice is given to EFC, or (B) if EFC within the period described in the foregoing clause (A) proposes revisions to the terms and conditions of the Merger Agreement in a manner that would form a binding contract if accepted by Arlington, the Arlington Board (or a committee thereof), after consultation with its outside legal counsel, determines in good faith that such proposed changes do not obviate the need for the Arlington Board to effect an Arlington Change of Recommendation and that the failure to make an Arlington Change of Recommendation would be reasonably likely to be inconsistent with its legal duties as directors under applicable law.

Termination of the Merger Agreement (Page 114)

The Merger Agreement may be terminated at any time before the effective time of the Merger by the mutual written consent of Arlington and EFC.

TABLE OF CONTENTS

The Merger Agreement may also be terminated prior to the effective time of the Merger by either EFC or Arlington if:

•

any governmental entity of competent jurisdiction has issued a final and non-appealable order, decree, ruling or injunction or taken any other action permanently restraining, enjoining or otherwise prohibiting the consummation of the Merger, or if any law has been adopted prior to the effective time of the Merger that permanently makes the consummation of the Merger illegal or otherwise permanently prohibited;

•

the Merger has not been consummated on or before 5:00 p.m., New York, New York time, on the End Date (provided that this termination right will not be available to any party whose breach of any representation, warranty, covenant or agreement under the Merger Agreement has been the cause of or resulted in the failure of the Merger to occur on or before that date);

•

the other party (treating EFC and Merger Sub as one party) breaches certain covenants or other agreements contained in the Merger Agreement or if any representation and warranty of the other party contained in the Merger Agreement fails to be true and correct which (x) would give rise to the failure of certain conditions to the Closing if it was continuing as of the date of the Closing and (y) cannot be or has not been cured (or is incapable of becoming true or does not become true) by the earlier of (a) the End Date or (b) the date that is 30 days after the giving of written notice to the breaching party of such breach or failure to be true and correct and the basis for such notice (a “Terminable Breach”); provided, however, that the terminating party is not then in Terminable Breach of any representation, warranty, covenant or other agreement contained in the Merger Agreement; or

•

the Arlington shareholder approval is not obtained upon a vote held at a duly held Arlington special meeting (including any adjournment or postponement thereof).

EFC also may terminate the Merger Agreement if, prior to the time the Arlington shareholder approval is obtained, the Arlington Board has effected an Arlington Change of Recommendation, whether or not pursuant to and in accordance with certain non-solicitation provisions in the Merger Agreement.

Arlington also may terminate the Merger Agreement if, prior to the time that Arlington has obtained the approval of its shareholders at the Arlington special meeting, the Arlington Board (or a committee thereof) determines to terminate the Merger Agreement in connection with an Arlington Superior Proposal in order to enter into a definitive agreement providing for the implementation of such Arlington Superior Proposal; provided, however, that such termination will not be effective unless Arlington concurrently pays to EFC a termination fee of $5,015,050.

For more information regarding termination of the Merger Agreement, see “The Merger Agreement — Termination of the Merger Agreement” beginning on page 114.

Termination Fee and Expenses (Page 114)

Generally, all fees and expenses incurred in connection with the Merger and the other transactions contemplated by the Merger Agreement will be paid by the party incurring those fees and expenses; provided that, in certain circumstances, including an Arlington Change of Recommendation or the acceptance of an Arlington Superior Proposal, Arlington would be required to pay EFC a termination fee of $5,015,050.

Material U.S. Federal Income Tax Considerations (Page 118)

TABLE OF CONTENTS

shares of Arlington Common Stock and (ii) the amount of cash (other than the cash received in lieu of a fractional share of EFC Common Stock) received in exchange for its shares of Arlington Common Stock (such cash including such holder’s share of the aggregate Per Share Cash Consideration). A U.S. holder will also recognize gain or loss with respect to any cash received in lieu of fractional shares of EFC Common Stock equal to the difference, if any, between the amount of cash received for such fractional share and the holder’s tax basis in such fractional share. Generally, any gain or loss recognized on the exchange will be capital gain or loss, and any such capital gain or loss will be long-term capital gain or loss if the holding period for such shares is more than one year. Assuming the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, U.S. holders of Arlington Preferred Stock generally will not recognize gain or loss for U.S. federal income tax purposes upon receipt of EFC Preferred Stock in exchange for Arlington Preferred Stock. The holders of EFC Common Stock generally will not recognize any gain or loss for U.S. federal income tax purposes.

The tax consequences to you of the Merger will depend on your own situation. You should consult your tax advisor for a full understanding of the tax consequences to you of the Merger. For more information regarding the U.S. federal income tax consequences of the Merger to holders of Arlington Common Stock and Arlington Preferred Stock and the ownership of EFC Common Stock and EFC Preferred Stock, please see “Material U.S. Federal Income Tax Considerations” beginning on page 118.

Description of EFC Capital Stock (Page 157)

As of June 30, 2023, 67,161,740 shares of EFC Common Stock were issued and outstanding, 4,600,000 shares of EFC Series A Preferred Stock were issued and outstanding, 4,820,421 shares of EFC Series B Preferred Stock were issued and outstanding and 4,000,000 shares of EFC Series C Preferred Stock were issued and outstanding. Based on the Exchange Ratio of 0.3619, upon consummation of the Merger, the Combined Company would be expected to have approximately 11,711,240 shares of newly issued EFC Common Stock, 379,668 shares of newly classified EFC Series D Preferred Stock and 957,133 shares of newly classified EFC Series E Preferred Stock.

Generally, all matters to be voted on by EFC stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all holders of EFC Common Stock present in person or represented by proxy. Holders of EFC Common Stock are entitled to receive dividends on such EFC Common Stock if, as and when authorized by the EFC Board, and declared by EFC out of assets legally available therefor.

The EFC Series D Preferred Stock issued in the Merger will have materially the same terms as the Arlington Series B Preferred Stock for which it will be exchanged in the Merger. The EFC Series E Preferred Stock issued in the Merger will have materially the same terms as the Arlington Series C Preferred Stock for which it will be exchanged in the Merger.

For more information on EFC’s capital stock, see “Description of EFC Capital Stock” beginning on page 157.

TABLE OF CONTENTS

RISK FACTORS

In addition to other information included elsewhere in this proxy statement/prospectus and in the annexes to this proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 46, you should carefully consider the following risk factors in deciding whether to vote for the Arlington Merger Proposal and the other related matters described in this proxy statement/prospectus. In addition, you should read and consider the risks associated with the businesses of each of EFC and Arlington. The risks associated with the business of EFC can be found in its Annual Report on Form 10-K for the year ended December 31, 2022, and other reports of EFC, which are incorporated by reference into this proxy statement/prospectus, including particularly the sections therein titled “Risk Factors.” The risks associated with the business of Arlington can be found in its Annual Report on Form 10-K for the year ended December 31, 2022, as amended, and other reports of Arlington, which are incorporated by reference into this proxy statement/prospectus, including particularly the sections therein titled “Risk Factors.” You should also read and consider the other information in this proxy statement/prospectus. Please also see “Where You Can Find More Information and Incorporation by Reference” on page 209.

Risks Related to the Merger

The completion of the Merger is subject to the satisfaction or waiver of a number of conditions. In addition, under circumstances specified in the Merger Agreement, EFC or Arlington may terminate the Merger Agreement. In particular, completion of the Merger requires the approval of the Arlington Merger Proposal by the Arlington common shareholders. While it is currently anticipated that the Merger will be completed shortly after the Arlington special meeting to approve the Arlington Merger Proposal, there can be no assurance that the conditions to the Closing will be satisfied in a timely manner or at all, or that an effect, event, circumstance, occurrence, development or change will not transpire that could delay or prevent these conditions from being satisfied. Accordingly, EFC and Arlington cannot provide any assurances with respect to the timing of the Closing, whether the Merger will be completed at all or when the Arlington shareholders would receive the consideration for the Merger, if at all.

The Merger may be consummated on terms different than those contemplated by the Merger Agreement, or the Merger may not be consummated at all. If the Merger is not completed, or is completed on different terms than as contemplated by the Merger Agreement, EFC and Arlington could be adversely affected and subject to a variety of risks associated with the failure to consummate the Merger, or to consummate the Merger as contemplated by the Merger Agreement, including the following:

•

the EFC stockholders and the Arlington shareholders may be prevented from realizing the anticipated benefits of the Merger;

•

the market price of EFC Common Stock and/or Arlington Common Stock could decline significantly;

•

reputational harm due to the adverse perception of any failure to successfully consummate the Merger;

•

Arlington being required, under certain circumstances, to pay to EFC a termination fee;

•

incurrence of substantial costs relating to the Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees; and

•

the attention of EFC’s and Arlington’s management and, in the case of Arlington, employees may be diverted from their day-to-day business and operational matters as a result of efforts relating to attempting to consummate the Merger.

TABLE OF CONTENTS

Any delay in the consummation of the Merger or any uncertainty about the consummation of the Merger on terms other than those contemplated by the Merger Agreement, or if the Merger is not completed, could materially adversely affect the business and financial results of EFC and Arlington, and/or the stock price of EFC and/or Arlington.

The Merger Agreement contains provisions that, subject to limited exceptions, restrict the ability of Arlington to initiate, solicit or knowingly encourage or facilitate any Arlington Competing Proposal. With respect to any written, bona fide Arlington Competing Proposal received by Arlington, EFC generally has an opportunity to offer to modify the terms of the Merger Agreement in response to such proposal before the Arlington Board may withdraw or modify the Arlington Board’s recommendation to the Arlington shareholders in response to such Arlington Competing Proposal or terminate the Merger Agreement in order to enter into a definitive agreement implementing an Arlington Superior Proposal. In the event that the Arlington Board withdraws or modifies the Arlington Board’s recommendation, EFC may terminate the Merger Agreement, in which case Arlington is required to pay EFC a termination fee of $5,015,050. In addition, if Arlington terminates the Merger Agreement in connection with an Arlington Superior Proposal, it would be required to pay EFC a termination fee of $5,015,050. See “The Merger Agreement — No Solicitation; Change in Recommendation” beginning on page 108, “The Merger Agreement — Termination of the Merger Agreement” beginning on page 114 and “The Merger Agreement — Termination Fee and Expenses” beginning on page 115.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Arlington from considering or proposing a competing acquisition, even if the potential competing acquirer was prepared to pay consideration with a higher per share value than the value proposed to be received or realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances under the Merger Agreement.

The pendency of the Merger could adversely affect EFC’s and Arlington’s business and operations.

In connection with the pending Merger, some of the parties with whom EFC or Arlington does business may delay or defer decisions, which could negatively impact EFC’s or Arlington’s revenues, earnings, cash flows and expenses, regardless of whether the Merger is completed. In addition, under the Merger Agreement, EFC and Arlington are each subject to certain restrictions on the conduct of its respective business prior to completing the Merger. These restrictions may prevent EFC or Arlington from pursuing certain strategic transactions, acquiring and/or disposing of assets, undertaking certain capital projects, undertaking certain financing transactions and otherwise pursuing other actions that are not in the ordinary course of business, even if such actions could prove beneficial. These restrictions may impede EFC’s or Arlington’s growth which could negatively impact its respective revenue, earnings and cash flows. Additionally, the pendency of the Merger may make it more difficult for EFC or Arlington to effectively retain and incentivize key personnel. Furthermore, the process of planning to integrate two businesses for the post-Merger period may divert management attention and resources and could ultimately have an adverse effect on each party.

The market value of EFC Common Stock received by Arlington shareholders will fluctuate based on the trading price of EFC Common Stock.

The number of shares of EFC Common Stock to be received by Arlington shareholders will be based on the Exchange Ratio of 0.3619. The market value of EFC Common Stock received by Arlington shareholders will fluctuate based on the trading price of EFC Common Stock. Therefore, Arlington shareholders cannot be sure of the final market value of the consideration they will receive upon completion of the Merger. Neither EFC nor Arlington has the right to terminate the Merger Agreement based on an increase or decrease in the market price of EFC Common Stock.

TABLE OF CONTENTS

The Merger and related transactions are subject to Arlington common shareholder approval.

The Merger cannot be completed unless the Arlington common shareholders approve the Arlington Merger Proposal by the affirmative vote of a majority of the votes cast at the Arlington special meeting in accordance with the VSCA and the governing documents of Arlington, provided a quorum is present. If the required shareholder approval is not obtained from the Arlington common shareholders, the Merger and related transactions cannot be completed.

The voting power of Arlington shareholders will be diluted by the Merger.

The Merger will result in Arlington shareholders having an ownership stake in the Combined Company that is smaller than their current stake in Arlington. EFC and Arlington estimate that, based on the Exchange Ratio of 0.3619, immediately following the completion of the Merger, Arlington common shareholders and holders of Arlington Equity-Based Awards as of immediately prior to the effective time of the Merger will own in the aggregate approximately 15% of the outstanding shares of common stock of the Combined Company, based on the number of issued and outstanding shares of EFC Common Stock and Arlington Common Stock (excluding Cancelled Shares) and outstanding Arlington Equity-Based Awards as of June 30, 2023. Consequently, Arlington shareholders, as a general matter, will have less influence over the Combined Company’s management and policies after the effective time of the Merger than they currently exercise over the management and policies of Arlington.

If the Merger is not consummated by the End Date, EFC or Arlington may terminate the Merger Agreement.

Either EFC or Arlington may terminate the Merger Agreement under certain circumstances, including if the Merger has not been consummated by 5:00 p.m., New York, New York time on the End Date, which is December 29, 2023. However, this termination right will not be available to a party whose breach of any representation, warranty, covenant or agreement contained in the Merger Agreement has been the cause of, or resulted in, the failure to consummate the Merger on or before such date.

The market price of EFC Common Stock may decline as a result of the Merger if the Combined Company does not achieve the perceived benefits of the Merger or the effect of the Merger on the Combined Company’s financial results is not consistent with the expectations of financial or industry analysts.

In addition, upon consummation of the Merger, EFC stockholders and Arlington shareholders will own interests in the Combined Company operating an expanded business with a different mix of assets, risks and liabilities. EFC’s current stockholders and Arlington’s current shareholders may not wish to continue to invest in the Combined Company, or for other reasons may wish to dispose of some or all of their shares of EFC Common Stock. If, following the effective time of the Merger, a large amount of EFC Common Stock is sold, the price of EFC Common Stock could decline.

Further, the Combined Company’s results of operations, as well as the market price of EFC Common Stock after the Merger may be affected by factors in addition to those currently affecting EFC’s or Arlington’s results of operations and the market prices of EFC Common Stock and Arlington Common Stock, including differences in assets and capitalization. Accordingly, EFC’s and Arlington’s historical market prices and financial results may not be indicative of these matters for the Combined Company after the Merger.

Shares of EFC Common Stock received by Arlington shareholders as a result of the Merger will have different rights from shares of Arlington Common Stock.

Upon the completion of the Merger, Arlington shareholders will no longer be shareholders of Arlington and will become stockholders of EFC. There will be important differences between the current rights of Arlington shareholders and the rights to which such shareholders will be entitled as stockholders of EFC, including differences that result from Arlington being incorporated in Virginia and EFC being incorporated in Delaware and differences between the governing documents of Arlington and EFC. See the section

TABLE OF CONTENTS

entitled “Comparison of Rights of EFC Stockholders and Arlington Shareholders” beginning on page 180 for a discussion on the different rights associated with the shares of EFC Common Stock.

Directors and executive officers of EFC and Arlington may have interests in the Merger that are different from, or in addition to, the interests of EFC stockholders and Arlington shareholders generally. Following the consummation of the Merger, all five of the current directors of the EFC Board are expected to continue as directors of the board of directors of the Combined Company (in addition to the Arlington Director Designee) and the executive officers of EFC are expected to continue as the executive officers of the Combined Company. The Combined Company will continue to be managed by EFC Manager under the terms of the EFC Management Agreement, pursuant to which EFC Manager receives a management fee, which includes a “base” component and “incentive” component, and reimbursement for certain expenses incurred by it and its affiliates in rendering management services to EFC. Each of EFC’s executive officers and one of its directors serves as an officer of EFC Manager and is an employee of EMG. In addition, each of Arlington’s executive officers is party to a severance/change in control agreement with Arlington that provides severance and other benefits in the case of a “qualifying termination” of employment that occurs in connection with, or in the two year period following, a change in control of Arlington, which will include the consummation of the Merger. Further, directors and executive officers of Arlington will receive continued indemnification and insurance coverage in accordance with the terms of the Merger Agreement. For more information, see the sections entitled “The Merger — Interests of EFC’s Directors and Executive Officers in the Merger” beginning on page 91 and “The Merger — Interests of Arlington’s Directors and Executive Officers in the Merger” beginning on page 85.

Completion of the Merger may trigger change in control or other provisions in certain agreements to which Arlington is a party.

The completion of the Merger may trigger change in control or other provisions in certain agreements to which Arlington is a party. If EFC and Arlington are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if EFC and Arlington are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Arlington.

An adverse judgment in any litigation challenging the Merger may prevent the Merger from becoming effective or from becoming effective within the expected timeframe.

It is possible that EFC stockholders or Arlington shareholders may file lawsuits challenging the Merger or the other transactions contemplated by the Merger Agreement, which may name EFC, Arlington, the EFC Board and/or the Arlington Board as defendants. The outcome of such lawsuits cannot be assured, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the applicable parties from completing the Merger on the agreed-upon terms, such an injunction may delay the consummation of the Merger in the expected timeframe, or may prevent the Merger from being consummated altogether. Whether or not any plaintiff’s claim is successful, this type of litigation may result in significant costs and divert management’s attention and resources, which could adversely affect the operation of EFC’s business and/or Arlington’s business.

If the Merger does not qualify as a reorganization, Arlington shareholders may recognize additional taxable gain.

The Merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Code, and it is a condition to the completion of the Merger that Arlington and EFC each receive an opinion from its respective tax counsel to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code. Assuming that the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, U.S. holders of Arlington Common Stock will recognize gain (but

TABLE OF CONTENTS

not loss) in an amount equal to the lesser of (i) the amount by which the sum of the fair market value of the shares of EFC Common Stock and cash (other than cash received in lieu of a fractional share of EFC Common Stock) received by such holder in exchange for its Arlington Common Stock (such cash including such holder’s share of the aggregate Per Share Cash Consideration) exceeds such holder’s adjusted basis in its shares of Arlington Common Stock and (ii) the amount of cash (other than the cash received in lieu of a fractional share of EFC Common Stock) received in exchange for its shares of Arlington Common Stock (such cash including such holder’s share of the aggregate Per Share Cash Consideration). U.S. holders of Arlington Preferred Stock are not expected to recognize any gain or loss on the exchange of their Arlington Preferred Stock for EFC Preferred Stock in the Merger. If the Merger were to fail to qualify as a reorganization within the meaning of Section 368(a) of the Code, a U.S. holder would recognize gain or loss equal to the difference, if any, between (i) the sum of the fair market value of EFC Common Stock, Per Share Cash Consideration and cash in lieu of fractional shares of EFC Common Stock or the fair market value of EFC Preferred Stock, as applicable, received by the Arlington shareholder in the Merger and (ii) the Arlington shareholder’s adjusted tax basis in its Arlington Common Stock or Arlington Preferred Stock, respectively. See “Material U.S. Federal Income Tax Considerations — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 118.

The U.S. federal income tax treatment of the Per Share Cash Consideration is not entirely clear, and the position taken that the Per Share Cash Consideration is additional Merger consideration received by Arlington shareholders in exchange for their Arlington Common Stock might be challenged by the IRS.

With respect to the Per Share Cash Consideration, there is limited authority addressing the tax consequences of the receipt of consideration from a party other than the acquiror and, as a result, the tax consequences of the receipt of the Per Share Cash Consideration are not entirely clear. EFC, Merger Sub, EFC Manager, Arlington and the exchange agent intend to take the position that the Per Share Cash Consideration received by a holder of Arlington Common Stock is treated as additional Merger Consideration. As described above, assuming the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, and this treatment of the Per Share Cash Consideration is correct, U.S. holders of Arlington Common Stock will recognize gain (but not loss) in an amount equal to the lesser of (i) the amount by which the sum of the fair market value of the shares of EFC Common Stock and cash (other than cash received in lieu of a fractional share of EFC Common Stock) received by such holder in exchange for its Arlington Common Stock (such cash including such holder’s share of the aggregate Per Share Cash Consideration) exceeds such holder’s adjusted basis in its shares of Arlington Common Stock and (ii) the amount of cash (other than the cash received in lieu of a fractional share of EFC Common Stock) received in exchange for its shares of Arlington Common Stock (such cash including such holder’s share of the aggregate Per Share Cash Consideration). It is possible, however, that the IRS could assert a contrary position that the Per Share Cash Consideration should be treated as taxable ordinary income and not as cash received in exchange for such holder’s Arlington Common Stock. If this position prevails, U.S. holders of Arlington Common Stock would not receive any offset against their basis in their shares of Arlington Common Stock with respect to the Per Share Cash Consideration and non-corporate U.S. holders would be taxable at the higher U.S. federal income tax rates applicable to ordinary income. Additionally, because of this potential characterization, notwithstanding the parties’ position, it is possible that applicable withholding agents may withhold tax at a rate of 30% on the Per Share Cash Consideration paid to non-U.S. holders (or a reduced rate under a tax treaty if applicable). In addition, the IRS could assert that the aggregate Per Share Cash Consideration was income to EFC from EFC Manager (e.g., an inducement fee), followed by the payment of such Per Share Cash Consideration by EFC to holders of Arlington Common Stock. Such income would likely be non-qualifying income for purposes of both the REIT 75% and 95% gross income tests. If EFC did not meet one or more of the REIT gross income tests, then it could potentially either lose its REIT status or be required to pay a tax penalty to the IRS.

Risks Related to the Combined Company Following the Merger

Following the Merger, the Combined Company may be unable to realize the anticipated benefits of the Merger within the anticipated timeframe or at all.

