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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has assigned initial credit ratings to Ladder Capital Finance Holdings LLLP and Ladder Capital Finance Corporation (collectively, Ladder or the company) as follows:

--Issuer Default Ratings (IDR) 'BB';

--$300 million senior unsecured debt due 2017 'BB (exp)'.

The Rating Outlook is Stable.

The IDRs are supported by Ladder's experienced management team, conservative leverage profile, strong credit and operating trends, and adequate liquidity. Rating constraints include the company's predominantly secured funding profile, with a heavy reliance on short-term funding, limited operating history and revenue diversity, 'key man' risk, and the cyclicality inherent in commercial real estate markets.

The 'BB' rating reflects Ladder's low leverage, measured as debt to equity, of 1.6x at both year-end 2011 and at June 30, 2012. The company expects to issue $300 million of senior unsecured debt in the near future, and management has articulated a leverage target between 2.0x - 3.0x pro forma for the debt issuance, which compares favorably to Fitch-rated commercial and consumer finance peers.

Credit concerns center on Ladder's funding profile, as the company currently uses short- and medium-term secured facilities to finance its loans and securities investments. This strategy could potentially reduce the company's financial flexibility in times of stress. Partially mitigating this risk is the fact that Ladder has historically drawn amounts well below stated advance rates, which provides the company with excess borrowing capacity if needed or a cushion against market value declines or decreasing advance rates.

Ladder's liquidity profile is enhanced by its high quality and liquid CMBS and agency securities portfolio, which comprised 58.4% of total assets as of June 30, 2012. However, the portfolio is financed by short-term committed and uncommitted repo facilities. Unencumbered securities and loans and unrestricted cash were $499.3 million at June 30, 2012, providing the company with an adequate degree of contingent liquidity.

Ladder's capital base is solid and backed by several institutional investors and its management. Equity as a percentage of assets was 37.4% at June 30, 2012, which Fitch views as strong, particularly considering the high proportion of liquid assets on the balance sheet. Due to its private ownership, the company is not pressured for short-term earnings growth; however, Fitch also acknowledges that the company's institutional and private equity ownership may seek to monetize their investments at some point in the future, which could change the investor base and management's current patient and balanced approach to operating the company.

In a relatively short time period, Ladder has increased its market share in the CMBS conduit securitization market to become the ninth largest contributor of $5 million to $75 million loans to CMBS securitizations between 1Q'10 and 1Q'12. Fitch attributes this growth to Ladder's experienced management team and favorable commercial real estate markets since the company's inception. Ladder's focus on the commercial mortgage market, through conduit origination or direct investment, does translate into somewhat of a monoline business focus, which limits revenue diversity and leaves Ladder exposed to volatility in the commercial mortgage markets.

Ladder operates with a 'zero loss tolerance' policy and has established tight origination and underwriting practices. The loan portfolio has performed exceptionally well with no losses since inception.

Fitch has assigned a 'BB' expected rating to Ladder's $300 million senior unsecured notes due 2017, which are expected to be jointly issued by Ladder Capital Finance Holdings LLLP and Ladder Capital Finance Corporation, a wholly-owned subsidiary of Ladder Capital Finance Holdings LLLP. The securities are expected to feature an optional redemption at the issuers' option, subject to make-whole provisions. The securities are also expected to be subject to early redemption in the event of a change of control and a downgrade of one or more notches as a result of the change in control, unless the company is rated investment grade.

In the absence of the expected $300 million senior unsecured notes offering, Fitch would expect to downgrade Ladder's IDR to 'BB- ' from 'BB', reflecting the company's limited existing financial flexibility as a secured borrower.

The following factors may have a positive impact on Ladder's ratings and/or Outlook:

--Improved funding profile with more longer-term financing sources;

--A material decline in short-term funding;

--Stronger unencumbered liquidity levels;

--Consistent and sustained profitability and credit performance through multiple market environments, while maintaining a conservative leverage posture;

The following factors may have a negative impact on Ladder's ratings and/or Outlook:

--Deterioration in asset quality;

--Material operating losses;

--A reduction in liquidity relative to outstanding debt;

--An increase in leverage beyond the company's articulated target.

--Material adverse changes to the company's management team.

Additional information is available on [ www.fitchratings.com ]. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Finance and Leasing Companies Criteria' (Dec. 12, 2011);

--'Global Financial Institutions Rating Criteria, (Aug. 15, 2012);

--'Criteria for Rating U.S. Mortgage REITs and Similar Finance Companies' (Feb. 27, 2012).

Applicable Criteria and Related Research:

Finance and Leasing Companies Criteria

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659834 ]

Global Financial Institutions Rating Criteria

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181 ]

Criteria for Rating U.S. Mortgage REITs and Similar Finance Companies

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=671870 ]

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