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TEL 804 — 788 — 8200 FAX 804 — 788 — 8218 | ||||
| FILE NO: 68139.1004 | ||||
October 5, 2010
VIA EDGAR
Mr. Thomas Kluck
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
| RE: | Ellington Financial LLC |
| Pre-Effective Amendment No. 10 to Registration Statement on Form S-11 |
| Filed on September 30, 2010 |
| Registration No. 333-160562 |
Dear Mr. Kluck:
As counsel to Ellington Financial LLC, a Delaware limited liability company (the “Company”), we are transmitting for filing the Company’s supplemental response to Comment 1 of the Staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) contained in your letter dated September 28, 2010.
For convenience of reference, Comment 1 contained in your September 28, 2010 comment letter is reprinted below in italics and is followed by the corresponding response of the Company.
In addition, we have provided to each of you, Jessica Barberich, Yolanda Crittendon and Duc Dang a courtesy copy of this letter and two courtesy copies of Pre-Effective Amendment No. 11 to the Company’s Registration Statement on Form S-11 (File No. 333-160562) filed by the Company on October 4, 2010, one copy of which has been marked to reflect changes made to Amendment No. 10 to the Registration Statement filed with the Commission on September 30, 2010. Capitalized terms used and not otherwise defined in this response letter that are defined in the Registration Statement shall have the meanings set forth in the Registration Statement.
Mr. Thomas Kluck
October 5, 2010
Page 2
Liquidity Management, page 97
Our Financing Strategies and Use of Leverage, page 97
| 1. | We have read your response to comment three in our letter dated June 10, 2010. Please walk us through an example of when you engage in a TBA roll transaction with the same counterparty, a TBA roll transaction with different counterparties, as well as a TBA non-roll purchase and sale transaction. For each example, please include journal entries and the timing when such entries are recorded. Your examples should also discuss how these transactions are being presented on the balance sheet. |
RESPONSE: In response to the Staff’s comment, we have prepared journal entries related to four examples of TBA transactions. The examples, which are set forth on Exhibit A hereto, are as follows:
| • | Example 1— Initial Short TBA Transaction with Counterparty X Followed by a TBA Roll Transaction with Counterparty Y |
| • | Example 2—Initial Short TBA Transaction with Counterparty X Followed by a TBA Roll Transaction with Counterparty X |
| • | Example 3—Initial Short TBA Transaction with Counterparty X Followed by a Non-Roll Transaction with Counterparty Y |
| • | Example 4—Initial Short TBA Transaction with Counterparty X Followed by a Non-Roll Transaction with Counterparty X |
If you have any questions or comments regarding the foregoing, or have additional questions or comments, please contact the undersigned at (804) 788-7366.
| Very truly yours, |
| /s/ Daniel M. LeBey Daniel M. LeBey |
Mr. Thomas Kluck
October 5, 2010
Page 3
| cc: | Valerie Ford Jacob |
| Paul D. Tropp |
| Laurence Penn |
| Lisa Mumford |
Exhibit A
Example 1 — Initial Short Transaction with Counterparty X followed by a TBA Roll Transaction with Counterparty Y
| Date |
Journal Entries |
Dr |
Cr |
Notes | ||||||
| 1/12/20XX |
1 | Transaction A: Short sale of 50,000,000 TBA FNMA 4.5% @ 103 for settlement 2/14 to Counterparty X |
||||||||
| Receivable for Securities Sold |
51,500,000 | |||||||||
| Investments Sold Short |
51,500,000 | |||||||||
| 1/29/20XX |
2 | Transaction B: Purchase of 50,000,000 TBA FNMA 4.5% @ 102 for settlement 2/14 from Counterparty Y |
Transaction B is not offset against Transaction A since the counterparties differ. | |||||||
| Investments |
51,000,000 | |||||||||
| Payable for Securities Purchased |
51,000,000 | |||||||||
| 1/29/20XX |