The Merger involves the combination of two companies that currently operate as independent public companies. The Combined Company expects to benefit from certain operating expense efficiencies relating

TABLE OF CONTENTS

to the elimination of duplicative costs associated with supporting a public company platform and operating the businesses of EFC and Arlington and the spread of fixed costs across a larger equity base. The Combined Company will be required to devote significant management attention and resources to the integration of EFC’s and Arlington’s businesses. The potential difficulties the Combined Company may encounter in combining the companies include, but are not limited to, the following:

•

the inability to successfully combine EFC’s and Arlington’s businesses in a manner that permits the Combined Company to achieve the expense efficiencies expected to result from the Merger, which would result in the anticipated benefits of the Merger not being realized in the timeframe currently anticipated or at all;

•

the inability of the Combined Company to successfully redeploy any capital acquired in connection with the Merger into EFC’s targeted asset classes at investment returns EFC expects or in the expected timetable;

•

the complexities of combining two companies with different histories and portfolio assets;

•

potential unknown liabilities and unforeseen increased expenses, delays or conditions associated with the Merger; and

•

performance shortfalls as a result of the diversion of management’s attention caused by completing the Merger and integrating the companies’ operations.

For all these reasons, you should be aware that it is possible that the combination process could result in the distraction of the Combined Company’s management, the disruption of the Combined Company’s ongoing business or inconsistencies in its operations, services, standards, controls, policies and procedures, any of which could adversely affect the Combined Company’s ability to deliver investment returns to stockholders, to maintain relationships with its key stakeholders or to achieve the anticipated benefits of the Merger, or could otherwise materially and adversely affect the Combined Company’s business and financial results.

Following the Merger, the Combined Company may not pay dividends at or above the rate currently paid by EFC.

Following the Merger, the Combined Company’s stockholders may not receive any dividends (or may not receive them at the same rate that EFC stockholders received dividends prior to the Merger) for various reasons, including the following:

•

the Combined Company may not have enough cash to pay such dividends due to changes in its cash requirements, capital spending plans, cash flow or financial position;

•

decisions on whether, when and in what amounts to make any future dividends will remain at all times entirely at the discretion of the Combined Company’s board of directors, which reserves the right to change its dividend practices at any time and for any reason;

•

the ability of the Combined Company to declare and pay dividends on its common stock will be subject to the preferential rights of the EFC Preferred Stock and the preferential rights, if any, of holders of any other class or series of the Combined Company’s capital stock; and

•

the amount of dividends that the Combined Company’s subsidiaries may distribute to the Combined Company may be subject to restrictions imposed by state law and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.

The Combined Company’s common stockholders will have no contractual or other legal right to dividends that have not been authorized by its board of directors and declared by the Combined Company.

The Combined Company will have a significant amount of indebtedness and may need to incur more in the future.

The Combined Company will have substantial indebtedness following completion of the Merger. In addition, in connection with executing its business strategies following the Merger, the Combined Company expects to evaluate the possibility of investing in additional target assets and making other strategic

TABLE OF CONTENTS

investments, and it may elect to finance these endeavors by incurring additional indebtedness. The amount of such indebtedness could have material adverse consequences for the Combined Company, including:

•

hindering its ability to adjust to changing market, industry or economic conditions;

•

limiting its ability to access the capital markets to raise additional equity or refinance maturing debt on favorable terms or to fund acquisitions or emerging businesses;

•

limiting the amount of cash flow available for future operations, acquisitions, dividends, stock repurchases or other uses;

•

limiting its ability to deduct interest under Section 163(j) of the Code;

•

making it more vulnerable to economic or industry downturns, including interest rate increases; and

•

placing it at a competitive disadvantage compared to less leveraged competitors.

Moreover, the Combined Company may be required to raise substantial additional capital to execute its business strategy. The Combined Company’s ability to arrange additional financing will depend on, among other factors, its financial position and performance, as well as prevailing market conditions and other factors beyond its control. If the Combined Company is unable to obtain additional financing, its credit ratings could be adversely affected, which could raise its borrowing costs and limit its future access to capital and its ability to satisfy its obligations under its indebtedness.

The Combined Company is expected to incur substantial expenses related to the Merger.

EFC and Arlington have incurred substantial legal, accounting, financial advisory and other costs, and the management teams of EFC and Arlington have devoted considerable time and effort in connection with the Merger. EFC and Arlington may incur significant additional costs in connection with the completion of the Merger or in connection with any delay in completing the Merger or termination of the Merger Agreement, in addition to the other costs already incurred. If the Merger is not completed, EFC and Arlington will separately bear certain fees and expenses associated with the Merger without realizing the benefits of the Merger. If the Merger is completed, the fees and expenses may be significant and could have an adverse impact on the Combined Company’s results of operations.

Although EFC and Arlington have assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond the control of either EFC or Arlington that could affect the total amount or the timing of the integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, the transaction and integration expenses associated with the Merger could, particularly in the near term, exceed the savings that the Combined Company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the businesses following the completion of the Merger.

The unaudited pro forma condensed combined financial information included elsewhere in this proxy statement/prospectus may not be representative of the Combined Company’s results after the Merger and accordingly, you have limited financial information on which to evaluate the Combined Company following the Merger.

The unaudited pro forma condensed combined financial information included elsewhere in this proxy statement/prospectus has been presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that actually would have occurred had the Merger been completed as of the date indicated, nor is it indicative of the future operating results or financial position of the Combined Company following the Merger. The unaudited pro forma condensed combined financial information does not reflect future events that may occur after the Merger. The unaudited pro forma condensed combined financial information presented elsewhere in this proxy statement/prospectus is based in part on certain assumptions regarding the Merger that EFC believes are reasonable under the circumstances. EFC and Arlington cannot assure you that the assumptions will prove to be accurate over time.

TABLE OF CONTENTS

The Combined Company may incur adverse tax consequences if Arlington or Arlington’s subsidiary REIT failed to qualify as a REIT for U.S. federal income tax purposes.

Arlington has operated in a manner that it believes has allowed it to qualify as a REIT for U.S. federal income tax purposes under the Code and intends to continue to do so up to the time of the Merger and believes that the subsidiary REIT owned by it qualified as a REIT for U.S. federal income tax purposes through its liquidation on June 24, 2019 (such REIT, a “Subsidiary REIT”). Arlington has neither requested nor currently plans to request a ruling from the IRS that it qualifies, or that its Subsidiary REIT qualified, as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within the control of Arlington may affect its, or its Subsidiary REIT’s, ability to qualify as a REIT. In order to qualify as a REIT, Arlington must satisfy, and its Subsidiary REIT must have satisfied, a number of requirements, including requirements regarding the ownership of its stock and the composition of its gross income and assets. Also, a REIT must make distributions to stockholders aggregating annually to at least 90% of its net taxable income, excluding any net capital gains.

While Arlington believes that its Subsidiary REIT qualified as a REIT under the Code, Arlington joined its Subsidiary REIT in filing a “protective” TRS election under Section 856(l) of the Code for each taxable year in which it owned an interest in such Subsidiary REIT. EFC and Arlington cannot assure you that such “protective” TRS election would be effective to avoid adverse tax consequences if the Subsidiary REIT were to have failed to qualify as a REIT. Moreover, even if the “protective” election were to be effective, the Subsidiary REIT would be subject to regular corporate income tax for such taxable years. In addition, the dividends Arlington received from the Subsidiary REIT would not have qualified as good income for purposes of the 75% gross income test, and EFC and Arlington cannot assure you that Arlington would not have failed to satisfy the requirement that not more than 20% of the value of its total assets may be represented by the securities of one or more TRSs.

If Arlington has failed or fails (or its Subsidiary REIT failed) to qualify as a REIT and the Merger is completed, the Combined Company may inherit significant tax liabilities, because the Combined Company, as the successor by Merger to Arlington and its Subsidiary REIT, would be subject to any corporate income tax liabilities of Arlington and its Subsidiary REIT, including penalties and interest, attributable to the years prior to the Merger that Arlington or its Subsidiary REIT failed to qualify as a REIT.

General Tax Risks

EFC’s failure to maintain its qualification as a REIT would subject it to U.S. federal, state and local income taxes, which could adversely affect the value of EFC Common Stock and would substantially reduce the cash available for distribution to EFC stockholders.

EFC elected to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2019. While EFC believes that it has operated and intends to continue to operate in a manner that will enable it to meet the requirements for taxation as a REIT commencing with its taxable year ended January 1, 2019, EFC cannot assure you that it will remain qualified as a REIT.

The U.S. federal income tax laws governing REITs are complex, and interpretations of the U.S. federal income tax laws governing qualification as a REIT are limited. Qualifying as a REIT requires EFC to meet various tests regarding the nature of its assets, its income and its earnings and profits, or “E&P” (calculated pursuant to Sections 316 and 857(d) of the Code and the regulations thereunder), the ownership of its outstanding stock, and the amount of its distributions on an ongoing basis. EFC’s ability to satisfy the asset tests depends upon the characterization and fair market values of its assets, some of which are not precisely determinable, and for which it may not obtain independent appraisals. EFC’s compliance with the REIT income and asset tests and the accuracy of its tax reporting to stockholders also depends upon its ability to successfully manage the calculation and composition of its gross and net taxable income, its E&P and its assets on an ongoing basis. Even a technical or inadvertent mistake could jeopardize EFC’s REIT status. In addition, EFC’s ability to satisfy the requirements to maintain its qualification as a REIT depends in part on the actions of third parties over which it has no control or only limited influence, including in cases where it owns an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes. Although EFC has operated and intends to continue to operate so as to maintain

TABLE OF CONTENTS

its qualification as a REIT, given the complex nature of the rules governing REITs, the ongoing importance of factual determinations, including the potential tax treatment of the investments its makes, and the possibility of future changes in its circumstances, no assurance can be given that its actual results of operations for any particular taxable year will satisfy such requirements.

EFC also owns a Subsidiary REIT that has elected to be taxed as a REIT under the U.S. federal income tax laws. EFC’s Subsidiary REIT is subject to the same REIT qualification requirements that are applicable to EFC. If EFC’s Subsidiary REIT were to fail to maintain its qualification as a REIT, then (i) that Subsidiary REIT would become subject to regular U.S. federal, state and local corporate income tax, (ii) EFC’s interest in such Subsidiary REIT would cease to be a qualifying asset for purposes of the REIT asset tests, and (iii) it is possible that EFC would fail certain of the REIT asset and/or income tests, in which event EFC also would fail to maintain its qualification as a REIT unless it could avail itself of certain relief provisions. While EFC believes that the Subsidiary REIT has qualified as a REIT under the Code, EFC has joined the Subsidiary REIT in filing a “protective” TRS election under Section 856(l) of the Code for each taxable year in which it has owned an interest in the Subsidiary REIT. EFC cannot assure you that such “protective” TRS election would be effective to avoid adverse consequences to it. Moreover, even if the “protective” election were to be effective, the Subsidiary REIT would be subject to regular corporate income tax, dividends EFC receives from the Subsidiary REIT would not qualify as good income for purposes of the 75% gross income test, and EFC cannot assure you that it would not fail to satisfy the requirement that not more than 20% of the value of its total assets may be represented by the securities of one or more TRSs. See “EFC’s ownership of and relationship with its TRSs will be limited, and a failure to comply with the limits would jeopardize its REIT status and may result in the application of a 100% excise tax,” below.

If EFC fails to maintain its qualification as a REIT in any calendar year, and does not qualify for certain statutory relief provisions, it would be required to pay U.S. federal income tax (and any applicable state and local taxes) on its taxable income at regular corporate rates, and dividends paid to its stockholders would not be deductible by it in computing its taxable income (although such dividends received by certain non-corporate U.S. taxpayers generally would be subject to a preferential rate of taxation). Further, if EFC fails to maintain its qualification as a REIT, it might need to borrow money or sell assets in order to pay any resulting tax. EFC’s payment of income tax would decrease the amount of its income available for distribution to its stockholders. Furthermore, if EFC fails to maintain its qualification as a REIT, it no longer would be required under U.S. federal tax laws to distribute substantially all of its REIT taxable income to its stockholders. Unless EFC’s failure to maintain its qualification as a REIT was subject to relief under the U.S. federal tax laws, EFC could not re-elect to qualify as a REIT until the fifth calendar year following the year in which it failed to qualify.

Complying with REIT requirements may cause EFC to forego or liquidate otherwise attractive investments.

To qualify as a REIT, EFC must continually satisfy various tests regarding the sources of its income, the nature and diversification of its assets, the amounts it distributes to its stockholders and the ownership of its shares. In order to meet these tests, EFC may be required to forego investments it might otherwise make. Thus, EFC may choose not to make certain types of investments that it made in prior years or pursue certain strategies that it pursued in prior years, which could include certain hedges that would otherwise reduce certain investment risks, or it could make such investments or pursue such strategies in a TRS. EFC’s domestic TRSs (including the Combined Company) will be subject to regular U.S. federal, state and local corporate income tax, which may reduce the cash available to be distributed to EFC’s stockholders.

As a REIT, EFC may be required to pay dividends to stockholders at disadvantageous times or when it does not have funds readily available for distribution, and may be unable to pursue investments that would be otherwise advantageous to it in order to satisfy the source of income or asset diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder EFC’s investment performance.

In particular, EFC must ensure that at the end of each calendar quarter, it satisfies the REIT 75% asset test, which requires that at least 75% of the value of its total assets consist of cash, cash items, government securities and qualified REIT real estate assets, including RMBS. The remainder of its investments in securities (other than government securities, TRS securities and qualified REIT real estate assets) generally cannot

TABLE OF CONTENTS

include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of its total assets (other than government securities, TRS securities and qualified REIT real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of its total assets can be represented by securities of one or more TRSs. EFC’s acquisition of Arlington into a TRS may affect EFC’s ability to maintain the value of its TRSs below 20% of its total assets. Generally, if EFC fails to comply with these requirements at the end of any calendar quarter, it must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing its REIT qualification and becoming subject to U.S. federal income tax and any applicable state and local taxes on all of its income.

In addition, EFC must also ensure that each taxable year it satisfies the REIT 75% and 95% gross income tests, which require that, in general, 75% of its gross income comes from certain real estate-related sources and 95% of its gross income consists of gross income that qualifies for the 75% gross income test or certain other passive income sources. As a result of the requirement that EFC satisfies both the REIT 75% asset test and the REIT 75% and 95% gross income tests, it may be required to liquidate from its portfolio otherwise attractive investments or contribute such investments to a TRS, in which event they would become subject to regular corporate U.S. federal, state and local taxes, assuming that the TRS is organized in the United States. These actions could have the effect of reducing EFC’s income and amounts available for distribution to its stockholders. Generally, if EFC fails to comply with these requirements at the end of any calendar year, it will lose its REIT qualification and may be subject to U.S. federal income tax and any applicable state and local taxes on all of its income.

Failure to make required distributions would subject EFC to tax, which would reduce the cash available for distribution to its stockholders.

To qualify as a REIT, EFC must distribute to its stockholders each calendar year at least 90% of its REIT taxable income (including certain items of non-cash income), determined excluding any net capital gains and without regard to the deduction for dividends paid. Distributions of EFC’s taxable income must generally occur in the taxable year to which they relate, or in the following taxable year if declared before EFC timely files its tax return for the year and if paid with or before the first regular dividend payment after such declaration. To the extent that EFC satisfies the 90% distribution requirement, but distributes less than 100% of its taxable income, it will be subject to U.S. federal corporate income tax on its undistributed income. In addition, EFC will incur a 4% nondeductible excise tax on the amount, if any, by which its distributions in any calendar year (subject to specific timing rules for certain dividends paid in January) are less than the sum of:

•

85% of its REIT ordinary income for that year;

•

95% of its REIT capital gain net income for that year; and

•

any undistributed taxable income from prior years.

EFC intends to distribute its taxable income to its stockholders in a manner intended to satisfy the 90% distribution requirement and to avoid the corporate income tax. These distributions will limit its ability to retain earnings and thereby replenish or increase capital from operations. However, there is no requirement that TRSs distribute their after-tax net income to their parent REIT.

EFC’s taxable income may substantially exceed its net income as determined based on GAAP, because, for example, realized capital losses will be deducted in determining its GAAP net income, but may not be deductible in computing its taxable income. The EFC Operating Partnership and certain of its subsidiaries have made an election under Section 475(f) of the Code to mark their securities to market, which may cause EFC to recognize taxable gains for a taxable year with respect to such securities without the receipt of any cash corresponding to such gains. Additionally, E&P in EFC’s foreign TRSs are taxable to EFC, regardless of whether such earnings are distributed. Losses in EFC’s TRSs (including net operating loss and net capital loss carryforwards obtained by Merger Sub in the Merger) will not reduce EFC’s taxable income, and will generally not provide any tax benefit to EFC, except for being carried forward against future TRS taxable income in the case of a domestic TRS. EFC’s domestic TRSs may also have taxable income on which U.S. federal income tax is due even if EFC is in a loss position. Also, EFC’s ability, or the ability of its subsidiaries,

TABLE OF CONTENTS

to deduct interest may be limited under Section 163(j) of the Code. In addition, EFC may invest in assets that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets, or EFC may modify assets in a way that produces taxable income prior to or in excess of economic income. As a result of the foregoing, EFC may generate less cash flow than taxable income in a particular year. To the extent that EFC generates such non-cash taxable income in a taxable year or has limitations on its deductions, it may incur corporate income tax and the 4% nondeductible excise tax on that income if it does not distribute such income to stockholders in that year. In that event, EFC may be required to use cash reserves, incur debt, sell assets, make taxable distributions of its shares or debt securities or liquidate non-cash assets at rates, at terms or at times that it regards as unfavorable, in order to satisfy the distribution requirement and to avoid corporate income tax and the 4% nondeductible excise tax in that year.

Determination of EFC’s REIT taxable income involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. If the IRS disagrees with EFC’s determination, it could affect its satisfaction of the distribution requirement. Under certain circumstances, EFC may be able to correct a failure to meet the distribution requirement for a year by paying “deficiency dividends” to its stockholders in a later year. EFC may include such deficiency dividends in its deduction for dividends paid for the earlier year. Although EFC may be able to avoid income tax on amounts distributed as deficiency dividends, it will be required to pay interest and a penalty to the IRS based upon the amount of any deduction it takes for deficiency dividends.

Even if EFC qualifies as a REIT, it may face other tax liabilities that reduce its cash flows.

Even if EFC qualifies for taxation as a REIT, it may be subject to certain U.S. federal, state and local taxes on its income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. In addition, its domestic TRSs will be subject to regular corporate U.S. federal, state and local taxes. Any of these taxes would decrease cash available for distributions to stockholders.

The failure of MBS subject to a repurchase agreement to qualify as real estate assets would adversely affect EFC’s ability to maintain its qualification as a REIT.

EFC has entered into repurchase agreements under which it nominally sells certain of its MBS to a counterparty and simultaneously enters into an agreement to repurchase the sold assets. EFC believes that, for U.S. federal income tax purposes, these transactions will be treated as secured debt and it will be treated as the tax owner of the MBS that are the subject of any such repurchase agreement, notwithstanding that such agreements may transfer record ownership of such assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could successfully assert that EFC does not own the MBS during the term of the repurchase agreement, in which case it could fail to maintain its qualification as a REIT.

Uncertainty exists with respect to the treatment of EFC’s TBAs for purposes of the REIT asset and income tests.

EFC purchases and sells Agency RMBS (as defined below) through TBAs (as defined below) and recognizes income or gains from the disposition of those TBAs, through dollar roll transactions or otherwise, and may continue to do so in the future. While there is no direct authority with respect to the qualification of TBAs as real estate assets or U.S. Government securities for purposes of the REIT 75% asset test or the qualification of income or gains from dispositions of TBAs as gains from the sale of real property or other qualifying income for purposes of the REIT 75% gross income test, EFC treats the GAAP value of its TBAs under which it contracts to purchase to-be-announced Agency RMBS (“long TBAs”) as qualifying assets for purposes of the REIT 75% asset test, and its treats income and gains from its long TBAs as qualifying income for purposes of the REIT 75% gross income test, based on an opinion of Hunton Andrews Kurth LLP substantially to the effect that (i) for purposes of the REIT asset tests, its ownership of a long TBA should be treated as ownership of real estate assets, and (ii) for purposes of the REIT 75% gross income test, any gain recognized by it in connection with the settlement of its long TBAs should be treated as gain from the sale or disposition of an interest in mortgages on real property. Opinions of counsel are not binding

TABLE OF CONTENTS

on the IRS, and no assurance can be given that the IRS will not successfully challenge the conclusions set forth in such opinions. In addition, it must be emphasized that the opinion of counsel is based on various assumptions relating to EFC’s TBAs and is conditioned upon fact-based representations and covenants made by EFC’s management regarding its TBAs. No assurance can be given that the IRS would not assert that such assets or income are not qualifying assets or income. If the IRS were to successfully challenge the opinion of counsel, EFC could be subject to a penalty tax or it could fail to remain qualified as a REIT if a sufficient portion of its assets consists of TBAs or a sufficient portion of its income consists of income or gains from the disposition of TBAs.

Complying with REIT requirements may limit EFC’s ability to hedge effectively.

The REIT provisions of the Code substantially limit EFC’s ability to hedge. Under these provisions, any income that EFC generates from transactions intended to hedge its interest rate or foreign currency risks will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges (i) interest rate risk on liabilities incurred to carry or acquire real estate or (ii) risk of foreign currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests, and such instrument is properly identified under applicable U.S. Treasury Regulations (the “Treasury Regulations”). The requirements in the Treasury Regulations related to identifying hedging transactions are highly technical and complex for which only limited judicial and administrative authorities exist, and the IRS could disagree with and successfully challenge EFC’s treatment and identifications of such hedging transactions. Income from hedging transactions that are not properly identified or hedge different risks will generally constitute non-qualifying income for purposes of both the REIT 75% and 95% gross income tests and could cause EFC to fail to maintain its qualification as a REIT. EFC’s aggregate gross income from such transactions, along with other gross income that does not qualify for the 95% gross income test, cannot exceed 5% of its annual gross income. As a result, EFC might have to limit its use of advantageous hedging techniques, and it has implemented and may in the future implement certain hedges through a TRS. Any hedging income earned by a domestic TRS would be subject to U.S. federal, state and local income tax at regular corporate rates. This could increase the cost of EFC’s hedging activities or expose it to greater risks associated with interest rate changes or other changes than it would otherwise want to bear. In addition, losses in EFC’s TRSs will generally not provide any tax benefit, except for being carried forward against future TRS taxable income in the case of a domestic TRS. Even if the income from certain of EFC’s hedging transactions is excluded from gross income for purposes of the REIT 75% and 95% gross income tests, such income and any loss will be taken into account in determining its REIT taxable income and its distribution requirement. If the IRS disagrees with EFC’s calculation of the amount or timing of recognition of gain or loss with respect to its hedging transactions, including the impact of its elections under Section 475(f) of the Code and the treatment of hedging expense and losses under Section 163(j) of the Code and Treasury Regulation Section 1.446-4, its distribution requirement could increase, which could require that it correct any shortfall in distributions by paying deficiency dividends to its stockholders in a later year.

