Blackstone Mortgage Trust Inc. Downgraded To 'B+' On Increased Margin-Call Risk As COVID-19 Spreads; Outlook Is Negative

  • Weakening macroeconomic trends and credit deterioration could lead to increased margin-call risk as the COVID-19 pandemic unfolds, in our view.
  • As a result, we are lowering the issuer credit rating on Blackstone Mortgage Trust Inc. (BXMT) to 'B+' from 'BB-'. In addition, we are lowering the term loan B rating to 'B+' from 'BB-'.
  • The negative outlook on BXMT reflects the company's exposure to margin calls from its repurchase facilities in an environment where we expect there to be significant deterioration in the credit quality of the company's asset portfolio.
NEW YORK (S&P Global Ratings) March 26, 2020--S&P Global Ratings said today it lowered its long-term issuer credit rating on Blackstone Mortgage Trust (BXMT) to 'B+' from 'BB-'. The outlook is negative.
At the same time, we lowered our issue rating on the company's term loan B to 'B+' from 'BB-'.
The downgrade is based on our assumption that transitional commercial real estate lenders that rely on repurchase facilities are facing increased funding risk. We believe that, in the event of material credit deterioration, BXMT could see material erosion in earnings and liquidity. The company's use of repurchase facilities also makes it likely that, if credit were to deteriorate, there could be margin calls that erode the company's liquidity. Other potential strains on liquidity include $3.9 billion of unfunded loan commitments, though the company would primarily use these to fund loans relating to construction and development of real estate-related assets over time.
The negative outlook on BXMT reflects the company's exposure to margin calls from its repurchase facilities over the next 12 months in an environment where we expect there to be significant deterioration in the credit quality of the company's asset portfolio. We expect BXMT will operate with debt to adjusted total equity between 2.75x to 3.25x.
We could lower the rating on BXMT over the next 12 months if the company's liquidity is depleted through margin calls or if the company's profitability is significantly eroded through increased provisions for loan losses. We could also lower the rating if leverage materially increases.
We could revise our outlook on BXMT to stable over the next 12 months if the macroeconomic environment improves, the company's liquidity remains adequate in our view, asset quality is relatively stable, and leverage is within our expectations.
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