3 | Transaction C: Short sale of 50,000,000 TBA FNMA 4.5% @ 101.5 for settlement 3/14 to Counterparty Y |
Transaction C is not offset against Transaction B since the settlement dates differ. | |||||||
| Receivable for Securities Sold |
50,750,000 | |||||||||
| Investments Sold Short |
50,750,000 | |||||||||
| Assume that at 1/31/20XX, TBA FNMA 4.5%s for settlement 2/14 are valued at 102, and TBA FNMA 4.5%s for settlement 3/14 are valued at 101.5. |
So only Transaction A has an unrealized gain/loss. | |||||||||
| 1/31/20XX |
4 | To record unrealized gain on Transaction A |
||||||||
| Investments Sold Short |
500,000 | |||||||||
| Unrealized Gain |
500,000 | |||||||||
| 1/31/20XX |
Month End Balance Sheet |
|||||||||
| Investments |
51,000,000 | |||||||||
| Receivable for Securities Sold |
102,250,000 | |||||||||
| Total Assets |
153,250,000 | |||||||||
| Investments Sold Short |
101,750,000 | |||||||||
| Payable for Securities Purchased |
51,000,000 | |||||||||
| Total Liabilities |
152,750,000 | |||||||||
| Shareholders’ Equity |
500,000 | |||||||||
| Liabilities and Shareholders’ Equity |
153,250,000 | |||||||||
| Assume that at the Company’s request, Transaction A is assigned by Counterparty X to Counterparty Y in order for the Company to avoid the complications and risks of having to intermediate the delivery of securities from Counterparty Y to Counterparty X. |
Counterparty Y is now the counterparty to both Transaction A and Transaction B, and these transactions can then be settled on a net basis. | |||||||||
| 2/14/20XX |
5 | To record net settlement of Transaction A and Transaction B and the associated realization of unrealized gain |
||||||||
| Investments Sold Short |
51,000,000 | |||||||||
| Payable for Securities Purchased |
51,000,000 | |||||||||
| Cash |
500,000 | |||||||||
| Receivable for Securities Sold |
51,500,000 | |||||||||
| Investments |
51,000,000 | |||||||||
| Unrealized Gain |
500,000 | |||||||||
| Realized Gain |
500,000 | |||||||||
| Assume that at 2/28/20XX, TBA FNMA 4.5%s for settlement 3/14 are valued at 101.5 | ||||||||||
| 2/28/20XX |
Month End Balance Sheet |
|||||||||
| Cash |
500,000 | |||||||||
| Investments |
— | |||||||||
| Receivable for Securities Sold |
50,750,000 | |||||||||
| Total Assets |
51,250,000 | |||||||||
| Investments Sold Short |
50,750,000 | |||||||||
| Payable for Securities Purchased |
— | |||||||||
| Total Liabilities |
50,750,000 | |||||||||
| Shareholders’ Equity |
500,000 | |||||||||
| Liabilities and Shareholders’ Equity |
51,250,000 | |||||||||
Example 2 — Initial Short Transaction with Counterparty X followed by a Roll Transaction with Counterparty X
| Date |
Journal Entries |
Dr |
Cr |
Notes | ||||||
| 1/12/20XX |
1 | Transaction A: Short sale of 50,000,000 TBA FNMA 4.5% @ 103 for settlement 2/ 14 to Counterparty X |
||||||||
| Receivable for Securities Sold |
51,500,000 | |||||||||
| Investments Sold Short |
51,500,000 | |||||||||
| 1/29/20XX |
2 | Transaction B: Purchase of 50,000,000 TBA FNMA 4.5% @ 102 for settlement 2/14 from Counterparty X |
Transaction B is offset against Transaction A since the right of offset exists (same counterparty, same cusip, same settlement). | |||||||
| Investments Sold Short |
51,000,000 | |||||||||
| Receivable for Securities Sold |
51,000,000 | |||||||||
| 1/29/20XX |
3 | Transaction C: Short sale of 50,000,000 TBA FNMA 4.5% @ 101.5 for settlement 3/14 to Counterparty X |
||||||||
| Receivable for Securities Sold Short |
50,750,000 | |||||||||
| Investments Sold Short |
50,750,000 | |||||||||
| 1/29/20XX |
4 | To recognize realized gain on Transactions A and B |
Because the right of offset exists for accounting purposes, the net gain is characterized as realized. | |||||||
| Investments Sold Short |
500,000 | |||||||||
| Realized Gain (Equity) |
500,000 | |||||||||
|
Assume that at 1/31/20XX, TBA FNMA 4.5%s for settlement 3/14 are valued at 101.5.