EFC’s ownership of and relationship with its TRSs will be limited, and a failure to comply with the limits would jeopardize its REIT status and may result in the application of a 100% excise tax.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income for purposes of the REIT 75% or 95% gross income tests if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation (other than a REIT) of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s total assets may consist of stock or securities of one or more TRSs. Many of the investments that EFC made and activities it undertook prior to its REIT election have been contributed to or will be made in one of its TRSs, and certain of the historic Arlington assets will be held in a TRS; thus, EFC has held and will hold a significant portion of its assets through, and derive a significant portion of its taxable income and gains in, TRSs. While EFC intends to manage its affairs so as to satisfy the requirement that no more than 20% of the value of its total assets consists of stock or securities of TRSs, as well as the requirements that no more than 25% of the value of its total assets consist of stock or securities of its TRSs and other assets not qualifying for the 75% asset test and that dividends from its TRSs plus other non-qualifying gross income not exceed 25% of its total gross income, there can be no assurance that it will

TABLE OF CONTENTS

be able to do so in all market circumstances. Even if EFC is able to do so, compliance with these rules may reduce its flexibility in operating its business. In addition, the two rules may conflict with each other in that EFC’s ability to reduce the value of its TRSs below 20% of its total assets by causing a TRS to distribute a dividend to it may be limited by its need to comply with the REIT 75% gross income test, which requires that, in general, 75% of its gross income come from certain real estate-related sources (and TRS dividends are not qualifying income for such test). There can be no assurance that EFC will be able to comply with either or both of these tests in all market conditions. EFC’s inability to comply with both of these tests could have a material adverse effect on its business, financial condition, liquidity, results of operations, qualification as a REIT and ability to make distributions to its stockholders.

The TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. EFC’s domestic TRSs will pay U.S. federal, state and local income tax on their taxable income (net of deductible interest expense) at regular corporate tax rates, and their after-tax net income will be available for distribution to EFC but is not required to be distributed to it. In certain circumstances, the ability to deduct interest expense by any TRS could be limited. In addition, losses in EFC’s domestic TRSs generally will not provide any tax benefit prior to liquidation, except for being carried forward against future TRS taxable income.

EFC generally structures its foreign TRSs with the intent that their income and operations will not be subject to U.S. federal, state and local income tax. For example, the Code and the Treasury Regulations promulgated thereunder specifically provide that a non-U.S. corporation is not engaged in a U.S. trade or business and therefore is not subject to U.S. federal income tax if it restricts its activities in the United States to trading in stock and securities (or any activity closely related thereto) for its own account irrespective of whether such trading (or such other activity) is conducted by such a non-U.S. corporation or its employees through a resident broker, commission agent, custodian or other agent. However, there is no assurance that EFC’s foreign TRSs will successfully operate so that they are not subject to U.S. federal, state and local income tax. If the IRS successfully challenged the tax treatment of EFC’s foreign TRSs, it would reduce the amount that those foreign TRSs would have available to distribute to EFC. E&P in EFC’s foreign TRSs, including gains from securities marked to market for tax purposes, are taxable to EFC, and are not qualifying income for the purposes of the REIT 75% gross income test, regardless of whether such earnings are distributed to EFC. In addition, losses in EFC’s foreign TRSs generally will not provide any tax benefit prior to liquidation.

EFC intends to monitor the value of and the income from its respective investments in its domestic and foreign TRSs for the purpose of ensuring compliance with TRS ownership limitations and the REIT 75% gross income test. In addition, EFC will review all of its transactions with its TRSs to ensure that they are entered into on arm’s-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that EFC will be able to comply with the 20% limitation, the REIT 75% gross income test or avoid application of the 100% excise tax discussed above.

EFC’s ownership limitation may restrict change of control or business combination opportunities in which its stockholders might receive a premium for their EFC Common Stock.

In order for EFC to maintain its qualification as a REIT, no more than 50% in value of its outstanding shares may be owned, directly or indirectly, by five or fewer individuals during the last half of any calendar year. “Individuals” for this purpose include natural persons, private foundations, some employee benefit plans and trusts, and some charitable trusts. In order to help EFC qualify as a REIT, among other purposes, its certificate of incorporation provides that no person may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.8%, in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of EFC’s capital stock.

The ownership limitation and other restrictions could have the effect of discouraging a takeover or other transaction in which holders of EFC Common Stock might receive a premium for their EFC Common Stock over the then-prevailing market price or which holders might believe to be otherwise in their best interests.

TABLE OF CONTENTS

Dividends payable by REITs do not qualify for the reduced tax rates available for “qualified dividend income.”

Qualified dividend income payable to U.S. investors that are individuals, trusts, and estates is subject to the reduced maximum tax rate applicable to long-term capital gains. Common and preferred dividends payable by REITs, however, generally are not eligible for the reduced rates on qualified dividend income. Rather, for taxable years beginning prior to January 1, 2026, non-corporate taxpayers may deduct up to 20% of certain pass-through business income, including “qualified REIT dividends” (generally, dividends received by a REIT stockholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations. To qualify for this deduction, the shareholder receiving such dividend must hold the dividend-paying REIT shares for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the shares become ex-dividend, and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property. However, even if a domestic stockholder qualifies for this deduction, the effective rate for such REIT dividends still remains higher than the top marginal rate applicable to “qualified dividend income” received by U.S. individuals. Although the reduced U.S. federal income tax rate applicable to qualified dividend income does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends and the reduction in the corporate tax rate could cause investors who are taxed at individual rates and regulated investment companies to perceive investments in the stocks of REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends treated as qualified dividend income, which could adversely affect the value of the stock of REITs, including EFC’s common stock.

EFC may be subject to adverse legislative or regulatory tax changes that could reduce the market price of EFC Common Stock.

At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. EFC cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. Changes to the tax laws, with or without retroactive application, could significantly and negatively affect EFC or its stockholders. Several recent proposals have been made that would make substantial changes to the U.S. federal income tax laws. EFC cannot predict the long-term effect of any future changes on REITs or assure its stockholders that any such changes will not adversely affect the taxation of a stockholder. EFC and its stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.

EFC’s recognition of “phantom” income may reduce a stockholder’s after-tax return on an investment in EFC stock.

EFC may recognize phantom income, which is taxable income in excess of its economic income, in the earlier years that EFC holds certain investments or in the year that it modifies certain loan investments, and EFC may only experience an offsetting excess of economic income over its taxable income in later years, if at all. As a result, stockholders at times may be required to pay U.S. federal income tax on distributions taxable as dividends that economically represent a return of capital rather than a dividend. Taking into account the time value of money, this acceleration or increase of U.S. federal income tax liabilities may reduce a stockholder’s after-tax return on his or her investment to an amount less than the after-tax return on an investment with an identical before-tax rate of return that did not generate phantom income.

Liquidation of EFC’s assets may jeopardize its REIT qualification or may be subject to a 100% tax.

To maintain its qualification as a REIT, EFC must comply with requirements regarding its assets and its sources of income. If EFC is compelled to liquidate its assets to repay obligations to its lenders or for other reasons, it may be unable to comply with these requirements, thereby jeopardizing its qualification as a REIT, or it may be subject to a 100% tax on any resultant gain if it sells assets that are treated as inventory or property held primarily for sale to customers in the ordinary course of business.

TABLE OF CONTENTS

The tax on prohibited transactions will limit EFC’s ability to engage in transactions, including certain methods of securitizing MBS, that would be treated as sales of dealer property for U.S. federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% tax with no offset for losses. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, but including mortgage loans, held primarily for sale to customers in the ordinary course of business. EFC might be subject to this tax if it disposes of or securitizes mortgage loans or MBS in a manner that was treated as dealer activity for U.S. federal income tax purposes. Therefore, in order to avoid the prohibited transactions tax, EFC may choose not to engage in certain sales or securitization structures, even though the transactions might otherwise be beneficial to it. Alternatively, in order to avoid the prohibited transactions tax, EFC may choose to implement certain transactions through a TRS, including by contributing or selling the assets to a TRS.

Although EFC expects to avoid the prohibited transactions tax by conducting the sale of property that may be characterized as dealer property through a TRS, such TRS will be subject to U.S. federal, state and local corporate income tax and may incur a significant tax liability as a result of those sales conducted through the TRS. No assurance can be given that any property that EFC sells will not be treated as property held for sale to customers, or that EFC can satisfy certain safe-harbor provisions of the Code that would prevent such treatment. Moreover, no assurance can be given that the IRS will respect the transaction by which property that may be characterized as dealer property is contributed to the TRS. If any property sold is treated as property held for sale to customers or if the contribution of property is not respected, then EFC may be treated as having engaged in a prohibited transaction, and its net income therefrom would be subject to a 100% tax.

The EFC Operating Partnership and certain other subsidiaries have made a mark-to-market election under Section 475(f) of the Code. If the IRS challenges their application of that election, it may jeopardize EFC’s REIT qualification.

The EFC Operating Partnership, EFC’s subsidiary REIT and certain other subsidiaries of EFC have made elections under Section 475(f) of the Code to mark their securities to market. There are limited authorities under Section 475(f) of the Code as to what constitutes a trader for U.S. federal income tax purposes. Under other sections of the Code, the status of a trader in securities depends on all of the facts and circumstances, including the nature of the income derived from the taxpayer’s activities, the frequency, extent and regularity of the taxpayer’s securities transactions, and the taxpayer’s investment intent. There can be no assurance that the EFC Operating Partnership and these subsidiaries will continue to qualify as a trader in securities eligible to make the mark-to-market election. EFC has not received, nor is it seeking, an opinion from counsel or a ruling from the IRS regarding its or its subsidiaries’ qualification as a trader. If the qualification for, or EFC’s application of, the mark-to-market election were successfully challenged by the IRS, in whole or in part, it could, depending on the circumstances, result in retroactive (or prospective) changes in the amount or timing of gross income EFC recognizes. Furthermore, the law is unclear as to the treatment of mark-to-market gains and losses under the various REIT tax rules, including, among others, the prohibited transaction and qualified liability hedging rules. While there is limited analogous authority, EFC treats any mark-to-market gains as qualifying income for purposes of the 75% gross income test to the extent that the gain is recognized with respect to a qualifying real estate asset, based on an opinion of Hunton Andrews Kurth LLP substantially to the effect that any such gains recognized with respect to assets that would produce qualifying income for purposes of the 75% and/or 95% gross income test, as applicable, if they were actually sold should be treated as qualifying income to the same extent for purposes of the 75% and/or 95% gross income test, as applicable, and any such gains should not be subject to the prohibited transaction tax. If the IRS were to successfully treat EFC’s mark-to-market gains as subject to the prohibited transaction tax or to successfully challenge the treatment or timing of recognition of its mark-to-market gains or losses with respect to its qualified liability hedges, it could owe material U.S. federal income or penalty tax or, in some circumstances, even fail to maintain its qualification as a REIT. Finally, mark-to-market gains and losses could cause volatility in the amount of EFC’s taxable income. For instance, the mark-to-market election could generate losses in one taxable year that EFC is unable to use to offset taxable income, followed by mark-to-market gains in a subsequent taxable year that force it to make additional distributions to its stockholders. Hence, the mark-to-market gains and losses could cause EFC to distribute more dividends to its stockholders in a particular period than would otherwise be desirable from a business perspective.

TABLE OF CONTENTS

The interest apportionment rules may affect EFC’s ability to comply with the REIT asset and gross income tests.

Most of the distressed mortgage loans that EFC has acquired were acquired by it at a discount from their outstanding principal amount, because its pricing was generally based on the value of the underlying real estate that secures those mortgage loans. Treasury Regulations Section 1.856-5(c) (the “interest apportionment regulation”) provides that if a mortgage is secured by both real property and other property, a REIT is required to apportion its annual interest income to the real property security based on a fraction, the numerator of which is the value of the real property securing the loan, determined when the REIT commits to acquire the loan, and the denominator of which is the highest “principal amount” of the loan during the year. If a mortgage is secured by both real property and personal property and the value of the personal property does not exceed 15% of the aggregate value of the property securing the mortgage, the mortgage is treated as secured solely by real property for this purpose. Revenue Procedure 2014-51 interprets the “principal amount” of the loan to be the face amount of the loan, despite the Code requiring taxpayers to treat any market discount, that is the difference between the purchase price of the loan and its face amount, for all purposes (other than certain withholding and information reporting purposes) as interest rather than principal.

The interest apportionment regulation applies only if the debt in question is secured both by real property and personal property. EFC believes that most of the mortgage loans that it acquired at a discount under the circumstances contemplated by Revenue Procedure 2014-51 are secured only by real property (including mortgage loans secured by both real property and personal property where the value of the personal property does not exceed 15% of the aggregate value of the property securing the mortgage). Accordingly, EFC believes that the interest apportionment regulation generally does not apply to its loans.

Nevertheless, if the IRS were to assert successfully that such mortgage loans were secured by property other than real estate, that the interest apportionment regulation applied for purposes of EFC’s REIT testing, and that the position taken in Revenue Procedure 2014-51 should be applied to its portfolio, then depending upon the value of the real property securing its loans and their face amount, and the sources of its gross income generally, EFC might not be able to satisfy the REIT 75% gross income test, and possibly the asset tests applicable to REITs. If EFC did not meet these tests, it could potentially either lose its REIT status or be required to pay a tax penalty to the IRS. With respect to the REIT 75% asset test, Revenue Procedure 2014-51 provides a safe harbor under which the IRS will not challenge a REIT’s treatment of a loan as being a real estate asset in an amount equal to the lesser of (1) the greater of (a) the current value of the real property securing the loan or (b) the fair market value of the real property securing the loan determined as of the date the REIT committed to acquire the loan or (2) the fair market value of the loan on the date of the relevant quarterly REIT asset testing date. This safe harbor, if it applied to EFC, would help it comply with the REIT asset tests following the acquisition of distressed debt if the value of the real property securing the loan were to subsequently decline. If EFC did not meet one or more of the REIT asset tests, then it could potentially either lose its REIT status or be required to pay a tax penalty to the IRS.

Generally, EFC’s investments in residential transition loans, or “RTLs,” and occasionally, its investments in small balance commercial mortgage loans, or “SBCs,” will require it to make estimates about the fair value of land improvements that may be challenged by the IRS.

Generally, EFC’s investments in RTLs, and occasionally its investments in SBCs, are short term loans secured by a mortgage on real estate assets where the proceeds of the loan will be used, in part, to renovate the property. The interest from these investments will be qualifying income for purposes of the REIT income tests, provided that the loan value of the real property securing the investment is equal to or greater than the highest outstanding principal amount of the loan during any taxable year. Under the REIT provisions, where improvements will be constructed with the proceeds of the loan, the loan value of the real property is the fair value of the land and existing real property improvements plus the reasonably estimated cost of the improvements or developments (other than personal property) that will secure the loan and that are to be constructed from the proceeds of the loan. There can be no assurance that the IRS would not challenge EFC’s estimate of the loan value of the real property.

TABLE OF CONTENTS

The failure of a mezzanine loan or similar debt to qualify as a real estate asset could adversely affect EFC’s ability to maintain its qualification as a REIT.

EFC may invest in mezzanine loans or similar debt. The IRS has provided a safe harbor for mezzanine loans but not rules of substantive law. Pursuant to the safe harbor, if a mezzanine loan meets certain requirements, it will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying income for purposes of the REIT 75% gross income test. EFC may acquire mezzanine loans or similar debt that meet most but do not meet all of the requirements of this safe harbor, and it may treat such loans as real estate assets for purposes of the REIT asset and income tests. In the event that EFC owns a mezzanine loan or similar debt that does not meet the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and income tests and, if such a challenge were sustained, EFC could fail to maintain its qualification as a REIT.

EFC’s qualification as a REIT and exemption from U.S. federal income tax with respect to certain assets may be dependent on the accuracy of legal opinions or advice rendered or given or statements by the issuers of assets that its acquires, and the inaccuracy of any such opinions, advice or statements may adversely affect EFC’s REIT qualification and result in significant corporate-level tax.

When purchasing securities, EFC may rely on opinions or advice of counsel for the issuer of such securities, or statements made in related offering documents, for purposes of determining whether such securities represent debt or equity securities for U.S. federal income tax purposes, the value of such securities, and also to what extent those securities constitute qualified real estate assets for purposes of the REIT asset tests and produce income which qualifies under the REIT 75% gross income test. The inaccuracy of any such opinions, advice or statements may adversely affect EFC’s REIT qualification and result in significant corporate-level tax. Additionally, counsel is generally under no obligation to update any such opinions after they are issued. Hence, subsequent changes to the purchased securities or in the applicable law may cause such opinions to become inaccurate or outdated despite being accurate when issued and may also adversely affect EFC’s REIT qualification and result in significant corporate-level tax.

The failure of excess MSRs held by EFC to qualify as real estate assets, or the failure of the income from excess MSRs to qualify as interest from mortgages, could adversely affect EFC’s ability to qualify as a REIT.

Following the Merger, EFC expects to hold excess MSRs through the EFC Operating Partnership. In certain private letter rulings, the IRS ruled that excess MSRs meeting certain requirements would be treated as an interest in mortgages on real property and thus a real estate asset for purposes of the 75% REIT asset test, and interest received by a REIT from such excess MSRs will be considered interest on obligations secured by mortgages on real property for purposes of the 75% gross income test. A private letter ruling may be relied upon only by the taxpayer to whom it is issued, and the IRS may revoke a private letter ruling. Consistent with the analysis adopted by the IRS in such private letter rulings and based on advice of counsel, EFC intends to treat any excess MSRs that meet the requirements provided in the private letter rulings as qualifying assets for purposes of the 75% gross asset test, and it intends to treat income from such excess MSRs as qualifying income for purposes of the 75% and 95% gross income tests. Notwithstanding the IRS’s determination in the private letter rulings described above, it is possible that the IRS could successfully assert that any excess MSRs that EFC holds do not qualify for purposes of the 75% REIT asset test and income from such MSRs does not qualify for purposes of the 75% and/or 95% gross income tests, which could cause EFC to be subject to a penalty tax and could adversely impact its ability to qualify as a REIT.

TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the annexes to this proxy statement/prospectus contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act.

These forward-looking statements are predictions and generally can be identified by use of statements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “likely” or other words, phrases or expressions of similar import, or the negative or other words or expressions of similar meaning, and statements regarding the benefits of the Merger or the other transactions contemplated by the Merger Agreement or the future financial condition, results of operations and business of EFC, Arlington or the Combined Company. Without limiting the generality of the preceding sentence, certain information contained in the sections “The Merger — Background of the Merger,” “The Merger — Recommendation of the Arlington Board and Its Reasons for the Merger,” “The Merger — The EFC Board’s Reasons for the Merger,” “The Merger — Certain EFC Unaudited Prospective Financial Information” and “The Merger — Certain Arlington Unaudited Prospective Financial Information” constitute forward-looking statements.

EFC and Arlington base these forward-looking statements on particular assumptions that they have made in light of their industry experience, as well as their perception of historical trends, current conditions, expected future developments and other factors that they believe are appropriate under the circumstances. The forward-looking statements are necessarily estimates reflecting the judgment of EFC’s and Arlington’s respective management and involve a number of known and unknown risks, uncertainties and other factors which may cause actual results, performance, or achievements of EFC, Arlington or the Combined Company to be materially different from those expressed or implied by the forward-looking statements. In addition to other factors and matters contained in this proxy statement/prospectus, including those disclosed under “Risk Factors” beginning on page 29, these forward-looking statements are subject to risks, uncertainties and other factors, including, among others:

•

the ability of Arlington to obtain the required shareholder approval to consummate the Merger;

•

the satisfaction or waiver of other conditions in the Merger Agreement;

•

the risk that the Merger or the other transactions contemplated by the Merger Agreement may not be completed in the time frame expected or at all;

•

the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement and that a termination of the Merger Agreement under certain circumstances could require Arlington to pay EFC a termination fee, as described under “The Merger Agreement — Termination Fee and Expenses” beginning on page 115;

•

the ability of EFC to successfully integrate Arlington and implement the operating strategy of Arlington;

•

risks related to the disruption of management’s attention from ongoing business operations due to the proposed Merger;

•

the outcome of litigation, including any legal proceedings that may be instituted against EFC, Arlington or others related to the Merger Agreement;

•

changes in interest rates or the market value of EFC’s or Arlington’s investments;

•

market volatility;

•

changes in mortgage default rates and prepayment rates;

•

increased rates of default and/or decreased recovery rates on EFC’s or Arlington’s assets;

•

the availability and terms of financing;

•

regulatory proceedings or inquiries;

•

changes in government regulations affecting the business of EFC or Arlington;

TABLE OF CONTENTS

•

the ability of EFC and Arlington to maintain their exclusion from registration under the Investment Company Act;

•

the ability of EFC and Arlington (through the effective time of the Merger) to maintain their qualifications as REITs;

•

changes in market conditions and economic trends, such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations;

•

risks associated with the termination of the Great Ajax merger agreement with Great Ajax, including impact on the market price of EFC Common Stock; and

•

other risks detailed in the “Risk Factors” section of this proxy statement/prospectus and/or in filings made by each of EFC and Arlington with the SEC, including the Annual Report on Form 10-K for the year ended December 31, 2022, and other reports filed by EFC with the SEC and incorporated herein by reference, and the Annual Report on Form 10-K for the year ended December 31, 2022, as amended, and other reports filed by Arlington with the SEC and incorporated herein by reference. See also “Where You Can Find More Information and Incorporation by Reference” on page 209 of this proxy statement/prospectus.

