Fitch elevates Ladder Capital’s rating to ’BBB-’; maintains stable outlook

Investing.com -- Fitch Ratings announced an upgrade to the Long-Term Issuer Default Ratings (IDRs) of Ladder Capital (NYSE:LADR) Finance Holdings LLLP and Ladder Capital Finance Corporation to ’BBB-’ from ’BB+’ on May 21, 2025. These two entities are subsidiaries of Ladder Capital Corp. The rating agency also upgraded the senior unsecured debt ratings to ’BBB-’ from ’BB+’ and maintained a Stable Rating Outlook.

The upgrade is a result of Ladder Capital’s improved funding profile, including an increase in unsecured debt and a decrease in reliance on confidence-sensitive funding like repurchase obligations. As of March 31, 2025, unsecured debt constituted 72.6% of total debt, a significant increase from 42.6% a year prior. Fitch anticipates that the company will sustain unsecured debt above 50%, aligning with investment grade peers.

Moreover, mark-to-market funding represented only 2.3% of total funding at the first quarter of 2025, a sharp decline from nearly 60% before 2020. Fitch expects this trend to continue, reducing margin call risk and supporting current ratings.

Ladder Capital has also maintained strong liquidity, with $1.3 billion of cash, liquid assets, and undrawn committed facilities, including an $850 million unsecured corporate revolving credit facility, as of March 31, 2025. This liquidity level provides 4.2x coverage of debt maturities over the next 12 months.

Ladder Capital’s rating reflects its solid platform as a middle-market commercial real estate (CRE) lender and investor. It also considers the firm’s conservative underwriting culture, solid risk management, continued adherence to reasonable leverage targets, and experienced management team.

Despite challenging real estate trends leading to high nonaccruals, Ladder Capital has consistently reported strong asset quality metrics compared to peers. The ratio of nonaccrual loans to total loans increased to 6.8% at the first quarter of 2025, up from 2.6% the previous year. Despite this, Ladder Capital has originated over $30 billion in CRE loans since its inception in October 2008, experiencing losses of less than 0.1%.

Ladder Capital reported distributable earnings of $162.8 million for the trailing twelve months (TTM) ending March 31, 2025. This results in a distributable earnings-to-average-assets ratio of 2.8%, consistent with 2.9% reported a year ago and above the average of 2.4% from 2021-2024.

Ladder Capital’s debt to tangible equity ratio was 1.6x at the first quarter of 2025, down from 2.2x the previous year. The leverage reduction resulted from Ladder Capital using excess liquidity to pay down secured bank lines and repurchase a portion of unsecured debt below par.

The Stable Outlook reflects Fitch’s view that Ladder’s leverage will be managed in a manner consistent with the risk profile of the balance sheet, credit losses will remain manageable, unsecured funding will remain above 50% of total debt and earnings will remain sufficient to cover its dividend due to higher interest rates and the generation of solid net operating income.

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