Apollo Commercial Real Estate Finance Inc. Ratings Lowered To 'B+' As Risks Related To COVID-19 Loom; Outlook Negative

  • Apollo Commercial Real Estate Finance recently announced that a second loan in its portfolio, a predevelopment loan in Brooklyn ($154.6 million), has stopped paying interest, and the underlying properties are being marketed for sale.
  • The company's investment portfolio and the secured repurchase facilities used to fund a large majority of the company's first mortgage loans are now at heightened risk because of the uncertainties surrounding the impact of COVID-19.
  • As a result, we are downgrading Apollo Commercial Real Estate Finance Inc. to 'B+' from 'BB-'. We are also lowering our rating on the company's senior secured term loan to 'B+' from 'BB-'.
  • The negative outlook reflects the potential that the company's investment portfolio weakens amid a difficult operating environment.
NEW YORK (S&P Global Ratings) March 26, 2020--S&P Global Ratings said today it lowered its issuer credit rating on Apollo Commercial Real Estate Finance Inc. to 'B+' from 'BB-'. The outlook is negative. At the same time, we lowered our rating on the company's senior secured term loan to 'B+' from 'BB-'.
Apollo recently announced that a second loan in its portfolio, a predevelopment loan in Brooklyn ($154.6 million), has stopped paying interest and the underlying properties are being marketed for sale. We expect the company's portfolio could come under material stress from the impact of COVID-19. The exposure to margin calls on the company's secured repurchase facilities is exacerbating the risks to the company's portfolio. The company's investment portfolio and the secured repurchase facilities used to fund a large majority of the company's first mortgage loans are now at heightened risk because of uncertainties surrounding the impact of COVID-19.
The negative outlook reflects the potential that the company's investment portfolio weakens amid a difficult operating environment. Our base-case scenario assumes that the company will operate with leverage of 1.75x-2.25x debt to adjusted total equity over the next 12 months while maintaining sufficient excess liquidity on balance sheet.
We could revise the outlook to stable if the performance of the company's investment portfolio stabilizes and there is more clarity on the full impact of COVID-19.
We could downgrade the company if it increases leverage above 2.5x or does not continue reducing the risk in its portfolio while increasing leverage. We could also downgrade the company if it experiences adverse investment performance or does not maintain sufficient liquidity relative to the amount of debt drawn from repurchase facilities.
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