Although EFC and Arlington believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this proxy statement/prospectus will prove to be accurate. As you read and consider the information in this proxy statement/prospectus, you are cautioned to not place undue reliance on these forward-looking statements. These statements are not guarantees of performance or results and speak only as of the date of this proxy statement/prospectus, in the case of forward-looking statements contained in this proxy statement/prospectus, or the dates of the documents incorporated by reference or attached as annexes to this proxy statement/prospectus, in the case of forward-looking statements made in those documents. Neither EFC nor Arlington undertakes any obligation to update or revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information or developments, future events or otherwise, and each expressly disclaims any obligation to do so, except as required by law.

In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by EFC, Arlington or any other person that the results or conditions described in such statements or the objectives and plans of EFC or Arlington will be achieved. In addition, EFC’s and Arlington’s qualifications as REITs involve the application of highly technical and complex provisions of the Code.

All forward-looking statements, expressed or implied, included in this proxy statement/prospectus are expressly qualified in their entirety by this cautionary statement and the factors discussed under the heading “Risk Factors” herein. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that EFC, Arlington or persons acting on their behalf may issue.

TABLE OF CONTENTS

THE COMPANIES

Ellington Financial Inc.

Ellington Financial Inc.
53 Forest Avenue
Old Greenwich, Connecticut 06870
(203) 698-1200

EFC was formed as a Delaware limited liability company in July 2007, commenced operations in August 2007 and completed its conversion to a Delaware corporation on March 1, 2019. EFC elected to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2019. EFC believes that, commencing with such taxable year, it has been organized and operated in a manner so as to remain qualified as a REIT under the U.S. federal income tax laws, and it intends to continue to operate in such a manner. All of EFC’s operations and business activities are conducted through the EFC Operating Partnership. EFC has control of the EFC Operating Partnership and intends to operate the EFC Operating Partnership in a manner consistent with the requirements for EFC’s qualification as a REIT. In general, as a REIT, EFC is not subject to U.S. federal income tax on its REIT taxable income that it distributes to its stockholders. However, EFC’s TRSs are subject to U.S. federal, state and local income taxes. EFC also operates its business in a manner that permits it to maintain an exclusion from registration under the Investment Company Act.

EFC Common Stock is traded on the NYSE under the symbol “EFC.” EFC’s website is www.ellingtonfinancial.com.

EFC’s principal executive offices are located at 53 Forest Avenue, Old Greenwich, Connecticut 06870, and its telephone number is (203) 698-1200.

EF Merger Sub Inc.

EF Merger Sub Inc.
53 Forest Avenue
Old Greenwich, Connecticut 06870
(203) 698-1200

TABLE OF CONTENTS

Arlington Asset Investment Corp.

Arlington Asset Investment Corp.
6862 Elm Street, Suite 320
McLean, Virginia 22101
(703) 373-0200

Arlington is an investment firm that focuses primarily on investing in mortgage related assets. Arlington’s capital is currently allocated between the following asset classes: (i) MSR-related assets, which represent investments for which the return is based on the economic performance of a pool of specific MSRs; (ii) credit investments, which generally include investments in mortgage loans secured by either residential or commercial real property or mortgage-backed securities collateralized by residential or commercial mortgage loans; and (iii) agency mortgage-backed securities, which consist of residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a U.S. government sponsored enterprise, such as Fannie Mae or Freddie Mac, or by an agency of the federal government, such as Ginnie Mae.

The Combined Businesses

The business of the Combined Company will be operated through EFC and its subsidiaries, which will include the surviving corporation of the Merger and its subsidiaries.

The Combined Company’s principal executive offices will remain at EFC’s location at 53 Forest Avenue, Old Greenwich, Connecticut 06870, and its telephone number will remain (203) 698-1200.

TABLE OF CONTENTS

THE ARLINGTON SPECIAL MEETING

This proxy statement/prospectus is being furnished in connection with the solicitation of proxies from Arlington common shareholders for exercise at the Arlington special meeting. This proxy statement/prospectus and accompanying form of proxy are first being mailed to Arlington common shareholders on or about [•], 2023.

Purpose of the Arlington Special Meeting

•

The Arlington special meeting will be held solely by means of remote communication live over the Internet on December 12, 2023, at 9:00 a.m., Eastern Time, for the following purposes:

•

to consider and vote on the Arlington Merger Proposal;

•

to consider and vote on the Arlington Non-Binding Compensation Advisory Proposal; and

•

to consider and vote on the Arlington Adjournment Proposal.

Pursuant to Virginia law and the Arlington Bylaws, only business within the purposes described in the Notice of Special Meeting of Shareholders may be conducted at the Arlington special meeting. Any action may be taken on the items of business described above at the Arlington special meeting on the date specified above, or on any date or dates to which the Arlington special meeting may be postponed or adjourned.

Record Date; Voting Rights; Proxies

Arlington has fixed the close of business on October 13, 2023, as the Arlington Record Date for determining holders of Arlington Common Stock entitled to the notice of, and to vote at, the Arlington special meeting. Arlington common shareholders at the close of business on the Arlington Record Date will be entitled to the notice of the Arlington special meeting. As of the Arlington Record Date, there were 28,360,447 issued and outstanding shares of Arlington Common Stock held by approximately 98 holders of record. Each holder of record of Arlington Common Stock on the Arlington Record Date is entitled to one vote per share of Arlington Common Stock with respect to each proposal.

Shareholders of Record. If you are a holder of record of Arlington Common Stock, you may have your shares of Arlington Common Stock voted on the matters to be presented at the Arlington special meeting in any of the following ways:

•

To authorize a proxy through the Internet, visit the website set forth on the proxy card you received. You will be asked to provide the control number from the enclosed proxy card. Proxies authorized through the Internet must be received by 11:59 p.m., Eastern Time, on December 11, 2023.

•

To authorize a proxy by telephone, dial the toll-free telephone number set forth on the proxy card you received using a touch tone phone and follow the recorded instructions. You will be asked to provide the control number from the enclosed proxy card. Proxies authorized by telephone or through the Internet must be received by 11:59 p.m., Eastern Time, on December 11, 2023.

•

To authorize a proxy by mail, complete, date and sign each proxy card you receive and return it as promptly as practicable in the enclosed prepaid envelope.

•

If you intend to vote your shares electronically at the Arlington special meeting, please click on the link that will be provided during the virtual Arlington special meeting while the polls are open, and use the virtual control number assigned to you in your registration confirmation email or included on your proxy card.

Beneficial Owners. If your shares of Arlington Common Stock are held in “street name,” please refer to the instructions provided by your broker, bank or other nominee to vote your shares of Arlington Common Stock.

Voting; Proxies. All shares of Arlington Common Stock that are entitled to vote and are represented at the Arlington special meeting by properly authorized proxies received before or at the Arlington special meeting and not revoked will be voted at the Arlington special meeting in accordance with the instructions

TABLE OF CONTENTS

indicated on the proxies. If no instructions are given on a timely and properly executed proxy card, your shares of Arlington Common Stock will be voted:

•

“FOR” the Arlington Merger Proposal;

•

“FOR” the Arlington Non-Binding Compensation Advisory Proposal; and

•

“FOR” the Arlington Adjournment Proposal.

Votes cast by proxy or electronically at the Arlington special meeting will be tabulated by one or more inspectors appointed by the Arlington Board for the Arlington special meeting who will also determine whether or not a quorum is present.

Any proxy given by a shareholder of record pursuant to this solicitation may be revoked at any time before the vote is taken at the Arlington special meeting in any of the following ways:

•

authorizing a later proxy by telephone or through the Internet prior to 11:59 p.m., Eastern Time, on December 11, 2023;

•

voting electronically at the Arlington special meeting, although attendance at the Arlington special meeting alone will not by itself constitute a revocation of a proxy.

Any written notice of revocation or subsequent proxy card should be sent to Arlington Asset Investment Corp., 6862 Elm Street, Suite 320, McLean, Virginia 22101, Attention: Corporate Secretary.

If your shares of Arlington Common Stock are held in “street name,” please refer to the instructions provided by your broker, bank or other nominee to revoke your proxy or change your vote before the vote is taken at the Arlington special meeting.

Solicitation of Proxies

Arlington is soliciting proxies on behalf of the Arlington Board. Arlington will bear the costs of soliciting proxies. Brokerage houses, fiduciaries, nominees and others will be reimbursed for their out-of-pocket expenses in forwarding proxy materials to owners of Arlington Common Stock held in their names. In addition to the solicitation of proxies by use of the mail, proxies may be solicited from Arlington shareholders by directors, officers and employees of Arlington in person, by telephone, on the Internet or using any other appropriate means of communications. No additional compensation, except for reimbursement of reasonable out-of-pocket expenses, will be paid to directors, officers and employees of Arlington in connection with this solicitation.

Additionally, Arlington has engaged Alliance as proxy solicitor to assist in the solicitation of proxies for the Arlington special meeting. Arlington estimates it will pay Alliance a fee of approximately $27,300. Arlington has also agreed to reimburse Alliance for approved and reasonable out-of-pocket expenses and disbursements incurred in connection with the proxy solicitation and to indemnify Alliance against certain losses, costs and expenses. No portion of the amount that Arlington has agreed to pay to Alliance is contingent upon the Closing. Any questions or requests for assistance regarding this proxy statement/prospectus and related proxy materials may be directed to Alliance by telephone at (855) 600-2575.

Attendance at the Virtual Arlington Special Meeting

On the date of the Arlington special meeting, you can virtually attend the Arlington special meeting by accessing the online virtual meeting platform. However, you are only entitled to vote and/or ask questions at the Arlington special meeting if you were a common shareholder of record or beneficial owner as of the Arlington Record Date.

TABLE OF CONTENTS

If you are an Arlington shareholder of record, you must:

•

You will need the virtual control number included on your proxy card if you choose to vote during the Arlington special meeting.

If you are a street name Arlington shareholder (i.e., you hold your shares of Arlington Common Stock beneficially through a broker, bank or other nominee), you must:

•

If you would like to vote shares electronically at the Arlington special meeting, you will need to obtain a legal proxy from your broker, bank or other nominee and provide a copy of the legal proxy (which may be uploaded to the registration website or sent via email to VirtualMeeting@viewproxy.com) as part of the registration process. After registering, you will receive a virtual control number in the email confirming your registration. Please note that if you do not provide a copy of the legal proxy, you may still attend the Arlington special meeting but you will not be able to vote shares electronically at the Arlington special meeting.

•

If you encounter difficulties accessing the virtual Arlington special meeting, please call 1-866-612-8937 or email virtualmeeting@viewproxy.com for technical support.

Voting at the Virtual Arlington Special Meeting

If you wish to vote your shares of Arlington Common Stock electronically at the Arlington special meeting, please click on the link that will be provided during the virtual Arlington special meeting while the polls are open, and use the virtual control number included on your proxy card (if you are a registered holder) or assigned to you in your registration confirmation email.

Even if you plan to attend the virtual Arlington special meeting, Arlington and EFC encourage you to vote in advance by phone, Internet or mail so that your vote will be counted even if you later decide not to attend the virtual Arlington special meeting.

Quorum; Abstentions and Broker Non-Votes

The presence virtually or by proxy of the holders of shares of Arlington Common Stock entitled to cast a majority of all the votes entitled to be cast at the Arlington special meeting will constitute a quorum at the Arlington special meeting. Shares that abstain from voting will be treated as shares that are present and entitled to vote at the Arlington special meeting for purposes of determining whether a quorum exists.

Because approval for each of the Arlington Merger Proposal, the Arlington Non-Binding Compensation Advisory Proposal and the Arlington Adjournment Proposal requires, provided a quorum is present, the affirmative vote of a majority of the votes cast on the applicable proposal by holders of shares of Arlington Common Stock at the Arlington special meeting, abstentions, failing to vote and broker non-votes, if any, will have no effect.

Brokers, banks and other nominees that hold their customers’ shares in street name may not vote their customers’ shares on “non-routine” matters without instructions from their customers. As each of the

TABLE OF CONTENTS

proposals to be voted upon at the Arlington special meeting is considered “non-routine,” such organizations do not have discretion to vote on any of the proposals. As a result, if you hold your shares in “street name” and you fail to provide your broker, bank or other nominee with any instructions regarding how to vote your shares of Arlington Common Stock, your shares of Arlington Common Stock will not be considered present at the Arlington special meeting and will not be voted on any of the proposals.

Required Vote

Approval of each of the Arlington Merger Proposal, the Arlington Non-Binding Compensation Advisory Proposal and the Arlington Adjournment Proposal requires, provided a quorum is present, the affirmative vote of a majority of the votes cast on the applicable proposal by holders of shares of Arlington Common Stock at the Arlington special meeting.

Regardless of the number of shares of Arlington Common Stock you own, your vote is important. Please complete, sign, date and promptly return the enclosed proxy card today or authorize a proxy to vote your shares by telephone or on the Internet.

TABLE OF CONTENTS

PROPOSALS SUBMITTED TO THE ARLINGTON SHAREHOLDERS

Proposal 1: Arlington Merger Proposal

Arlington common shareholders are asked to approve the Arlington Merger Proposal as contemplated by the Merger Agreement. For a summary and detailed information regarding the Arlington Merger Proposal, see the information about the Merger and the Merger Agreement throughout this proxy statement/prospectus, including the information set forth in the sections entitled “The Merger” beginning on page 56 and “The Merger Agreement” beginning on page 95. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus and is incorporated by reference into this proxy statement/prospectus.

Pursuant to the Merger Agreement, approval of the Arlington Merger Proposal is a condition to the consummation of the Merger. If the Arlington Merger Proposal is not approved, the Merger will not be completed.

Approval of the Arlington Merger Proposal requires, provided a quorum is present, the affirmative vote of a majority of the votes cast on the proposal by holders of shares of Arlington Common Stock at the Arlington special meeting. For purposes of the Arlington Merger Proposal, a failure to vote, a failure to instruct your bank, broker or other nominee to vote or an abstention from voting will have no effect.

The Arlington Board unanimously recommends that the Arlington common shareholders vote “FOR” the Arlington Merger Proposal.

Proposal 2: Arlington Non-Binding Compensation Advisory Proposal

Under Section 14A of the Exchange Act, which was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Arlington is required to provide shareholders the opportunity to vote to approve, on a non-binding, advisory basis, certain compensation that may be paid or become payable to Arlington’s named executive officers in connection with the completion of the Merger as discussed in the section entitled “The Merger — Interests of Arlington’s Directors and Executive Officers in the Merger,” beginning on page 85, including the table entitled “Quantification of Potential Payments and Benefits to Arlington’s Named Executive Officers in Connection with the Merger” and accompanying footnotes. Accordingly, Arlington shareholders are being provided with the opportunity to cast an advisory vote on such payments.

As an advisory vote, this proposal is not binding upon Arlington or the Arlington Board, or EFC or the EFC Board, and approval of this proposal is not a condition to completion of the Merger and is a vote separate and apart from the Arlington Merger Proposal. Accordingly, you may vote to approve the Arlington Merger Proposal and vote not to approve the Arlington Non-Binding Compensation Advisory Proposal and vice versa. Because the Merger-related executive compensation to be paid in connection with the Merger is based on the terms of the Merger Agreement as well as the contractual arrangements with Arlington’s named executive officers, such compensation will be payable, regardless of the outcome of this advisory vote, if the Arlington Merger Proposal is approved (subject only to the contractual conditions applicable thereto). However, Arlington seeks your support and believes that your support is appropriate because Arlington has a comprehensive executive compensation program designed to link the compensation of its executives with Arlington’s performance and the interests of Arlington shareholders. Accordingly, holders of shares of Arlington Common Stock are being asked to vote on the following resolution:

“RESOLVED, that the shareholders of Arlington Asset Investment Corp. approve, on an advisory, non-binding basis, the compensation that may be paid or become payable to the named executive officers of Arlington Asset Investment Corp. that is based on or otherwise relates to the merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The Merger — Interests of Arlington’s Directors and Executive Officers in the Merger,” beginning on page 85 of the proxy statement/prospectus (which disclosure includes the “Quantification of Potential Payments and Benefits to Arlington’s Named Executive Officers in Connection with the Merger” table required pursuant to Item 402(t) of Regulation S-K).”

Approval of the Arlington Non-Binding Compensation Advisory Proposal requires, provided a quorum is present, the affirmative vote of a majority of the votes cast on the proposal by holders of shares

TABLE OF CONTENTS

of Arlington Common Stock at the Arlington special meeting. For purposes of the Arlington Non-Binding Compensation Advisory Proposal, a failure to vote, a failure to instruct your bank, broker or other nominee to vote or an abstention from voting will have no effect.

The Arlington Board unanimously recommends that the Arlington common shareholders vote “FOR” the Arlington Non-Binding Compensation Advisory Proposal.

Proposal 3: Arlington Adjournment Proposal

The Arlington special meeting may be adjourned to another time or place, if necessary or appropriate in the judgment of the Arlington Board, to permit, among other things, further solicitation of proxies in favor of the Arlington Merger Proposal if there are not sufficient votes at the time of such adjournment to approve such proposal.

Arlington is asking Arlington shareholders to approve the adjournment of the Arlington special meeting, if necessary or appropriate in the judgment of the Arlington Board, to permit, among other things, further solicitation of proxies in favor of the Arlington Merger Proposal if there are not sufficient votes at the time of such adjournment to approve such proposal.

Approval of the Arlington Adjournment Proposal requires, provided a quorum is present, the affirmative vote of a majority of the votes cast on the proposal by holders of shares of Arlington Common Stock at the Arlington special meeting. For purposes of the Arlington Adjournment Proposal, a failure to vote, a failure to instruct your bank, broker or other nominee to vote or an abstention from voting will have no effect.

Arlington does not intend to call a vote on the Arlington Adjournment Proposal if the Arlington Merger Proposal considered at the Arlington special meeting has been approved at the Arlington special meeting. If the Arlington special meeting is adjourned for the purpose of soliciting additional proxies, Arlington common shareholders who have already submitted their proxies will be able to revoke them at any time prior to their exercise.

The Arlington Board unanimously recommends that the Arlington common shareholders vote “FOR” the Arlington Adjournment Proposal.

Other Business

Pursuant to the Arlington Bylaws and Virginia law, no other matters will be transacted at the Arlington special meeting.

TABLE OF CONTENTS

THE MERGER

The following is a summary of the material terms of the Merger. This summary does not purport to be complete and may not contain all of the information about the Merger that is important to you. The summary of the material terms of the Merger below and elsewhere in this proxy statement/prospectus is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement/prospectus as Annex A, and is incorporated by reference into this proxy statement/prospectus. You are urged to read this proxy statement/prospectus, including the Merger Agreement, carefully and in its entirety for a more complete understanding of the Merger.

General

The EFC Board has unanimously approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger and the EFC Stock Issuance, and the Arlington Board has unanimously approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, and declared that the transactions contemplated by the Merger Agreement, including the Merger, are advisable and in the best interests of Arlington and Arlington’s shareholders. Subject to the terms and conditions of the Merger Agreement, including the approval of the Arlington common shareholders of the Arlington Merger Proposal, Arlington will merge with and into Merger Sub, with Merger Sub continuing as the surviving corporation of the Merger. Immediately following the Merger, the surviving corporation of the Merger will be contributed to the EFC Operating Partnership in exchange for EFC OP Units. As a result of the contribution transaction, the surviving corporation of the Merger will become a wholly owned subsidiary of the EFC Operating Partnership. Arlington shareholders will receive the Merger Consideration described below under “The Merger Agreement — Consideration for the Merger” beginning on page 95.

Background of the Merger

The following chronology summarizes the key meetings and events that led to the signing of the Merger Agreement. The following chronology does not purport to catalogue every such meeting or event, or every conversation among the Arlington Board, the EFC Board, the members of Arlington’s management, the members of EFC’s management or representatives of Arlington and EFC and other parties.

The Arlington Board regularly evaluates Arlington’s strategic direction and ongoing business plans and reviews possible ways of increasing long-term shareholder value. As part of these reviews, the Arlington Board considers, among other things, various investments, diversification into new asset classes, purchases and sales of assets, potential strategic business combinations and other transactions with third parties that would further Arlington’s strategic objectives and ability to create shareholder value.

The EFC Board has set a strategic goal to achieve sensible growth in EFC’s capital and asset base in order to increase operating expense efficiencies, enhance EFC’s access to the capital markets and improve the liquidity of the EFC Common Stock. In furtherance of this strategic goal, EFC has regularly evaluated and executed on a range of capital raising alternatives, including public equity offerings, secured and unsecured borrowings and corporate acquisitions.

Following the market dislocation created by the COVID-19 pandemic and related challenges, in 2020, the Arlington Board and Arlington’s management conducted a comprehensive review of potential new investment strategies that could generate attractive risk adjusted returns and otherwise create value for Arlington’s shareholders, while complementing Arlington’s historical focus of investing in leveraged agency MBSs. Following this review, the Arlington Board concluded that Arlington should seek to reduce its risk by both lowering leverage and increasing liquidity, while working towards building out a unique investment platform that would enable Arlington to construct a portfolio of differentiated, high-return assets with compelling growth opportunities in large-scale markets. Arlington implemented this strategy over the course of the next few years.

During 2022, the Arlington Board and Arlington’s management continued to monitor Arlington’s financial performance and strategy and the challenges facing Arlington, many of which arose from Arlington’s relatively small size in an increasingly difficult and competitive market environment for mortgage

TABLE OF CONTENTS

REITs. Among other things, the Arlington Board observed that the trading price of Arlington Common Stock had not meaningfully increased despite the above discussed transition of Arlington’s investment strategy, and that Arlington would be challenged to pay a meaningful common stock dividend in the near term. In light of these conditions, as part of its ongoing review of Arlington’s strategic direction and its evaluation of potential strategic alternatives, the Arlington Board and Arlington’s management invited a nationally recognized financial advisor (which advisor is generally referred to herein as the “financial advisor”) to present to the Arlington Board at a regularly scheduled meeting to be held on November 4, 2022.

