Ladder Capital Finance Holdings LLLP Rating Lowered To 'BB-' As Risks From COVID-19 Mount; Outlook Is Negative

  • Ladder Capital has a transitional commercial real estate (CRE) loan portfolio funded partially with repurchase facilities that have a potential for margin calls.
  • We believe there is increased risk of margin calls in the current environment given higher risk of credit deterioration on transitional CRE loans and widening spreads on commercial mortgage backed securities (CMBS).
  • As a result, we are lowering our issuer credit rating to 'BB-' from 'BB' and unsecured debt ratings to 'B+' from 'BB-'.
  • The negative outlook on Ladder reflects the company's exposure to margin calls from its repurchase facilities and possible deterioration in earnings over the next 12 months in an environment where we expect there to be significant deterioration in the credit quality of Ladder's asset portfolio.
NEW YORK (S&P Global Ratings) March 26, 2020-- S&P Global Ratings said today it lowered its issuer credit rating on Ladder Capital Finance Holdings LLLP to 'BB-' from 'BB'. The outlook is negative. We also lowered our unsecured debt ratings to 'B+' from 'BB-'.
Our rating action is based on the possibility of margin calls and an erosion of earnings from significant credit deterioration in Ladder's loan portfolio and widening credit spreads on its CMBS portfolio in the wake of COVID-19. The company's asset portfolio is more diverse than peers, but 50% of its $6.7 billion in assets are transitional CRE loans. Approximately 11% of the loan portfolio is secured by hotel collateral and 29% of the loan portfolio is in the northeast, mainly in New York. We expect these areas will be especially exposed to credit deterioration from current negative macroeconomic trends caused by the new coronavirus. Lastly, Ladder's loan portfolio is mainly bridge loans, where there could be substantial refinancing risk given current conditions.
The negative outlook on Ladder 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 Ladder's asset portfolio. We expect Ladder will operate with debt to adjusted total equity of 2.75x to 3.25x.
We could lower the rating on Ladder 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 Ladder to stable over the next 12 months if the macroenvironment 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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