Ladder Capital outlook revised to positive at S&P on reduced leverage

Investing.com -- S&P Global Ratings revised its outlook on Ladder Capital (NYSE:LADR) Finance Holdings LLLP to positive from stable on Tuesday, while affirming the company’s ’BB’ long-term issuer credit and senior unsecured debt ratings.

The outlook revision reflects expectations that Ladder will maintain leverage below 3.0x as it increases loan originations. As of March 31, 2025, the company’s debt to adjusted total equity (ATE) was 1.8x, down from 2.4x a year earlier, due to debt repayments from loan paydowns.

Ladder’s net income declined 29% year over year to $12 million in the first quarter of 2025, primarily due to a shrinking loan portfolio. However, the company originated $265 million in loans during the quarter, not including a new $64 million conduit loan, and originations could exceed $1 billion this year.

The company’s funding mix has improved with its $850 million unsecured revolving credit facility, reducing reliance on repurchase facilities. As of March 31, 2025, Ladder reported $480 million in unrestricted cash, $850 million available under its unsecured facility, and approximately $3.2 billion in unencumbered investment assets.

About 72% of Ladder’s debt was unsecured as of March 31, 2025, and S&P expects this ratio to remain above 50% in a more normal origination environment. The rating agency views the higher mix of unsecured funding favorably compared to other commercial real estate (CRE) lending peers.

Ladder faces $288 million in unsecured notes maturing in October 2025 and $600 million maturing in February 2027. S&P expects the company to address these refinancing needs prudently.

Despite macroeconomic challenges, S&P doesn’t anticipate systemic pressure on CRE portfolios to the extent seen in recent years. However, older vintage loans, especially office loans, may cause further asset quality deterioration.

Office loans have grown to 43% of Ladder’s loan portfolio as of March 31, 2025, up from 31% a year ago, though they remained steady at 17% of total assets. The company has not originated any new office loans since 2022.

As of March 31, 2025, Ladder had four loans with amortized cost of $116 million on nonaccrual, representing 6.6% of loan receivables, up from $77 million at year-end 2024. Foreclosed properties remained relatively unchanged at $144 million.

S&P could raise Ladder’s ratings in the next 12 months if the company successfully works through its older vintage loans, grows its loan portfolio, and maintains debt to ATE below 3x, while avoiding significant asset quality deterioration and maintaining access to unsecured debt markets.

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