On November 3, 2022, in connection with such regularly scheduled meeting of the Arlington Board, the independent directors on the Arlington Board held a dinner meeting at which they discussed Arlington’s financial performance, strategy and challenges. The independent directors’ view was that the Arlington Board should explore whether a strategic transaction could address those challenges.

On November 4, 2022, the Arlington Board held a regularly scheduled in-person meeting at which representatives of Arlington’s management, Hunton Andrews Kurth LLP, Arlington’s outside counsel (“Hunton”), and, for a portion of the meeting, the financial advisor were present. During this meeting, a representative of the financial advisor reviewed Arlington’s financial performance and recent industry developments, discussed Arlington’s standalone strategy, reviewed potential strategic alternatives that might be available to Arlington, and outlined considerations relating to various types of strategic transactions with a variety of potential counterparties, including the sale of Arlington, an acquisition of another business or an orderly liquidation of Arlington. The Arlington Board considered industry conditions and Arlington’s financial performance and strategy, including challenges associated with Arlington’s relatively small size and the fact that Arlington had not paid a regular common stock dividend since February 2020. The Arlington Board also considered liquidity challenges for Arlington’s shareholders and the fact that the price per share of Arlington Common Stock had traded at a significant discount to Arlington’s book value per share for an extended period of time, which created challenges for Arlington in raising capital through traditional capital market transactions to fund new investments without significant dilution to Arlington’s common shareholders, and which, in turn, prevented Arlington from increasing its size and scale, both in terms of assets under management as well as market capitalization. Following discussion, the Arlington Board decided that Arlington should continue to evaluate possible strategic alternatives to maximize shareholder value, including a potential sale of Arlington. Following discussion, the Arlington Board authorized Mr. J. Rock Tonkel, Jr., President and Chief Executive Officer of Arlington, to contact certain third parties to gauge their interest in exploring a potential strategic transaction with Arlington. The independent directors on the Arlington Board also met in executive session.

Between November 6 and December 6, 2022, Mr. Tonkel contacted approximately ten third parties to gauge their interest in pursuing a strategic transaction with Arlington. During this period, Mr. Tonkel had several telephonic conversations with Daniel E. Berce, the independent non-executive chairman of the Arlington Board, to provide updates on the status of his conversations with the third parties. One of the third parties (referred to herein as “Party A”) had from time to time over the past few years engaged in preliminary conversations with Arlington’s management about a possible business combination, but none of those conversations had led to formal negotiations.

On December 6, 2022, the Arlington Board held a special meeting at which representatives of Arlington’s management, Hunton and the financial advisor were present. A representative of Hunton reviewed the directors’ legal duties in connection with their consideration of Arlington’s strategic alternatives. Mr. Tonkel provided an update on the conversations he had with potential counterparties to a strategic transaction, indicating which of the third parties had expressed interest in exploring a potential strategic transaction with Arlington. He indicated that Party A, which had a market capitalization similar to Arlington’s market capitalization, had started to work with a financial advisor to assist Party A in evaluating a potential stock-for-stock merger transaction with Arlington. Mr. Tonkel informed the Arlington Board that Party A had indicated it would be interested in having Mr. Tonkel serve as executive chairman of the combined company’s board of directors. A representative of the financial advisor then reviewed recent industry developments and potential strategic alternatives that might be available to Arlington, including the sale of Arlington, an acquisition of another business or an orderly liquidation of Arlington. The representative of the financial advisor also reviewed potential counterparties that might be interested in a strategic transaction with Arlington. During the discussion, the Arlington Board considered Party A’s ability to pursue a strategic

TABLE OF CONTENTS

transaction that would be attractive to Arlington’s shareholders and the strategic rationale for such a transaction. Following discussion, the Arlington Board authorized Arlington’s management to provide limited information to Party A to facilitate its evaluation of a potential strategic transaction. However, the Arlington Board’s view was that Arlington should still solicit additional proposals from a broad number of other potential counterparties if the Arlington Board ultimately decided to pursue a strategic transaction. The independent directors on the Arlington Board also met in executive session with representatives of Hunton and, for a portion of the executive session, the financial advisor, to discuss the process for exploring strategic alternatives. During the executive session, the independent directors determined that Arlington should commence a process to solicit proposals for a strategic transaction in early 2023 and that the financial advisor should develop a list for the Arlington Board’s review and approval of potential counterparties that might be contacted in a broad marketing process. A representative of Hunton reviewed various legal considerations relating to such a process.

During the remainder of December 2022, Mr. Tonkel continued to have preliminary discussions with potential counterparties to a strategic transaction to gauge their interest in Arlington, including Party A. Arlington’s management also provided limited information to Party A, as authorized by the Arlington Board, to assist Party A in evaluating a strategic transaction.

On December 30, 2022, the Arlington Board held a special meeting at which representatives of Arlington’s management, Hunton and the financial advisor were present. A representative of Hunton reviewed the directors’ legal duties in connection with their consideration of Arlington’s strategic alternatives. Representatives of the financial advisor discussed potential strategic alternatives that might be available to Arlington and outlined considerations relating to various types of strategic transactions, including the acquisition of one or more other businesses, the sale of Arlington or an orderly liquidation of Arlington. In consultation with the financial advisor and Arlington’s management, the Arlington Board determined that there were few attractive acquisition opportunities within Arlington’s industry; most opportunities to acquire other businesses would not provide sufficient scale to materially enhance shareholder value compared to a sale of Arlington; and that Arlington would likely face competition for any such acquisition opportunities from larger mortgage REITs or from mortgage REITs with external advisors willing to contribute funding to such transactions. Representatives of Hunton reviewed legal considerations relating to an orderly liquidation, including the process for obtaining Arlington shareholder approval of the dissolution, winding up Arlington’s business and setting aside reserves to satisfy liabilities. A representative of the financial advisor also reviewed considerations relating to a liquidation, noting the relative lack of precedent of liquidations of publicly traded companies, the amount of time it could take to make liquidating distributions to shareholders, the tax treatment of the liquidating distributions and the uncertainty associated with the value that might be realized by Arlington shareholders in a liquidation relative to a sale of Arlington (particularly if Arlington had to accept “forced sale” prices from bidders of assets). Arlington’s management also reviewed a preliminary liquidation analysis yielding an undiscounted range of $3.90 to $4.79 per share with a mid-point of $4.34 per share of Arlington Common Stock that might ultimately be distributable to shareholders in connection with an orderly liquidation. Representatives of the financial advisor reviewed with the Arlington Board a list of approximately 29 potential counterparties that might be contacted as part of a process to evaluate strategic transactions. Following discussion, the Arlington Board’s view, in consultation with Arlington’s management and representatives of Hunton and the financial advisor, was that an orderly liquidation was not attractive because of the uncertainty associated with the amount and timing of the distributions of the liquidation proceeds to Arlington shareholders and that a sale or similar business combination transaction was more likely to generate greater value for Arlington shareholders. Following further discussion, the Arlington Board agreed to commence a broad marketing outreach in January 2023 to solicit proposals for strategic transactions and directed Arlington’s management to negotiate an engagement letter with the financial advisor. The independent directors on the Arlington Board also met in executive session with representatives of Hunton present to discuss the proposed sale process and the potential terms on which the financial advisor might be engaged.

In early January 2023, Arlington, through Mr. Tonkel, discussed the terms of an engagement letter with representatives of the financial advisor but was unable to reach a mutually satisfactory agreement. In mid-January 2023, Mr. Tonkel entered into discussions with representatives of Wells Fargo Securities, with respect to engaging Wells Fargo Securities as Arlington’s financial advisor. Also during this time, Arlington’s management decided that a sale process should be deferred until late January or early February in order

TABLE OF CONTENTS

for Arlington to obtain updated financial information for the year ended December 31, 2022, that could be provided to potential counterparties. Mr. Tonkel contacted the members of the Arlington Board to inform them of this decision.

On January 26, 2023, the Arlington Board held a special meeting at which representatives of Arlington’s management and Hunton were present. Mr. Tonkel provided an update on the status of engaging a financial advisor. Representatives of Wells Fargo Securities then joined the meeting and reviewed their qualifications and experience. They then reviewed various considerations relating to potential strategic alternatives that might be available to Arlington, including a sale of Arlington, an orderly liquidation and a management externalization. They also reviewed a list of potential counterparties that might be contacted in connection with a sale of Arlington or a management externalization. After Wells Fargo Securities’ representatives left the meeting and following discussion, the Arlington Board approved the engagement of Wells Fargo Securities as Arlington’s financial advisor based on Wells Fargo Securities’ qualifications, expertise, experience in the mortgage industry, its understanding of the then-current state of the financial markets, its perspectives regarding potential strategic alternatives that might be available to Arlington and its past experience advising similar companies in strategic transactions.

On January 30, 2023, Arlington entered into an engagement letter with Wells Fargo Securities.

On February 5, 2023, the Arlington Board held a special meeting at which representatives of Arlington’s management, Hunton and Wells Fargo Securities were present. Representatives of Wells Fargo Securities reviewed a list of potential counterparties to a sale of Arlington or a management externalization. Following discussion, the Arlington Board authorized Wells Fargo Securities’ representatives to contact all of the potential counterparties identified on such list to determine their interest in pursuing a strategic transaction with Arlington. The Arlington Board also authorized Wells Fargo Securities and Arlington’s management to supplement such list to include additional potential counterparties as they deemed appropriate.

Beginning on February 8, 2023, Wells Fargo Securities, at the direction of the Arlington Board, contacted approximately 65 potential counterparties (including EFC and Party A) to gauge their interest in a strategic transaction, 37 of which (including EFC and Party A) entered into confidentiality agreements with Arlington and received limited confidential information of Arlington for purposes of submitting a non-binding proposal. Each of the confidentiality agreements (including with EFC and Party A) included customary “standstill” provisions that would fall away upon Arlington’s entry into a definitive agreement relating to a sale of Arlington. Each of the potential counterparties was requested to submit a written non-binding proposal (a “Round 1 Proposal”) by March 8, 2023.

On February 21, 2023, the EFC Board held a regular meeting at which representatives of EFC’s management were present. Laurence Penn, Chief Executive Officer and President of EFC, informed the EFC Board that EFC had been contacted by Arlington’s representatives in connection with Arlington’s process and its solicitation of Round 1 Proposals. EFC’s management informed the EFC Board that EFC’s management would likely recommend submitting a Round 1 Proposal, but that a subsequent meeting of the EFC Board would occur prior to such a submission.

On February 22, 2023, Arlington and EFC entered into a confidentiality agreement.

On March 8, 2023, the EFC Board held a special, telephonic meeting at which representatives of EFC’s management were present. The purpose of the meeting was to discuss the submission of a non-binding Round 1 Proposal by EFC. EFC’s management team provided an overview of a proposed merger of EFC and Arlington, including an outline of the key strategic rationale and economic benefits of such a merger, including potential synergies and efficiencies of a combined company. The EFC Board approved the submission of EFC’s non-binding Round 1 Proposal.

On March 14, 2023, the Arlington Board held a special meeting at which representatives of Arlington’s management, Hunton and Wells Fargo Securities were present. A representative of Hunton reviewed the directors’ legal duties in connection with their consideration of Arlington’s strategic alternatives. A representative of Hunton also reviewed certain material terms for inclusion in a draft merger agreement to be provided to potential counterparties. Representatives of Wells Fargo Securities provided an update on the market outreach and reviewed the terms of 17 Round 1 Proposals that were submitted by 16 potential

TABLE OF CONTENTS

counterparties (with one potential counterparty submitting a proposal for an acquisition and a proposal for a management externalization), which were categorized as follows:

•

12 proposals (including EFC’s proposal) provided for a sale of Arlington in which the merger consideration consisted solely or primarily of common stock of the potential counterparty, where the potential counterparty had a larger market capitalization than Arlington (which transactions are generally referred to herein as a “sale of Arlington”);

•

three proposals (including Party A’s proposal) were submitted by parties with market capitalizations that were similar to or smaller than Arlington’s market capitalization and provided for a merger in which the merger consideration consisted solely of common stock of the potential counterparty and that would result in Arlington’s shareholders owning a majority of the combined company’s common stock, but in each case the potential counterparty’s board of directors and management would control the combined company (which transactions are generally referred to herein as a “merger of equals”); and

•

two proposals provided for a management externalization of Arlington, which are further described as follows:

•

one proposal contemplated Arlington entering into an external management agreement with the potential counterparty without any payment of stock, cash or other consideration to Arlington shareholders but, in connection with such management externalization, the potential counterparty would contribute certain of its assets to Arlington in exchange for shares of Arlington stock (the “Externalization & Contribution Proposal”).

Following discussion, the Arlington Board authorized Wells Fargo Securities to advance nine of the potential counterparties that submitted Round 1 Proposals which the Arlington Board determined were most likely to result in a transaction that would be in the best interests of Arlington’s shareholders, of which counterparties consisted of six parties (including EFC) that proposed a sale of Arlington, two parties (including Party A) that proposed a merger of equals and the party that proposed the Externalization & Contribution Proposal, to the next stage in the process and to provide such parties with additional information of Arlington. Wells Fargo Securities’ representatives also indicated that a tenth potential counterparty was expected to submit a non-binding proposal, and the Arlington Board authorized Wells Fargo Securities and Arlington’s management to advance such potential counterparty to the next stage in the process if its non-binding proposal was comparable to the other non-binding proposals submitted by potential counterparties being so advanced.

Later on March 14, 2023, such tenth potential counterparty submitted a non-binding proposal providing for a sale of Arlington and, pursuant to the authority granted by the Arlington Board, Arlington’s representatives advanced such potential counterparty to the next stage in the process.

During the remainder of March 2023 and continuing into early April 2023, Arlington continued to make confidential information available in a virtual data room and representatives of Wells Fargo Securities and Arlington’s management held discussions with representatives of each of the ten potential counterparties, including EFC and Party A (collectively, the “Round 2 Bidders”). Arlington and its representatives also started a preliminary reverse due diligence review of the Round 2 Bidders. Each of the Round 2 Bidders was requested to submit a revised non-binding proposal by April 4, 2023.

On March 21, 2023, the EFC Board held a regular meeting at which representatives of EFC’s management and EFC’s legal counsel, Vinson & Elkins L.L.P. (“V&E”), were present. EFC’s management and the EFC Board discussed the strategic rationale for a proposed transaction with Arlington. Representatives of V&E then reviewed with the EFC Board the duties of its directors in connection with transactions of this type.

Between March 22 and April 4, 2023, Arlington’s management and representatives of Wells Fargo Securities held meetings with each of the Round 2 Bidders in connection with the Round 2 Bidders’ due diligence review and Arlington’s reverse due diligence of the Round 2 Bidders.

TABLE OF CONTENTS

On March 31, 2023, the EFC Board held a special, telephonic meeting at which representatives of EFC’s management and EFC’s financial advisor, Keefe, Bruyette & Woods (“KBW”), were present. The purpose of the meeting was to discuss and review a proposed revised non-binding proposal. Representatives of KBW reviewed the terms of the proposed revised non-binding proposal, discussed the key terms and conditions of the proposed transaction, and discussed a possible timetable for the proposed transaction. Representatives of EFC’s management and representatives of KBW reviewed the financial aspects of the proposed transaction on a preliminary basis, and the EFC Board approved the submission of the revised non-binding proposal.

Around April 4, 2023, the Round 2 Bidder that had proposed the Externalization & Contribution Proposal withdrew from the process.

On April 7, 2023, Mr. Penn and Michael W. Vranos, Co-Chief Investment Officer of EFC, had a telephonic conversation with Mr. Tonkel to discuss a potential strategic transaction with Arlington.

On April 10, 2023, the Arlington Board held a special meeting at which representatives of Arlington’s management, Hunton and Wells Fargo Securities were present. Representatives of Wells Fargo Securities reviewed the terms of nine revised non-binding proposals (the “Round 2 Proposals”) that were submitted by Round 2 Bidders, which are summarized as follows (with estimated implied equity values presented below on a fully-diluted basis after giving effect to Arlington’s outstanding equity awards and based on Arlington’s and the respective potential counterparty’s trading price as of April 6, 2023, which was the most recent practicable date prior to the Arlington Board’s special meeting, and on which date the trading price for Arlington Common Stock on the NYSE closed at $2.73 per share):

•

two proposals provided for mergers of equals as follows:

•

Party A proposed a merger of equals with an implied equity value between $4.79 and $4.94 per share of Arlington Common Stock, pursuant to which Arlington shareholders would receive Party A common equity interests; and

•

Party B proposed a merger of equals with an implied equity value of $5.01 per share of Arlington Common Stock, pursuant to which Arlington shareholders would receive Party B common equity interests and $0.18 per share in cash to be contributed by Party B’s external manager; and

•

seven proposals provided for a sale of Arlington as follows:

•

EFC proposed a sale of Arlington with an implied equity value of $4.62 per share of Arlington Common Stock, pursuant to which Arlington shareholders would receive EFC Common Stock and $0.09 per share in cash to be contributed by EFC Manager;

•

Party C proposed a sale of Arlington with an implied equity value between $4.30 and $4.33 per share of Arlington Common Stock, pursuant to which (i) Arlington shareholders would receive Party C common equity interests and (ii) Arlington would be required to sell one of its assets and terminate its office lease as a condition to the closing of such transaction;

•

Party D proposed a sale of Arlington with an implied equity value of $4.15 per share of Arlington Common Stock, pursuant to which Arlington shareholders would receive Party D common equity interests;

•

Party E proposed a sale of Arlington with an implied equity value of $3.87 per share of Arlington Common Stock, pursuant to which Arlington shareholders would receive Party E common equity interests;

•

Party F proposed a sale of Arlington with an implied equity value between $3.71 and $4.07 per share of Arlington Common Stock, pursuant to which Arlington shareholders would receive Party F common equity interests;

•

Party G proposed a sale of Arlington with an implied equity value between $3.71 and $3.96 per share of Arlington Common Stock, pursuant to which Arlington shareholders would receive Party G common equity interests, with Party G verbally indicating to Arlington’s representatives that it might be willing to pay up to 20% of the consideration in cash; and

TABLE OF CONTENTS

•

Party H proposed a sale of Arlington with an implied equity value of $3.70 per share of Arlington Common Stock, pursuant to which Arlington shareholders would receive Party H common equity interests.

Representatives of Wells Fargo Securities reviewed the principal terms of the Round 2 Proposals and a preliminary financial analysis of, and the key assumptions and other considerations related to, the Round 2 Proposals. A discussion ensued among the members of the Arlington Board and representatives of Wells Fargo Securities and Arlington’s management about the relative benefits and risks of each potential transaction. Following discussion, the Arlington Board authorized Wells Fargo Securities to advance Party A, Party B, EFC and Party C to the next stage in the process. In addition, the Arlington Board authorized Wells Fargo Securities to advance Party E to the next stage in the process based on the Arlington Board’s view that Party E might be in a position to materially improve its non-binding proposal to make it competitive with the other proposals being advanced to the next stage in the process (Party E, together with Party A, Party B, EFC and Party C are referred to collectively as the “Round 3 Bidders”).

During the remainder of April 2023, representatives of Arlington’s management and Wells Fargo Securities, at the direction of Arlington, continued to furnish information to, respond to due diligence inquiries from and discuss a potential strategic transaction with the Round 3 Bidders and also conducted reverse due diligence on the Round 3 Bidders. Each of the Round 3 Bidders was requested to submit a revised non-binding proposal by April 28, 2023, and to provide a mark-up of a draft merger agreement, which Arlington made available to each Round 3 Bidder on April 13, 2023.

During discussions in April 2023 with Party C, Party C’s representatives continued to insist that, as set forth in Party C’s Round 2 Proposal, Arlington would have to divest one of its assets as a condition to the closing of a sale of Arlington with Party C. Arlington’s representatives informed Party C that this condition would create significant closing uncertainty that would not be acceptable to Arlington.

Around April 17, 2023, Party C withdrew from the process without submitting a revised non-binding proposal or a mark-up of the draft merger agreement.

On April 19, 2023, a representative of a potential counterparty, referred to herein as “Party I,” that had not been included in the list of potential counterparties contacted during Well Fargo Securities’ initial outreach in February 2023, contacted Mr. Tonkel to express Party I’s interest in discussing a potential strategic transaction with Arlington. Mr. Tonkel informed representatives of Wells Fargo Securities of the outreach, and, at the direction of Arlington, representatives of Wells Fargo Securities then contacted Party I’s representative and provided a form of confidentiality agreement.

On April 25, 2023, Arlington entered into a confidentiality agreement with Party I that included customary “standstill” provisions that would fall away upon Arlington’s entry into a definitive agreement relating to a sale of Arlington. Arlington then made available certain confidential information to Party I.

On April 26, 2023, Party I submitted a written non-binding proposal in which Arlington shareholders would receive common equity interests of Party I with an implied equity value of $3.77 per share of Arlington Common Stock on a fully-diluted basis as of May 3, 2023.

Also on April 26, 2023, Party E informed representatives of Wells Fargo Securities that Party E did not intend to engage further in Arlington’s process and would not submit a revised non-binding proposal or a mark-up of the draft merger agreement. However, Party E indicated that it was willing to continue discussions with Arlington based on the terms set forth in Party E’s Round 2 Proposal, and that Party E might be willing to include up to $20 million in cash consideration in lieu of equity consideration payable to Arlington shareholders. Party E did not provide a revised non-binding proposal or a mark-up of the draft merger agreement.

On April 27, 2023, the EFC Board held a special, telephonic meeting at which representatives of EFC’s management, KBW and V&E were present. The purpose of the meeting was to discuss and review a proposed revised non-binding proposal. Representatives of KBW and V&E reviewed the terms of the draft revised non-binding proposal, discussed the key terms and conditions of the proposed transaction, and discussed a possible timetable for the proposed transaction. Representatives of EFC’s management and KBW reviewed

TABLE OF CONTENTS

the financial aspects of the proposed transaction on a preliminary basis, and the EFC Board approved the submission of the revised, non-binding proposal.