|
||||||||||
| 1/31/20XX | Month End Balance Sheet | |||||||||
| Investments | — | |||||||||
| Receivable for Securities Sold | 51,250,000 | |||||||||
| Total Assets |
51,250,000 | |||||||||
| Investments Sold Short | 50,750,000 | |||||||||
| Payable for Securities Purchased | — | |||||||||
| Total Liabilities |
50,750,000 | |||||||||
| Shareholders’ Equity |
500,000 | |||||||||
| Liabilities and Shareholders’ Equity |
51,250,000 | |||||||||
| 2/14/20XX |
5 | To record net settlement with Counterparty X |
||||||||
| Cash |
500,000 | |||||||||
| Receivable for Securities Sold |
500,000 | |||||||||
| Assume that at 2/28/20XX, TBA FNMA 4.5%s for settlement 3/14 are valued at 101.5.
|
||||||||||
| 2/28/20XX | Month End Balance Sheet | |||||||||
| Cash | 500,000 | |||||||||
| Investments | — | |||||||||
| Receivable for Securities Sold |
50,750,000 | |||||||||
| Total Assets |
51,250,000 | |||||||||
| Investments Sold Short | 50,750,000 | |||||||||
| Payable for Securities Purchased | — | |||||||||
| Total Liabilities |
50,750,000 | |||||||||
| Shareholders’ Equity |
500,000 | |||||||||
| Liabilities and Shareholders’ Equity |
51,250,000 | |||||||||
Example 3 — Initial Short Transaction with Counterparty X followed by a Non-Roll Transaction with Counterparty Y
| Date |
Journal Entries |
Dr |
Cr |
Notes | ||||||
| 1/12/20XX |
1 | Transaction A: Short sale of 50,000,000 FNMA 4.5% @ 103 for settlement 2/14 to Counterparty X |
||||||||
| Receivable for Securities Sold |
51,500,000 | |||||||||
| Investments Sold Short |
51,500,000 | |||||||||
| Assume the Company does not wish to maintain its short position; but rather chooses to “flatten out” Transaction A. |
||||||||||
| 1/29/20XX |
2 | Transaction B: Purchase of 50,000,000 FNMA 4.5% @ 102 for settlement 2/14 from Counterparty Y |
Transaction B is not offset against Transaction A since the counterparties differ. | |||||||
| Investments |
51,000,000 | |||||||||
| Payable for Securities Purchased |
51,000,000 | |||||||||
| Assume that at 1/31/20XX, TBA FNMA 4.5%s for settlement 2/14 are valued at 102. |
||||||||||
| 1/31/20XX |
3 | To record unrealized gain on Transaction A |
||||||||
| Investments Sold Short |
500,000 | |||||||||
| Unrealized Gain |
500,000 | |||||||||
| 1/31/20XX | Month End Balance Sheet | |||||||||
| Investments | 51,000,000 | |||||||||
| Receivable for Securities Sold | 51,500,000 | |||||||||
| Total Assets |
102,500,000 | |||||||||
| Investments Sold Short | 51,000,000 | |||||||||
| Payable for Securities Purchased | 51,000,000 | |||||||||
| Total Liabilities |
102,000,000 | |||||||||
| Shareholders’ Equity | 500,000 | |||||||||
| Liabilities and Shareholders’ Equity | 102,500,000 | |||||||||
| Assume that at the Company’s request, Transaction A is assigned by Counterparty X to Counterparty Y in order for the Company to avoid the complications and risks of having to intermediate the delivery of securities from Counterparty Y to Counterparty X. |