Between April 28 and April 30, 2023, Arlington received three revised, written non-binding proposals, each of which was accompanied by a mark-up of the draft merger agreement (the “Round 3 Proposals”), from EFC, Party A and Party B, respectively, which are summarized as follows (with the estimated implied equity values presented below on a fully-diluted basis after giving effect to Arlington’s outstanding equity awards and based on Arlington’s and the respective potential counterparty’s trading price as of May 3, 2023, which was the most recent practicable date prior to the Arlington Board’s special meeting on May 5, 2023, and on which date the trading price for Arlington Common Stock on the NYSE closed at $2.57 per share):

•

EFC proposed a sale of Arlington with an implied equity value of $4.51 per share of Arlington Common Stock, which was a 75% premium to the closing price of Arlington Common Stock on the NYSE on May 3, 2023, pursuant to which (i) Arlington shareholders would receive EFC Common Stock and $0.09 per share in cash to be contributed by EFC Manager; (ii) the stock portion of the merger consideration would be determined by a floating exchange ratio based on the parties’ adjusted book values as of a date prior to the completion of the merger; (iii) one independent director of Arlington would join the EFC Board upon the closing of the transaction; and (iv) the parties would agree to 30 days of exclusivity to complete due diligence and finalize the transaction documents;

•

Party A proposed a merger of equals with an implied equity value of $4.78 per share of Arlington Common Stock, which was an 86% premium to the closing price of Arlington Common Stock on the NYSE on May 3, 2023, pursuant to which (i) Arlington shareholders would receive common equity interests of Party A; (ii) the merger consideration would be determined by a floating exchange ratio based on the parties’ market prices as of a date prior to the completion of the merger; and (iii) two independent directors of Arlington would join Party A’s board of directors; and

•

Party B proposed a merger of equals with an implied equity value of $4.80 per share of Arlington Common Stock, which was an 87% premium to the closing price of Arlington Common Stock on the NYSE on May 3, 2023, pursuant to which (i) Arlington shareholders would receive common equity interests of Party B plus $0.18 per share in cash to be contributed by Party B’s external manager; (ii) the equity portion of the merger consideration would be determined by a floating exchange ratio based on the parties’ adjusted book values as of a date prior to the completion of the merger; (iii) two independent directors of Arlington would join Party B’s board of directors; and (iv) the parties would agree to 30 days of exclusivity to complete due diligence and finalize the transaction documents.

On May 5, 2023, the Arlington Board held a regular, in-person meeting at which representatives of Arlington’s management, Hunton and Wells Fargo Securities were present. Arlington’s management reviewed an updated preliminary liquidation analysis yielding an undiscounted range of $3.89 to $4.78 per share of Arlington Common Stock with a mid-point of $4.46 per share of Arlington Common Stock that might ultimately be distributable to Arlington shareholders in connection with an orderly liquidation, and a representative of Hunton reviewed the legal process for conducting an orderly liquidation. The Arlington Board again determined that an orderly liquidation was not as likely to maximize shareholder value as a sale of Arlington or a merger of equals. Representatives of Wells Fargo Securities reviewed the terms and a preliminary financial analysis of the Round 3 Proposals. Representatives of Well Fargo Securities also reviewed the communication from Party E and the terms of its prior non-binding proposal, which had an implied equity value of $4.09 per share of Arlington Common Stock on a fully-diluted basis as of May 3, 2023, and the terms of the non-binding proposal from Party I, which had an implied equity value of $3.99 per share of Arlington Common Stock on a fully-diluted basis as of May 3, 2023, both of which were determined by the Arlington Board, in consultation with Arlington’s management and representatives of Wells Fargo Securities, not to be competitive with the Round 3 Proposals. A representative of Hunton reviewed the process under the proposed merger agreements in the event that Party E, Party I or any other third party submitted an acquisition proposal and the circumstances in which the Arlington Board could respond and change its recommendation. Representatives of Wells Fargo Securities then compared and contrasted the non-binding proposals from EFC, Party A and Party B. Among other things, the Arlington Board considered the fact that Party A and Party B had market capitalizations that were similar to Arlington’s market capitalization and the Arlington Board’s view, in consultation with Arlington’s management and

TABLE OF CONTENTS

representatives of Wells Fargo Securities, that because of Party A’s and Party B’s relatively small sizes, a strategic transaction with Party A or Party B would not address many of the challenges facing Arlington because such a combined company would still be expected to lack scale, provide limited liquidity for shareholders, face challenges accessing capital markets for growth and face challenges being able to pay a sustainable and attractive dividend on its common stock. The Arlington Board also considered the risk that, due to the relatively small sizes of Party A and Party B, the trading market for their common equity was more volatile, which could result in a decline in such party’s trading price in connection with the announcement or closing of a strategic transaction that would diminish the value to be realized by Arlington shareholders in a strategic transaction with Party A or Party B. In contrast, the Arlington Board considered that, although the implied equity value of EFC’s proposal at that time was 5-6% lower than the implied equity values of Party A’s and Party B’s proposals, EFC was a larger, more established mortgage REIT with a market capitalization significantly greater than Arlington’s, Party A’s or Party B’s respective market capitalizations; a strategic transaction with EFC was expected to create a combined company with a market capitalization in excess of $1 billion; EFC’s trading price was expected to be less volatile than Party A’s or Party B’s trading price; EFC was expected to provide greater liquidity to Arlington shareholders relative to Arlington as a standalone entity or after consummating a strategic transaction with Party A or Party B; and EFC had a track record of paying an attractive common stock dividend. The Arlington Board also considered the fact that a strategic transaction with EFC was not expected to require the approval of EFC’s stockholders, whereas a strategic transaction with Party A or Party B would require the approval of such party’s shareholders, which the Arlington Board, after consultation with representatives of Hunton, determined increased the risk that a strategic transaction with Party A or Party B would not be consummated. Representatives of Hunton reviewed the principal terms of the mark-ups of the draft merger agreement provided by EFC. Party A and Party B. Among other things, representatives of Hunton indicated that EFC had requested a termination fee equal to 5% of the aggregate transaction value. Following discussion, the Arlington Board determined that EFC’s proposal was in the best interests of Arlington’s shareholders and authorized Arlington to enter into an exclusivity agreement with EFC to finalize the terms of the transaction, but the Arlington Board also directed Wells Fargo Securities to request EFC to, among other things, (i) increase the aggregate merger consideration payable to Arlington shareholders; (ii) agree to a fixed exchange ratio in the merger agreement so that the number of shares of EFC Common Stock payable to Arlington shareholders in the merger would not fluctuate between the signing of the merger agreement and the consummation of the merger; (iii) agree to a termination fee equal to 3% of the equity value of the transaction; and (iv) shorten its requested exclusivity period from 30 days to two weeks.

On May 8, 2023, at the direction of the Arlington Board, representatives of Wells Fargo Securities conveyed the Arlington Board’s requests to representatives of EFC.

On May 9, 2023, the EFC Board held a special telephonic meeting at which representatives of EFC’s management, KBW and V&E were present. Representatives of EFC’s management and KBW outlined the terms of the counterproposal received from Arlington. After a discussion, the EFC Board authorized EFC’s management to submit a counterproposal to Arlington in which EFC would agree to (i) increase the merger consideration payable to Arlington shareholders, subject to the final results of EFC’s due diligence review; (ii) a fixed exchange ratio in the merger agreement; (iii) a reduction of the termination fee; and (iv) a two-week exclusivity period (with an automatic extension if the parties were negotiating in good faith).

Between May 8 and May 11, 2023, representatives of Arlington, EFC and their respective advisors held numerous discussions to negotiate the terms of a potential strategic transaction, including EFC’s valuation of Arlington and the proposed exchange ratio.

On May 10, 2023, a representative of EFC conveyed EFC’s counterproposal to representatives of Arlington in which EFC indicated it would agree to: (i) increase the aggregate merger consideration payable to Arlington shareholders by $3 million, subject to the final results of EFC’s due diligence review; (ii) a fixed exchange ratio in the merger agreement; (iii) a termination fee of 3.5% of the equity value of the transaction; and (iv) a two-week exclusivity period (with an automatic extension if the parties were negotiating in good faith). Following additional negotiations between the parties, including with respect to the exchange ratio, representatives of Arlington responded that Arlington would accept EFC’s counterproposal if EFC agreed to (a) a fixed exchange ratio of 0.3685 shares of EFC Common Stock (plus the Per Share Cash Consideration) for each share of Arlington Common Stock, which would be subject to a downward

TABLE OF CONTENTS

adjustment equal to approximately $2.6 million based on whether Arlington satisfied an asset performance condition requested by EFC; and (b) a termination fee of 3.25% of the equity value of the transaction. Representatives of EFC agreed to Arlington’s counterproposal.

On May 11, 2023, Mr. Tonkel updated Mr. Berce on the parties’ respective proposals and counterproposals. Also on May 11, Mr. Penn had a telephonic conversation with Mr. Tonkel in which Mr. Penn indicated that EFC wanted to include a four-day extension to the two-week exclusivity period if, after the initial exclusivity period expired, the parties were still negotiating the transaction in good faith to reach definitive documentation with respect to the strategic transaction, to which request Mr. Tonkel agreed.

During the evening of May 11, 2023, Arlington and EFC entered into the exclusivity agreement.

On May 12, 2023, EFC engaged Winston & Strawn LLP (“Winston”) to conduct due diligence on Arlington’s MSR Investments.

On May 16, 2023, representatives of Hunton sent a mark-up of the draft merger agreement to representatives of V&E. On the same day, EFC engaged Deloitte & Touche LLP (“Deloitte”) to conduct financial and tax due diligence on Arlington and the proposed transaction with Arlington.

On May 20, 2023, representatives of V&E sent a mark-up of the draft merger agreement to representatives of Hunton. Among other things, the mark-up of the draft merger agreement provided: (i) that the exchange ratio would be adjusted if either party’s transaction expenses exceeded an agreed upon amount, if Arlington breached any representations or warranties in the merger agreement giving rise to losses in excess of an agreed upon amount, or in the event of any “put-backs” of assets in Arlington’s MSR portfolio to certain government sponsored entities; and (ii) for a termination fee of 3.25% of the sum of (a) the value of the cash consideration payable to the Arlington common shareholders, plus (b) the market value of the Arlington Common Stock, plus (c) the redemption price of Arlington Preferred Stock.

On May 23, 2023, the Arlington Board held a special meeting at which representatives of Arlington’s management, Hunton and Wells Fargo Securities were present. A representative of Hunton reviewed the directors’ legal duties in connection with their consideration of the proposed transaction. Representatives of Wells Fargo Securities reviewed a preliminary financial analysis with respect to Arlington, EFC and the proposed transaction. Representatives of Hunton reviewed the terms of the merger agreement and its principal open issues, including EFC’s proposed adjustments to the exchange ratio and the amount of the termination fee. The Arlington Board gave direction to Hunton in negotiating the principal open issues, including to reject the proposed adjustments to the exchange ratio and the proposed amount of the termination fee. Representatives of Hunton also reviewed the terms of the EFC Management Agreement with EFC Manager. Arlington’s management provided an update on its reverse due diligence of EFC and also reviewed a summary of the compensation that would likely become payable to Arlington’s senior executives in connection with the strategic transaction, including under their severance/change in control agreements and Arlington Equity-Based Awards. Representatives of Arlington’s management and Hunton reviewed the terms of Messrs. Tonkel’s and Konzmann’s Arlington Performance RSUs, including Arlington Stock Price Performance RSUs, and the number of shares of Arlington Common Stock that were expected to vest and be entitled to receive merger consideration in connection with the strategic transaction. The independent directors on the Arlington Board also met in executive session with representatives of Hunton and, for a portion of the executive session, Wells Fargo Securities.

Later on May 23, 2023, a representative of Party I contacted Wells Fargo Securities to indicate that Party I was open to improving the terms of its non-binding proposal. Because Arlington was subject to the exclusivity agreement with EFC, neither Wells Fargo Securities nor any other representative of Arlington responded to Party I’s representative.

Later on May 23, 2023, representatives of Hunton sent a mark-up of the merger agreement to representatives of V&E. Among other things, the mark-up of the merger agreement deleted the proposed adjustments to the exchange ratio, other than an agreed upon asset performance condition, and provided for a termination fee equal to 3.25% of the Arlington common shareholders’ merger consideration.

TABLE OF CONTENTS

On May 25, 2023, Mr. Penn emailed Mr. Tonkel stating that the exclusivity agreement’s one-time extension was effective and, therefore, the exclusivity period had been extended through May 29, 2023. On the same day, the EFC Board held a special telephonic meeting at which representatives of EFC’s management, KBW, V&E, Deloitte and Winston were present. At the meeting, representatives of each of V&E, Winston and Deloitte summarized their respective due diligence findings and responded to inquiries from members of the EFC Board. Following this discussion, representatives of EFC’s management provided the EFC Board with an update on the open issues in the draft merger agreement.

On May 26, 2023, representatives of V&E sent a mark-up of the merger agreement to representatives of Hunton which, among other things, accepted Arlington’s proposals relating to the fixed exchange ratio (subject to the downward adjustment based on the asset performance condition) and a termination fee equal to 3.25% of the Arlington common shareholders’ merger consideration.

Between May 26, 2023, and May 29, 2023, the parties and their respective financial and legal advisors had numerous discussions and continued to negotiate the terms of the transaction and the merger agreement. EFC also worked to complete its due diligence review, including with respect to Arlington’s mortgage servicing arrangements. During this time, representatives of EFC indicated that they were making certain adjustments to Arlington’s book value and the exchange ratio based on the results of EFC’s due diligence review of various Arlington assets, EFC’s valuations thereof and the parties’ estimated transaction expenses. Representatives of Hunton and V&E, respectively, continued to exchange drafts of the merger agreement and finalize other transaction documents.

On May 27, 2023, Mr. Tonkel had a telephonic conversation with Mr. Berce to update him on the status of the transaction. They also discussed which of Arlington’s directors might serve as Arlington’s designee on the EFC Board upon the closing of the transaction, and Mr. Berce indicated that Mr. Tonkel should convey to EFC Mr. Tonkel’s willingness to serve as such designee in a non-executive director capacity. After that conversation, Mr. Tonkel had a telephonic conversation with Mr. Vranos in which he expressed such willingness. Mr. Vranos indicated that this would likely be acceptable to EFC. Mr. Tonkel then updated Mr. Berce on the conversation.

On the morning of May 29, 2023, representatives of Arlington and EFC reached a proposed compromise on the value of the stock portion of the merger consideration which was subject to the approval of the Arlington Board and the EFC Board and provided for a downward adjustment to the exchange ratio from 0.3685 to 0.3619 shares of EFC Common Stock for each share of Arlington Common Stock. Mr. Tonkel had a telephonic conversation with Mr. Berce to update him on the status of the negotiations, including the proposed exchange ratio of 0.3619 shares of EFC Common Stock for each share of Arlington Common Stock. At that time, the merger consideration had an implied equity value of $4.77 per share of Arlington Common Stock on a fully-diluted basis after giving effect to outstanding Arlington Equity-Based Awards and based on Arlington’s and EFC’s closing trading prices on the NYSE of $2.75 and $12.92, respectively, as of May 26, 2023, which implied equity value represented a 73% premium to the closing price of Arlington Common Stock on the NYSE on May 26, 2023. Mr. Berce indicated that he was supportive of the proposed transaction on these terms.

Also on May 29, 2023, the EFC Board held a special, telephonic meeting at which representatives of EFC’s management, KBW and V&E were present. At the meeting, representatives of EFC’s management provided the EFC Board with an update on the resolution of prior open issues in the draft merger agreement. Representatives of V&E then summarized the terms of the proposed final draft merger agreement, and reviewed with the EFC Board the duties of its directors in connection with transactions of the type contemplated by the final draft merger agreement. KBW next reviewed with the EFC Board the financial aspects of the proposed transaction. After discussion, and after taking into consideration all of the information presented and discussed in the several prior communications and meetings among representatives of EFC’s management, the EFC Board and EFC’s advisors that occurred during the course of the negotiations between EFC and Arlington, the EFC Board unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the EFC Stock Issuance, were in the best interests of EFC and its stockholders and (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger and the EFC Stock Issuance.

TABLE OF CONTENTS

Later on May 29, 2023, the Arlington Board held a special meeting at which representatives of Arlington’s management, Hunton and Wells Fargo Securities were present. Mr. Tonkel provided an update on the negotiations and the proposed resolution of open issues relating to the transaction. He also updated the Arlington Board on his discussions with EFC relating to Arlington’s right to designate a director on the EFC Board upon the closing of the transaction. The Arlington Board deferred to a later time its decision on who to designate to the EFC Board upon the closing of the transaction. A representative of Hunton reviewed the directors’ legal duties in connection with their consideration of the proposed transaction and the final terms of the Merger Agreement, including the proposed resolution of open issues. Representatives of Wells Fargo Securities and Hunton also informed the Arlington Board of the May 23, 2023 inquiry from Party I’s representative, reviewed the terms of Party I’s April 26 non-binding proposal and noted that there was no new information to believe that Party I would make its proposal competitive. Representatives of Wells Fargo Securities then reviewed with the Arlington Board its final financial analysis of the Per Share Common Merger Consideration provided for in the Merger Agreement. Representatives of Wells Fargo Securities then delivered to the Arlington Board its oral opinion, which was confirmed by delivery of a written opinion dated May 29, 2023, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Wells Fargo Securities in preparing the opinion, the Per Share Common Merger Consideration in the proposed merger was fair, from a financial point of view, to holders of Arlington Common Stock, as more fully described below in the section entitled “The Merger — Opinion of Arlington’s Financial Advisor, Wells Fargo Securities” beginning on page 73 of this proxy statement/prospectus. Following discussion, the Compensation Committee of the Arlington Board convened and unanimously approved resolutions authorizing Arlington to enter into acknowledgments fixing the number of shares of Arlington Common Stock issuable under Messrs. Tonkel’s and Konzmann’s awards of Arlington Stock Price Performance RSUs. The Arlington Board then unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, were in the best interests of Arlington and Arlington’s shareholders, (ii) adopted and approved the Merger Agreement and declared that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, (iii) directed that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, be submitted to the holders of Arlington Common Stock for their approval at the Arlington special meeting and (iv) resolved to recommend that the holders of Arlington Common Stock approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger.

Later on May 29, 2023, the parties executed the Merger Agreement and, on the morning of May 30, 2023, Arlington and EFC issued a joint press release announcing the Merger Agreement and the Merger.

Recommendation of the Arlington Board and Its Reasons for the Merger

In evaluating the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the Arlington Board consulted with Arlington’s management, financial advisors and legal advisors. In reaching its determination that the transactions contemplated by the Merger Agreement are advisable and in the best interests of Arlington, the Arlington Board considered a number of factors both positive and negative, including, but not limited to, the following material factors, which the Arlington Board

TABLE OF CONTENTS

viewed as supporting its determination with respect to the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement:

•

Offer Price and Certainty. That, as of May 26, 2023 (the last trading day prior to the public announcement of the execution of the Merger Agreement), the implied per share merger consideration (valued at $4.77 on such date) represented a premium of approximately 73.4% to the closing price of Arlington Common Stock (which was $2.75).

•

Fixed Exchange Ratio. That the Merger Agreement provides for a fixed exchange ratio and, therefore, the number of shares of EFC Common Stock and cash consideration to be received by holders of Arlington Common Stock in the Merger will not be reduced due to an unfavorable change in either party’s book value.

•

Industry and Business Considerations. The perspectives of the members of the Arlington Board with respect to the industry, business, financial condition, current business strategy and short- and long-term prospects of Arlington, including the following:

•

the challenges facing the mortgage REIT sector in general, including significant uncertainty regarding the outlook for interest rates, as well as uncertainty regarding the outlook for the economy and the financial markets generally;

•

the challenges facing Arlington in particular, including that the price per share of Arlington Common Stock has traded at a significant discount to Arlington’s book value per share for an extended period of time, which has created challenges for Arlington in raising capital through traditional capital market transactions to fund new investments without significant dilution to holders of Arlington Common Stock, and which, in turn, has prevented Arlington from increasing its size and scale, both in terms of assets under management as well as market capitalization;

•

the challenges for Arlington in its ability to pay a sustained, attractive common stock dividend;

•

uncertainty regarding the federal government’s and Federal Reserve’s monetary and fiscal policies and policies with respect to residential mortgage finance;

•

the relative small size of Arlington and the difficulty in offsetting the costs associated with being a standalone public company; and

•

the challenges and uncertainty regarding the long-term performance of an investment strategy targeting various residential and commercial mortgage-related assets in the current financial and interest rate environment, in light of Arlington’s relative small size and scale.

•

Evaluation of Strategic Alternatives. The belief of the members of the Arlington Board that the value offered to Arlington’s common shareholders in the Merger was more favorable to Arlington’s common shareholders than the potential value of remaining a standalone public company. This belief was supported in part by the results of the Arlington Board’s evaluation of strategic alternatives through which Arlington and its financial advisors engaged with other parties that were believed to be the most able and willing to pay the highest price for Arlington Common Stock, and ultimately received from EFC an acquisition proposal with terms that the Arlington Board believed to be most favorable on a risk-adjusted basis to Arlington and its common shareholders, particularly given EFC’s liquidity and market capitalization.

•

Transaction Process and Negotiations with EFC. The belief that, as a result of the transaction process conducted by the Arlington Board, pursuant to which the Arlington Board considered different potential transactions, solicited interest from at least 67 parties (including EFC), and Arlington’s negotiations with multiple potential counterparties (including EFC), Arlington maximized common shareholder value and obtained terms of the Merger that were favorable to Arlington. This belief was supported by the fact that Arlington’s negotiations with EFC resulted in multiple increases in the price per share originally offered by EFC, as well as several changes in the terms and conditions of the Merger Agreement from the terms and conditions proposed by EFC that were favorable to Arlington.

TABLE OF CONTENTS

•

No Financing Condition; Other Conditions. The Arlington Board considered the contractual representation of EFC and EFC Manager that EFC Manager would have access to sufficient funds to pay the amounts required to be paid under the Merger Agreement and that the offer and the Merger are not subject to a financing condition. EFC’s and EFC Manager’s obligations to close the Merger are subject to limited conditions, and the Merger is reasonably likely to be consummated.