Counterparty Y is now the counterparty to both Transaction A and Transaction B, and these transactions can then be settled on a net basis. | |||||||||
| 2/14/20XX |
4 | To record net settlement of Transaction A and Transaction B and the associated realization of unrealized gain |
||||||||
| Investments Sold Short | 51,000,000 | |||||||||
| Payable for Securities Purchased | 51,500,000 | |||||||||
| Cash | 500,000 | |||||||||
| Receivable for Securities Sold |
51,500,000 | |||||||||
| Investments |
51,500,000 | |||||||||
| Unrealized Gain | 500,000 | |||||||||
| Realized Gain |
500,000 | |||||||||
| 2/28/20XX | Month End Balance Sheet | |||||||||
| Cash | 500,000 | |||||||||
| Investments | — | |||||||||
| Receivable for Securities Sold |
— | |||||||||
| Total Assets |
500,000 | |||||||||
| Investments Sold Short | — | |||||||||
| Payable for Securities Purchased | — | |||||||||
| Total Liabilities |
— | |||||||||
| Shareholders’ Equity |
500,000 | |||||||||
| Liabilities and Shareholders’ Equity |
500,000 | |||||||||
Example 4 — Initial Short Transaction with Counterparty X followed by a Non-Roll Transaction with Counterparty X
| Date |
Journal Entries |
Dr | Cr | Notes | ||||||
| 1/12/20XX |
1 | Transaction A: Short sale of 50,000,000 FNMA 4.5% @ 103 for settlement 2/14 to Counterparty X |
||||||||
| Receivable for Securities Sold | 51,500,000 | |||||||||
| Investments Sold Short |
51,500,000 | |||||||||
| Assume the Company does not wish to maintain its short position; but rather chooses to “flatten out” Transaction A. | ||||||||||
| 1/29/20XX |
2 | Transaction B: Purchase of 50,000,000 FNMA 4.5% @ 102 for settlement 2/14 from Counterparty X |
Transaction B is offset against Transaction A since the right of offset exists (same counterparty, same cusip, same settlement). | |||||||
| Investments Sold Short | 51,000,000 | |||||||||
| Receivable for Securities Sold |
51,000,000 | |||||||||
| 1/29/20XX |
3 | To record realized gain on Transaction A |
||||||||
| Receivable for Securities Sold |
500,000 | |||||||||
| Realized Gain |
500,000 | |||||||||
| 1/31/20XX |
Month End Balance Sheet | |||||||||
| Investments |
— | |||||||||
| Receivable for Securities Sold |
500,000 | |||||||||
| Total Assets |
500,000 | |||||||||
| Investments Sold Short |
— | |||||||||
| Payable for Securities Purchased |
— | |||||||||
| Total Liabilities |
— | |||||||||
| Shareholders’ Equity |
500,000 | |||||||||
| Liabilities and Shareholders’ Equity |
500,000 | |||||||||
| 2/14/20XX |
4 | To record net settlement with Counterparty X |
||||||||
| Cash |
500,000 | |||||||||
| Receivable for Securities Sold |
500,000 | |||||||||
| 2/28/20XX |
Month End Balance Sheet | |||||||||
| Cash |
500,000 | |||||||||
| Investments |
— | |||||||||
| Receivable for Securities Sold |
— | |||||||||
| Total Assets |
500,000 | |||||||||
| Investments Sold Short |
— | |||||||||
| Payable for Securities Purchased |
— | |||||||||
| Total Liabilities |
— | |||||||||
| Shareholders’ Equity |
500,000 | |||||||||
| Liabilities and Shareholders’ Equity |
500,000 | |||||||||