•

Benefits of Increased Scale, Portfolio Diversity and other Operating Capabilities of the Combined Company. That the receipt of EFC Common Stock as part of the Merger Consideration provides Arlington’s common shareholders the opportunity to continue ownership in the Combined Company, which is expected to provide significant potential strategic opportunities and benefits, including the following:

•

the Merger allows Arlington’s common shareholders to transition from ownership in a subscale standalone residential-focused mortgage REIT to owning shares in a much larger hybrid mortgage REIT with a diversified $3.7 billion investment portfolio across residential mortgage, commercial mortgage, consumer loan and corporate loan sectors;

•

the Combined Company is expected to have a market capitalization of over $1 billion and should provide more liquidity to investors, have potential for significant stock price appreciation and economic return, be able to pay a regular dividend to its stockholders, have potential access to additional financing resources on attractive terms and have more robust analyst coverage than Arlington would have as a standalone company;

•

Arlington’s common shareholders should benefit from increased operating scale, liquidity and access to attractive capital alternatives available to the larger Combined Company; and

•

that EFC is managed by EFC Manager, which has extensive investing expertise in a broad spectrum of investment opportunities, including residential and commercial mortgage loans, reverse mortgage loans, residential and commercial mortgage-backed securities, consumer loans and asset-backed securities backed by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, and investments in loan origination companies and is affiliated with an entity that has well-established portfolio management resources and experience in managing mortgage-related assets.

•

Liquidity of EFC Common Stock. That nearly 100% of the Merger Consideration consists of shares of EFC Common Stock that will be listed for trading on the NYSE, which should provide greater liquidity for Arlington’s common shareholders given EFC’s history of greater shareholder liquidity and institutional demand than Arlington before the Merger.

•

Cash Portion of Merger Consideration. That the Merger Consideration includes cash consideration from EFC Manager equal to $0.09 per share of Arlington Common Stock and that such cash consideration provides Arlington’s common shareholders with immediate value.

•

Opinion of Wells Fargo Securities and Related Analysis. The oral opinion of Wells Fargo Securities delivered to the Arlington Board, which was confirmed by delivery of a written opinion dated May 29, 2023, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Wells Fargo Securities in preparing the opinion, the Per Share Common Merger Consideration in the proposed merger was fair, from a financial point of view, to the holders of Arlington Common Stock, as more fully described below under the section titled “The Merger — Opinion of Arlington’s Financial Advisor, Wells Fargo Securities” beginning on page 73 of this proxy statement/prospectus. The full text of the written opinion of Wells Fargo Securities, dated May 29, 2023, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Wells Fargo Securities in preparing the opinion, is attached as Annex B to this proxy statement/prospectus.

•

EFC’s History of Paying Dividends to Stockholders. The fact that EFC has historically paid dividends to its common stockholders on a monthly (and, prior to April 2019, quarterly) basis.

•

No EFC Stockholder Approval. The Merger is not subject to EFC stockholder approval, increasing the certainty that the transactions contemplated by the Merger Agreement are consummated.

TABLE OF CONTENTS

•

Increased Asset Class and Geographic Diversification. That the Merger will increase the asset class and geographic diversification of the Combined Company’s asset portfolio as compared to Arlington’s investing activities prior to the Merger.

•

Increased Borrower Diversification. That the Merger will increase the borrower diversification associated with the Combined Company’s asset portfolio as a result of having a larger base of borrowers associated with such assets.

•

Other Terms of the Merger Agreement. Certain other terms of the Merger Agreement, including, among others:

•

the Merger is subject to approval by the holders of a majority of all votes cast by Arlington’s common shareholders at a meeting at which a quorum of Arlington’s common shareholders exists;

•

the Merger is intended to qualify as a reorganization under Section 368(a) of the Code;

•

the Merger Agreement provides Arlington with the right, under certain specified circumstances, to consider an unsolicited competing proposal if the Arlington Board determines in good faith, after consultation with its financial advisor and outside legal counsel, that such a competing proposal is a superior proposal for Arlington’s shareholders, and provides the Arlington Board with the ability, under certain specified circumstances, to make a change in recommendation or to terminate the Merger Agreement in order to enter into a definitive agreement with respect to such superior proposal upon payment to EFC of a termination fee of $5,015,050;

•

the commitment on the part of each of Arlington, EFC, Merger Sub and EFC Manager to complete the Merger as reflected in their respective obligations under the terms of the Merger Agreement and the absence of any required material government consents, and the likelihood that the Merger will be completed on a timely basis;

•

the Merger Agreement provides that Arlington will designate one individual to serve on EFC’s Board following the Closing;

•

the Combined Company will assume the obligations of Arlington related to the trust preferred securities issued by FBR Capital Trust III, a Delaware statutory trust, and FBR Capital Trust X, a Delaware statutory trust (the “Arlington Trusts”), and the Arlington Notes;

•

the Arlington Series B Preferred Stock and Arlington Series C Preferred Stock will be converted into newly issued shares of preferred stock of the Combined Company; and

•

the other terms of the Merger Agreement, including representations, warranties and covenants of the parties, as well as the conditions to their respective obligations under the Merger Agreement.

The Arlington Board also considered a variety of risks and other potentially negative factors in considering the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including, but not limited to, the following material factors:

•

Other Strategic Alternatives. The risk that a different strategic alternative, such as continuing as a standalone public company or liquidating, could be more beneficial to Arlington’s common shareholders than the Merger.

•

Competing Transactions; Termination Fee. That the terms of the Merger Agreement place limitations on Arlington’s right to initiate, solicit or knowingly encourage the making of any proposal by or with a third party with respect to a competing transaction and to furnish information to, or enter into discussions with, a third party interested in pursuing an alternative strategic transaction, and that, under the terms of the Merger Agreement, Arlington must pay EFC the termination fee of $5,015,050 if the Merger Agreement is terminated under certain circumstances, which might discourage or deter other parties from proposing an alternative transaction that may be more advantageous to Arlington’s shareholders.

•

Expenses. The expenses to be incurred in connection with the Merger.

TABLE OF CONTENTS

•

Completion of Merger. That, while the Merger is expected to be completed, there is no assurance that all the conditions to the parties’ obligations to complete the Merger will be satisfied or waived, or that the Merger in fact will be completed.

•

Management Resources. The risk of diverting management focus and resources from operational matters and other strategic opportunities while working to implement the Merger.

•

Pre-Closing Operating Covenants. That provisions in the Merger Agreement restricting non-ordinary course operation of Arlington’s business during the period between the signing of the Merger Agreement and consummation of the Merger may delay or prevent Arlington from undertaking business opportunities that may arise or other actions it would otherwise take with respect to its operations absent the pending completion of the Merger.

•

External Management. The fact that, while Arlington has been internally managed, the Combined Company will be externally managed by EFC Manager, and that the EFC Management Agreement, among other things, requires various payments and expense reimbursements to EFC Manager, places restrictions on the Combined Company’s ability to terminate the management agreement and may impede, prevent or discourage a change of control or other strategic transaction involving the Combined Company.

•

General Market Conditions. The risk that the potential benefits of the Merger may not be fully or partially achieved, or may not be achieved within the expected time frame, due to general competitive, economic, political and market conditions.

The foregoing discussion of the factors considered by the Arlington Board is not intended to be exhaustive and is not provided in any specific order or ranking, but rather includes material factors considered by the Arlington Board. In view of the wide variety of factors considered in connection with its evaluation of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and the complexity of these matters, the Arlington Board did not consider it practical to, and did not attempt to, quantify, rank or otherwise assign any relative or specific weights or values to the different factors considered, and individual directors may have given different weights to different factors. The Arlington Board conducted an overall review of the factors considered and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

The explanation and reasoning of the Arlington Board and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 46.

After careful consideration, for the reasons set forth above, the Arlington Board has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are in the best interests of Arlington and its shareholders, (ii) adopted and approved the Merger Agreement and declared that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, (iii) directed that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, be submitted to the holders of Arlington Common Stock for their approval at the Arlington special meeting and (iv) resolved to recommend that the holders of Arlington Common Stock approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. The Arlington Board unanimously recommends that the Arlington shareholders vote “FOR” the Arlington Merger Proposal, “FOR” the Arlington Non-Binding Compensation Advisory Proposal and “FOR” the Arlington Adjournment Proposal.

The EFC Board’s Reasons for the Merger

At its meeting on May 29, 2023, after careful consideration, the EFC Board unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the EFC Stock Issuance, are in the best interests of EFC, and (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger and the EFC Stock Issuance.

TABLE OF CONTENTS

In evaluating the Merger Agreement and the EFC Stock Issuance, the EFC Board consulted with senior management and outside legal and financial advisors and carefully considered numerous factors that the EFC Board viewed as supporting its decision, including, but not limited to, the following material factors:

•

The EFC Board considered that the Merger is expected to provide a number of significant benefits to EFC and its stockholders, including the following:

•

the Merger would enable EFC to effectively raise a relatively large amount of common and preferred equity capital at a premium to what EFC would be expected to achieve in the public markets;

•

the Merger is expected to provide EFC with improved scale, enhanced portfolio liquidity, access to a broader set of financing alternatives, and additional borrowing capacity, which should support continued growth across EFC’s target assets and position EFC to take advantage of opportunities as they arise in the diversified markets in which EFC operates;

•

Arlington’s relatively low leverage profile is expected to provide EFC with meaningful opportunity to enhance returns by redeploying capital into new investments at attractive estimated risk-adjusted returns;

•

acquisition of Arlington’s MSR-related asset portfolio, with an in-place servicing structure, would allow EFC to enter into a complementary new business at scale;

•

the Merger is estimated to be accretive to EFC’s earnings per share shortly after the Closing and accretive to EFC’s book value per share within one year of the Closing, with enhanced long-term growth potential;

•

the increased market capitalization resulting from the Merger is expected to enhance the trading volume and liquidity for stockholders of the Combined Company, generate a greater level of interest in EFC’s business from a broader investor base, and provide more efficient access to the capital markets;

•

the larger size EFC will achieve as a result of the Merger may benefit EFC as larger mortgage REITs have historically tended to trade at better market-price-to-book-value multiples compared to smaller mortgage REITs; and

•

the combination of EFC and Arlington can potentially create cost savings and efficiencies over time resulting from the allocation of fixed operating expenses over a larger common equity base.

•

The business, operations, financial condition, earnings and prospects of EFC and Arlington, after taking into account the results of EFC’s due diligence review of Arlington, the current and prospective business environments in which EFC and Arlington operate, and current and prospective general economic and market conditions.

•

The commitment on the part of both parties to consummate the Merger as reflected in their respective obligations under the terms of the Merger Agreement, including that Arlington may be required to pay EFC a termination fee under certain circumstances, and the likelihood that the Arlington shareholder approval needed to consummate the Merger would be obtained in a timely manner.

•

The benefit of further diversification of EFC’s asset base in light of the challenges facing the mortgage REIT sector in general, including significant uncertainty regarding the outlook for interest rates and macroeconomic conditions.

The EFC Board also considered a variety of risks and other potentially negative factors in considering the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including, but not limited to, the following material factors:

•

the risk that a different strategic alternative could be more beneficial to EFC stockholders than the Merger;

•

the expected initial dilutive effect of the Merger on EFC’s earnings and book value per share, and the risk that the Merger may not ultimately be accretive to EFC’s earnings or book value per share;

TABLE OF CONTENTS

•

the risk of diverting management focus and resources from operational matters and other strategic opportunities while working to implement the Merger;

•

the risk that Arlington’s book value per share may decline, including as a result of net losses, following execution of the Merger Agreement and EFC’s inability to terminate the Merger Agreement due to such changes;

•

the risk that, notwithstanding the likelihood of the Merger being completed, the Merger may not be completed, or that completion may be unduly delayed, including the effect of the pendency of the Merger and the effect such failure to be completed may have on the trading price of EFC Common Stock and EFC’s operating results, particularly in light of the costs incurred in connection with the transaction;

•

the risk that the cost savings, operational efficiencies and other benefits to the EFC stockholders expected to result from the Merger might not be fully realized or realized at all;

•

the risk that EFC will be unable to redeploy the capital acquired in connection with the Merger into its targeted asset classes within the anticipated timeline or at anticipated returns;

•

the risk of other potential difficulties in integrating the two companies and their respective operations;

•

the substantial costs to be incurred in connection with the transaction, including the transaction expenses arising from the Merger and the costs of integrating the businesses of EFC and Arlington;

•

the restrictions on the conduct of EFC’s business during the period between the execution of the Merger Agreement and the Closing (for more information, see “The Merger Agreement — Conduct of Business by EFC Pending the Merger” on page 105); and

•

other matters described in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

The foregoing discussion of the factors considered by the EFC Board is not intended to be exhaustive and is not provided in any specific order or ranking, but rather includes material factors considered by the EFC Board. In view of the wide variety of factors considered in connection with its evaluation of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and the complexity of these matters, the EFC Board did not consider it practicable to, and did not attempt to, quantify, rank or otherwise assign any relative or specific weights or values to the factors considered, and individual directors may have held varied views of the relative importance of the factors considered and given different weights or values to different factors. The EFC Board viewed its position and recommendation as being based on an overall review of the totality of the information available to it and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

The explanation and reasoning of the EFC Board and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 46.

Opinion of Arlington’s Financial Advisor, Wells Fargo Securities

Pursuant to an engagement letter dated January 30, 2023, Arlington retained Wells Fargo Securities as its financial advisor in connection with a review of potential transactions, which would include a potential merger with EFC.

On May 29, 2023, Wells Fargo Securities rendered its oral opinion to the Arlington Board, which was subsequently confirmed in writing by delivery of Wells Fargo Securities’ written opinion, dated May 29, 2023 that, as of such date, the Per Share Common Merger Consideration in the Merger was fair, from a financial point of view, to holders of Arlington Common Stock.

Wells Fargo Securities’ opinion was for the information and use of the Arlington Board (in its capacity as such) in connection with its evaluation of the Merger. Wells Fargo Securities’ opinion only addressed the fairness,

TABLE OF CONTENTS

from a financial point of view, to the holders of Arlington Common Stock of the Per Share Common Merger Consideration to be paid to such holders in the Merger and did not address any other aspect or implication of the Merger. The summary of Wells Fargo Securities’ opinion in this proxy statement/prospectus is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex B to this proxy statement/prospectus and sets forth the procedures followed, assumptions made, matters considered and limitations and qualifications on the review undertaken by Wells Fargo Securities in connection with the preparation of its opinion. However, neither Wells Fargo Securities’ written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus is intended to be, and they do not constitute, advice or a recommendation to any shareholder of Arlington as to how such shareholder should vote or act on any matter relating to the Merger.

In arriving at its opinion, Wells Fargo Securities, among other things:

•

reviewed a draft of the Agreement and Plan of Merger, dated as of May 29, 2023, by and among EFC, Merger Sub, Arlington and solely for the limited purposes set forth therein, EFC Manager (which is referred to in this summary of Wells Fargo Securities’ opinion as the “Merger Agreement”);

•

reviewed certain publicly available business and financial information relating to Arlington and EFC and the industries in which they operate;

•

compared the financial and operating performance of Arlington and EFC with publicly available information concerning certain other companies Wells Fargo Securities deemed relevant, and compared current and historic market prices of Arlington Common Stock and EFC Common Stock with similar data for such other companies;

•

compared the proposed financial terms of the Merger with the publicly available financial terms of certain other business combinations that Wells Fargo Securities deemed relevant;

•

reviewed certain internal financial analyses and forecasts for Arlington (referred to in this summary of Wells Fargo Securities’ opinion as the “Arlington Projections” and as described in more detail in the section titled “— Certain Arlington Unaudited Prospective Financial Information” beginning on page 82 of this proxy statement/prospectus), prepared by the management of Arlington (and prepared without a view toward public disclosure, compliance with GAAP, the published guidelines of the SEC regarding projections and forward-looking statements or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentations of financial projections);

•

reviewed certain financial analyses and forecasts for EFC (referred to in this summary of Wells Fargo Securities’ opinion as the “EFC Projections,” which were prepared by EFC (and prepared without a view toward public disclosure, compliance with GAAP, the published guidelines of the SEC regarding projections and forward-looking statements or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentations of financial projections), and “EFC Extrapolated Projections,” which were prepared by Arlington’s management and not discussed with, provided to, reviewed by or approved by EFC or any of EFC’s directors, officers, affiliates, advisors or other representatives, and described in more detail in the sections titled “—Certain EFC Unaudited Prospective Financial Information” beginning on page 80 of this proxy statement/prospectus) and “— Certain Arlington Unaudited Prospective Financial Information” beginning on page 82 of this proxy statement/prospectus), respectively;

•

discussed with the managements of Arlington and EFC certain aspects of the Merger, the business, financial condition and prospects of Arlington and EFC, respectively, the effect of the Merger on the business, financial condition and prospects of Arlington and EFC, respectively, and certain other matters that Wells Fargo Securities deemed relevant; and

•

considered such other financial analyses and investigations and such other information that Wells Fargo Securities deemed relevant.

In giving its opinion, Wells Fargo Securities assumed and relied upon the accuracy and completeness of all information that was publicly available or was furnished to or discussed with Wells Fargo Securities by Arlington or EFC or otherwise reviewed by Wells Fargo Securities. Wells Fargo Securities did not independently verify any such information, and pursuant to the terms of Wells Fargo Securities’ engagement

TABLE OF CONTENTS

by Arlington, Wells Fargo Securities did not assume any obligation to undertake any such independent verification. In relying on the Arlington Projections, the EFC Projections and the EFC Extrapolated Projections, Wells Fargo Securities assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of management as to the future performance and financial condition of Arlington and EFC. Wells Fargo Securities expressed no view or opinion with respect to the Arlington Projections, the EFC Projections, the EFC Extrapolated Projections or the assumptions upon which they are based. Wells Fargo Securities assumed that any representations and warranties made by Arlington and EFC in the Merger Agreement or in other agreements relating to the Merger will be true and accurate in all respects that are material to its analysis and that Arlington will have no exposure for indemnification pursuant to the Merger Agreement or such other agreements that would be material to its analysis. For purposes of Wells Fargo Securities’ opinion, Arlington directed Wells Fargo Securities to assume, and Wells Fargo Securities assumed, that the Third Party Loan Payment (as defined in the Merger Agreement) was made prior to July 10, 2023 and that the fully diluted share count of Arlington for purposes of its opinion was 32.360 million.

For purposes of its analyses and opinion, Wells Fargo Securities assumed that, for U.S. federal income tax purposes, the Merger will qualify as a “reorganization” within the meaning of Section 368 of the Code. Wells Fargo Securities also assumed that the Merger will have the tax consequences described in discussions with, and materials provided to it by, Arlington and its representatives. Wells Fargo Securities also assumed that, in the course of obtaining any regulatory or third party consents, approvals or agreements in connection with the Merger, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on Arlington, EFC or the contemplated benefits of the Merger. Wells Fargo Securities also assumed that the Merger will be consummated in compliance with all applicable laws and regulations and in accordance with the terms of the Merger Agreement without waiver, modification or amendment of any term, condition or agreement thereof that is material to its analyses or opinion. In addition, Wells Fargo Securities did not make any independent evaluation, inspection or appraisal of the assets or liabilities (contingent or otherwise) of Arlington or EFC, nor was Wells Fargo Securities furnished with any such evaluations or appraisals. Wells Fargo Securities did not evaluate the solvency of Arlington or EFC under any state or federal laws relating to bankruptcy, insolvency or similar matters. Wells Fargo Securities further assumed that the final form of the Merger Agreement, when executed by the parties thereto, would conform to the draft reviewed by it in all respects material to its analyses and opinion.

Wells Fargo Securities’ opinion only addressed the fairness, from a financial point of view, of the Per Share Common Merger Consideration to be paid to the holders of the Arlington Common Stock in the Merger, and Wells Fargo Securities expressed no opinion as to the fairness of any consideration paid in connection with the Merger to the holders of any other class of securities, creditors or other constituencies of Arlington, including holders of Arlington Preferred Stock. Furthermore, Wells Fargo Securities expressed no opinion as to any other aspect or implication (financial or otherwise) of the Merger, or any other agreement, arrangement or understanding entered into in connection with the Merger or otherwise, including, without limitation, the fairness of the amount or nature of, or any other aspect relating to, any compensation or Per Share Common Merger Consideration to be received by or otherwise payable to any officers, directors or employees of any party to the Merger, or class of such persons, relative to the Per Share Common Merger Consideration or otherwise. Furthermore, Wells Fargo Securities did not express any advice or opinion regarding matters that require legal, regulatory, accounting, insurance, tax, environmental, executive compensation or other similar professional advice and relied upon the assessments of Arlington and its advisors with respect to such advice.

Wells Fargo Securities’ opinion was necessarily based upon information made available to Wells Fargo Securities as of the date of its opinion and financial, economic, market and other conditions as they existed and could be evaluated on the date of its opinion. Wells Fargo Securities did not undertake, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to its attention after the date of its opinion, notwithstanding that any such subsequent developments may affect its opinion. Wells Fargo Securities’ opinion did not address the relative merits of the Merger as compared to any alternative transactions or strategies that might have been available to Arlington, nor did it address the underlying business decision of the Arlington Board or Arlington to proceed with or effect the Merger. Wells Fargo Securities did not express any opinion as to the price at which Arlington Common Stock or EFC Common Stock may be traded at any time.

TABLE OF CONTENTS

Financial Analyses

In preparing its opinion to the Arlington Board, Wells Fargo Securities performed a variety of analyses, including those described below. The summary of Wells Fargo Securities’ analyses is not a complete description of the analyses underlying Wells Fargo Securities’ opinion. The preparation of such an opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither Wells Fargo Securities’ opinion nor its underlying analyses is readily susceptible to summary description. Wells Fargo Securities arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, methodology or factor. Accordingly, Wells Fargo Securities believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies and factors, without considering all analyses, methodologies and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Wells Fargo Securities’ analyses and opinion.

In performing its analyses, Wells Fargo Securities considered general business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. None of the selected companies used in Wells Fargo Securities’ analyses is identical to Arlington nor EFC and none of the selected transactions reviewed is identical to the Merger. Evaluation of the results of those analyses is not entirely mathematical. The financial analyses performed by Wells Fargo Securities were performed for analytical purposes only and are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of Arlington.

While the results of each analysis were taken into account in reaching its overall conclusion with respect to fairness, Wells Fargo Securities did not make separate or quantifiable judgments regarding individual analyses. Much of the information used in, and accordingly the results of, Wells Fargo Securities’ analyses are inherently subject to substantial uncertainty.

Wells Fargo Securities’ opinion was only one of many factors considered by the Arlington Board in evaluating the Merger. Neither Wells Fargo Securities’ opinion nor its analyses were determinative of the Per Share Common Merger Consideration or of the views of the Arlington Board or Arlington’s management with respect to the Merger or the Per Share Common Merger Consideration. The type and amount of consideration payable in the Merger were determined through negotiations between Arlington and EFC, and Arlington’s decision to enter into the Merger Agreement was solely that of the Arlington Board.

The following is a summary of the material financial analyses performed by Wells Fargo Securities in connection with the preparation of its opinion rendered to, and reviewed with, the Arlington Board on May 29, 2023. The order of the analyses summarized below does not represent relative importance or weight given to those analyses by Wells Fargo Securities. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying and the assumptions made, procedures followed, matters considered and limitations and qualifications affecting each analysis, could create an incomplete view of Wells Fargo Securities’ analyses.

The estimates of the future financial performance of the companies and transactions listed below were based on public filings, including SEC filings and research estimates for those companies. The estimates of the future financial performance of Arlington and EFC relied upon for the financial analyses described below were based on the Arlington Projections, the EFC Projections and the EFC Extrapolated Projections.

Arlington Financial Analyses

Arlington Selected Public Companies Analysis

TABLE OF CONTENTS

Securities’ analyses is identical to Arlington. The selected companies were selected by Wells Fargo Securities because they were deemed by Wells Fargo Securities to be similar to Arlington in one or more respects, including, among other things, that each selected company’s principal business is investing in mortgage-related assets.

Using publicly available information, Wells Fargo Securities calculated the multiple of each selected company’s market capitalization, calculated based on the trading price per share of such company’s common stock multiplied by such company’s total diluted share count, as of May 26, 2023, to such selected company’s most recently reported tangible book value (referred to in this summary of Wells Fargo Securities’ opinion as the “Fully Diluted Price / TBV”).

The companies selected by Wells Fargo Securities were as follows:

•

Angel Oak Mortgage REIT, Inc.

•

Cherry Hill Mortgage Investment Corporation

•

Seven Hills Realty Trust

•

AG Mortgage Investment Trust, Inc.

•

Ellington Residential Mortgage REIT

•

Lument Finance Trust, Inc.

•

ACRES Commercial Realty Corp.

•

Western Asset Mortgage Capital Corporation

Taking into account the results of the selected public companies analysis, Wells Fargo Securities applied a Fully Diluted Price / TBV multiple range of 0.50x to 0.80x to Arlington’s tangible book value as of April 30, 2023, further dividing the derived implied equity amounts by the corresponding total diluted share counts for the high and low values. The selected public companies analysis indicated the following implied equity value per share reference ranges for Arlington Common Stock:

	Implied Equity Value per Share
	Low			High
Price / TBV		$	3.06		$	4.52

The implied equity value per share reference range was then compared to the implied per share value of the Per Share Common Merger Consideration as of May 26, 2023 of $4.77.

Arlington Selected Transactions Analysis

Wells Fargo Securities reviewed, among other things, financial data relating to the selected transactions that Wells Fargo Securities considered generally relevant as recent transactions involving target companies which Wells Fargo Securities judged to be sufficiently analogous to Arlington’s business based on Wells Fargo Securities’ experience and familiarity with the industries in which Arlington operates.

Using publicly available information, Wells Fargo Securities calculated, for each of the selected transactions, the implied price per share of the company’s common stock in the relevant transaction multiplied by such company’s total diluted share count to such company’s tangible book value.

Announce Date	Target	Acquiror
February 27, 2023	Broadmark Realty Capital Inc.	Ready Capital Corporation
November 4, 2021	Mosaic Real Estate Credit, LLC	Ready Capital Corporation
July 26, 2021	Capstead Mortgage Corporation	Benefit Street Partners Realty Trust, Inc.
December 7, 2020	Anworth Mortgage Asset Corporation	Ready Capital Corporation
August 3, 2020	Jernigan Capital, Inc.	NexPoint Advisors, L.P.

TABLE OF CONTENTS

Announce Date	Target	Acquiror
November 7, 2018	Owens Realty Mortgage, Inc.	Ready Capital Corporation
May 2, 2018	MTGE Investment Corp.	Annaly Capital Management Inc.
April 26, 2018	CYS Investments Inc.	Two Harbors Investment Corp.
April 11, 2016	Hatteras Financial Corp.	Annaly Capital Management Inc.
April 7, 2016	ZAIS Financial Corp.	Sutherland Asset Management Corporation
March 2, 2016	JAVELIN Mortgage Investment Corp.	ARMOUR Residential REIT, Inc.
February 26, 2016	Apollo Residential Mortgage, Inc.	Apollo Commercial Real Estate Finance, Inc.

None of the selected transactions reviewed was identical to the Merger. However, the selected transactions were chosen because certain aspects of the transactions, for purposes of Wells Fargo Securities’ analysis, may be considered similar to the Merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the transactions differently than they would affect the Merger.

Taking into account the results of the selected transactions analysis, Wells Fargo Securities applied a multiple range of 0.80x to 0.90x to Arlington’s tangible book value as of April 30, 2023, further dividing the derived implied equity amounts by the corresponding total diluted share counts for the high and low values. The selected transactions analysis indicated the following implied equity value per share reference ranges for Arlington Common Stock:

	Implied Equity Value per Share
	Low			High
Price / TBV		$	4.52		$	4.99

The implied equity value per share reference range was then compared to the implied per share value of the Per Share Common Merger Consideration as of May 26, 2023 of $4.77.

Arlington Dividend Discount Analysis

Wells Fargo Securities performed a dividend discount analysis for Arlington for the purpose of determining an implied equity value per share for Arlington Common Stock on a standalone basis. Wells Fargo Securities calculated Arlington’s projected dividends on shares of Arlington Common Stock for the period from May 31, 2023 through December 31, 2026, based on the Arlington Projections, which were discussed with, and approved by, the Arlington Board for use by Wells Fargo Securities in connection with its financial analyses. Wells Fargo Securities also calculated a range of terminal values for Arlington as of December 31, 2026 by applying a range of terminal forward multiples of 0.65x to 0.85x to Arlington’s projected tangible book value for the year ended December 31, 2026 based on the Arlington Projections. Wells Fargo Securities then discounted the projected dividend estimates and the range of the terminal values to present value as of May 31, 2023 using discount rates ranging from 13.00% to 17.00%.

The dividend discount analysis indicated an implied equity value per share reference range for Arlington Common Stock of $3.34 to $4.32.

EFC Financial Analyses

EFC Selected Public Companies Analysis

Wells Fargo Securities reviewed certain data for selected companies with publicly traded equity securities that Wells Fargo Securities deemed relevant. None of the selected companies used in Wells Fargo Securities’ analyses is identical to EFC. The selected companies were selected by Wells Fargo Securities because they were deemed by Wells Fargo Securities to be similar to EFC in one or more respects, including, among other things, that each selected company’s principal business is investing in mortgage-related assets.

TABLE OF CONTENTS

Using publicly available information, Wells Fargo Securities calculated the multiple of each selected company’s market capitalization, calculated based on the trading price per share of such company’s common stock multiplied by such company’s total diluted share count, as of May 26, 2023, to the most recently reported tangible book value for such selected company. Wells Fargo Securities also calculated the yield of each company’s most recent quarterly or monthly dividend, adjusted for annualization.

The companies selected by Wells Fargo Securities were as follows:

•

Two Harbors Investment Corp.

•

Chimera Investment Corporation

•

MFA Financial, Inc.

•

PennyMac Mortgage Investment Trust

•

Franklin BSP Realty Trust, Inc.

•

New York Mortgage Trust, Inc.

•

Redwood Trust, Inc.

Taking into account the results of the selected public companies analysis, Wells Fargo Securities applied a Fully Diluted Price / TBV multiple range of 0.65x to 0.85x to EFC’s tangible book value per share as of April 30, 2023, further dividing the derived implied equity amounts by the corresponding total diluted share count for the high and low values. Taking into account the results of the selected public companies analysis, Wells Fargo Securities applied a dividend yield range of 13.0% to 16.5% to EFC’s monthly dividend, adjusted for annualization. The selected public companies analysis indicated the following implied equity value per share reference ranges for EFC Common Stock:

	Implied Equity Value Per Share
	Low			High
Price / TBV		$	9.65		$	12.62
Dividend Yield (Price)		$	10.91		$	13.85

EFC Dividend Discount Analysis

Wells Fargo Securities performed a dividend discount analysis for EFC for the purpose of determining an implied equity value per share for EFC Common Stock on a standalone basis. Wells Fargo Securities calculated EFC’s projected dividends per share of EFC Common Stock for the period from May 31, 2023 through December 31, 2026, based on the EFC Extrapolated Projections, which were discussed with, and approved by, Arlington’s management for use by Wells Fargo Securities in connection with its financial analyses. Wells Fargo Securities also calculated a range of terminal values for EFC as of December 31, 2026 by applying a range of terminal forward multiples of 0.85x to 1.05x to EFC’s projected tangible book value per share for the year ended December 31, 2026 based on the EFC Extrapolated Projections. Wells Fargo Securities then discounted the projected dividend estimates and the range of the terminal values to present value as of May 31, 2023 using discount rates ranging from 12.00% to 16.50%.

The dividend discount analysis indicated an implied equity value per share reference range for EFC Common Stock of $12.95 to $16.68.

Exchange Ratio Analysis

Wells Fargo Securities compared the results for Arlington, adjusted to account for the Per Share Cash Consideration, to the results for EFC with respect to the selected public companies analysis and dividend discount analysis described above. Wells Fargo Securities compared the highest implied equity value per share for EFC to the lowest implied equity value per share for Arlington (as adjusted to account for the Per Share Cash Consideration) to derive the lowest exchange ratio implied by each pair of results. Wells Fargo Securities also compared the lowest implied equity value per share for EFC to the highest implied equity value

TABLE OF CONTENTS

per share for Arlington (as adjusted to account for the Per Share Cash Consideration) to derive the highest exchange ratio implied by each pair of results. The ranges of implied exchange ratios resulting from this analysis were:

Implied Exchange Ratios

Low

High

Price / TBV

0.2348x

0.4586x

Dividend Discount Analysis

0.1947x

0.3262x

The ranges of implied exchange ratios resulting from the foregoing analysis were compared to the Exchange Ratio of 0.3619x.

Other Matters

Wells Fargo Securities is a trade name of Wells Fargo Securities, LLC, an investment banking subsidiary and affiliate of Wells Fargo & Company. Arlington retained Wells Fargo Securities as its financial advisor in connection with the Merger based on Wells Fargo Securities’ experience and reputation. Wells Fargo Securities is regularly engaged to provide investment banking and financial advisory services in connection with mergers and acquisitions, financings, and financial restructurings. Arlington has agreed to pay Wells Fargo Securities an aggregate fee currently estimated to be approximately $2.7 million, $250,000 of which became payable to Wells Fargo Securities at the time the proposed Merger was publicly announced on May 30, 2023, and the remainder of which is contingent and payable upon the consummation of the Merger. In addition, Arlington has agreed to reimburse Wells Fargo Securities for certain expenses and to indemnify Wells Fargo Securities and certain related parties against certain liabilities and other items that may arise out of or relate to Wells Fargo Securities’ engagement. The issuance of Wells Fargo Securities’ opinion was approved by a fairness committee of Wells Fargo Securities.

Wells Fargo Securities and its affiliates provide a wide range of investment and commercial banking advice and services, including financial advisory services, securities underwritings and placements, securities sales and trading, brokerage advice and services, and commercial loans. During the two years preceding the date of Wells Fargo Securities’ written opinion, neither Wells Fargo Securities nor its affiliates have had any other material investment, commercial banking or financial advisory relationships with Arlington or EFC. Wells Fargo Securities and its affiliates hold, on a proprietary basis, less than 1% of each of the outstanding Arlington Common Stock and EFC Common Stock. In the ordinary course of business, Wells Fargo Securities and its affiliates may trade or otherwise effect transactions in the securities or other financial instruments (including bank loans or other obligations) of Arlington, EFC and certain of their affiliates for Wells Fargo Securities own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or financial instruments. Wells Fargo Securities and its affiliates have adopted policies and procedures designed to preserve the independence of their research and credit analysts whose views may differ from those of the members of the team of investment banking professionals involved in preparing Wells Fargo Securities’ opinion.

Certain EFC Unaudited Prospective Financial Information

Although EFC, from time to time, may provide guidance for certain expected financial results in its regular earnings communications and other investor materials, EFC does not as a matter of course make public long-term projections as to future performance, earnings or other results due to, among other reasons, the inherent uncertainty and subjectivity of the underlying assumptions and estimates. Such projections inherently become subject to substantially greater uncertainty as they extend further into the future. As a result, neither EFC nor Arlington can give you any assurance that actual results will not differ materially from the unaudited prospective financial information included in this proxy statement/prospectus. However, in connection with the Merger, EFC prepared and provided to Arlington and its representatives certain non-public, unaudited estimates, including, but not limited to, estimated earnings per share for the year ending December 31, 2023 that were based on target portfolio allocations as of April 24, 2023 on an annualized basis (collectively, the “EFC Projections”).

The below summary of the EFC Projections is included for the sole purpose of providing Arlington shareholders access to a summary of certain non-public information that was furnished to certain parties in

TABLE OF CONTENTS

connection with the Merger, and such information may not be appropriate for other purposes, and is not included to influence the voting decision of any holder of Arlington Common Stock or the investment decision of any holder of Arlington Common Stock.

The EFC Projections were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with GAAP, the published guidelines of the SEC regarding projections and forward-looking statements, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentations of financial projections, but in the view of EFC’s management, were reasonably prepared in good faith on a basis reflecting the best available estimates and judgments at the time of preparation, and presented as of the time of preparation, to the best of EFC’s management’s knowledge and belief, the expected future financial performance of EFC. The inclusion of the summary of the EFC Projections should not be regarded as an indication that such information is factual or necessarily predictive of actual future events or results and such information should not be relied upon as such, and readers of this proxy statement/prospectus are cautioned not to rely on the EFC Projections for any purpose. The prospective financial information included in the EFC Projections included in this section under the heading “Certain EFC Unaudited Prospective Financial Information” has been prepared by, and is the responsibility of, EFC’s management. PricewaterhouseCoopers LLP has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying prospective financial information and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report included in EFC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, incorporated by reference in this document, relates to EFC’s previously issued financial statements. It does not extend to the prospective financial information and should not be read to do so. Furthermore, the EFC Projections do not take into account any circumstances or events occurring after the date they were prepared, and the unaudited prospective financial information may vary significantly from subsequent forecasts, financial plans, guidance and/or actual results.

While presented with numeric specificity, this unaudited prospective financial information is forward-looking information that was based on numerous variables and assumptions (including assumptions related to EFC’s portfolio, interest rates, industry performance and general business, economic, market and financial conditions, as well as additional matters specific to EFC’s business) that are inherently highly subjective, uncertain and beyond the control of EFC. The assumptions underlying the unaudited prospective financial information may not prove to have been, or may no longer be, accurate. Important factors that may affect actual results and cause this unaudited prospective financial information not to be achieved include, but are not limited to, risks and uncertainties relating to EFC’s business (including its ability to achieve strategic goals, objectives and targets over applicable periods), changes in EFC’s portfolio, actual credit performance of EFC’s portfolio, origination volumes and gain-on-sale margins related to Longbridge (as defined below) and other strategic equity investments made by EFC in loan originators, changes in interest rates, industry performance, general business and economic conditions and other factors described in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.” This unaudited prospective financial information also reflects numerous variables, expectations and assumptions available at the time they were prepared as to certain business decisions that are subject to change. As a result, actual results may differ materially from those contained in this unaudited prospective financial information. Accordingly, no assurance can be given that the projected results summarized below will be realized. Arlington shareholders are urged to review EFC’s most recent SEC filings for a description of the reported and anticipated results of operations and financial condition and capital resources, including those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in EFC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and EFC’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2023 and June 30, 2023, which are incorporated by reference into this proxy statement/prospectus.

The inclusion of this information should not be regarded as an indication that EFC, the EFC Board, Arlington, the Arlington Board, Wells Fargo Securities or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results. None of EFC, Arlington or their respective directors, officers, affiliates, advisors or other representatives can give any assurance that actual results will not differ materially from this unaudited prospective financial information.

TABLE OF CONTENTS

NONE OF EFC, ARLINGTON OR THEIR RESPECTIVE AFFILIATES, ADVISORS, OFFICERS, DIRECTORS OR OTHER REPRESENTATIVES UNDERTAKES ANY OBLIGATION TO UPDATE OR OTHERWISE REVISE OR RECONCILE THE BELOW UNAUDITED PROSPECTIVE FINANCIAL INFORMATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE THIS UNAUDITED PROSPECTIVE FINANCIAL INFORMATION WAS GENERATED OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH INFORMATION ARE SHOWN TO BE IN ERROR.

None of EFC, Arlington or their respective affiliates, advisors, officers, directors or other representatives has made or makes any representation to Arlington or any Arlington shareholder, in the Merger Agreement or otherwise, concerning the unaudited prospective financial information, or regarding EFC’s ultimate performance compared to the unaudited prospective financial information, or that the projected results will be achieved. In light of the foregoing factors, the uncertainties inherent in the unaudited prospective financial information, and the fact that the Arlington special meeting will be held several months after the financial projections were prepared, Arlington shareholders are cautioned not to place any reliance on such information and to review EFC’s most recent SEC filings for a description of EFC’s reported financial results.

EFC Projections

The following table presents a summary of the EFC Projections for the year ending December 31, 2023 that were based on EFC’s target portfolio allocation as of April 24, 2023 on an annualized basis.

	GAAP Earnings Per Share				$	2.08
	Per Share Common Stock Dividends				$	1.80

Certain Arlington Unaudited Prospective Financial Information

Arlington does not as a matter of course make public long-term projections as to future performance, earnings or other results due to, among other reasons, the inherent uncertainty and subjectivity of the underlying assumptions and estimates. Such projections inherently become subject to substantially greater uncertainty as they extend further into the future. As a result, neither Arlington nor EFC can give you any assurance that actual results will not differ materially from the unaudited prospective financial information included in this proxy statement/prospectus. However, in connection with the Merger, Arlington’s management prepared and provided certain unaudited prospective financial information for fiscal years 2023 through 2026 (the “Arlington Projections”) to Wells Fargo Securities, and included in the information Wells Fargo Securities presented to the Arlington Board. In connection with the Merger, Arlington’s management reviewed the Arlington Projections and approved the Arlington Projections as a reasonable basis upon which to evaluate the business and prospects of Arlington, including for use by Wells Fargo Securities, for purposes of Wells Fargo Securities’ financial analysis of Arlington and in connection with its fairness opinion as described above under the section entitled “Opinion of Arlington’s Financial Advisor, Wells Fargo Securities.” The below summary of the Arlington Projections is included for the sole purpose of providing Arlington shareholders access to a summary of certain non-public information that was furnished to certain parties in connection with the Merger, and such information may not be appropriate for other purposes, and is not included to influence the voting decision of any holder of Arlington Common Stock or the investment decision of any holder of Arlington Common Stock.

In addition, Arlington’s management extrapolated the EFC Projections to prepare certain unaudited prospective financial information of EFC on a standalone basis for the fiscal years 2023 through 2026, which information is referred to as the “EFC Extrapolated Projections”, and provided the EFC Extrapolated Projections to the Arlington Board and Wells Fargo Securities. Except for the EFC Projections utilized by Arlington’s management, the EFC Extrapolated Projections do not reflect the input of EFC, EFC’s management or the EFC Board and were not shared with, or reviewed by, EFC, EFC’s management or the EFC Board and are strictly the product of work conducted by Arlington’s management. In connection with the Merger, Arlington’s management reviewed the EFC Extrapolated Projections and approved the EFC Extrapolated Projections as a reasonable basis upon which to evaluate the business and prospects of EFC,

TABLE OF CONTENTS

including for use by Wells Fargo Securities, for purposes of Wells Fargo Securities’ financial analysis of EFC and in connection with its fairness opinion as described above under the section entitled “Opinion of Arlington’s Financial Advisor, Wells Fargo Securities.”

The Arlington Projections and the EFC Extrapolated Projections were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with GAAP, the published guidelines of the SEC regarding projections and forward-looking statements, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentations of financial projections, but in the view of Arlington’s management, were reasonably prepared in good faith on a basis reflecting the best available estimates and judgments at the time of preparation, and presented as of the time of preparation, to the best of Arlington’s management’s knowledge and belief, the expected future financial performance of Arlington. The inclusion of the summary of the Arlington Projections and the EFC Extrapolated Projections should not be regarded as an indication that such information is factual or necessarily predictive of actual future events or results and such information should not be relied upon as such, and readers of this proxy statement/prospectus are cautioned not to rely on the Arlington Projections or the EFC Extrapolated Projections for any purpose. The prospective financial information included in the Arlington Projections and the EFC Extrapolated Projections has been prepared by, and is the responsibility of, Arlington’s management. PricewaterhouseCoopers LLP has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying prospective financial information and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP reports included in Arlington’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as amended, and EFC’s Annual Report on Form 10-K for the year ended December 31, 2022, each incorporated by reference in this document, relates to Arlington’s and EFC’s previously issued financial statements. It does not extend to the prospective financial information and should not be read to do so. Furthermore, the Arlington Projections and the EFC Extrapolated Projections do not take into account any circumstances or events occurring after the date they were prepared, and the unaudited prospective financial information may vary significantly from subsequent forecasts, financial plans, guidance and/or actual results.