NEW YORK--(BUSINESS WIRE)--Fitch views Ladder Capital Corp's (Ladder) initial public offering (IPO) as neutral to the company's 'BB' issuer default rating. Ladder raised $225 million in equity capital by selling 13.25 million of Class A shares in an IPO this week. The company is listed on NYSE under the symbol 'LADR'.
The IPO has some positive elements including opening up a new source of capital to fund growth and establishing a public valuation for the company, which creates optionality for existing owners including affiliates of Alberta Investment Management Corp., GI Partners, Ontario Municipal Employees Retirement System and TowerBrook Capital Partners. Publicly traded shares represent approximately 15% of the company's capital base as of Sept. 30, 2013, pro forma for the IPO.
The public ownership addresses the relatively shorter-term investment horizon of the company's private equity firm owners, which could have otherwise potentially introduced strategic uncertainty or shareholder friendly activities, including Ladder acquiring these firms' equity stakes by incurring additional debt. In addition, the equity raise should result in modestly reduced leverage, at least for the near term. As of Sep. 30, 2013, Ladder's leverage, calculated as gross debt to tangible equity, was 1.0x (0.9x pro forma for the IPO), well below management's stated leverage target of 2.0x - 3.0x.
However, public ownership could potentially put pressure on the company to generate short-term earnings growth or challenge the company's current balanced operating strategy. Fitch views the company's management team and conservative operating strategy (including reduced risk taking depending on market conditions) as key strengths to current ratings. Any adverse changes to the operating strategy including aggressive growth or loosening of underwriting standards would be viewed negatively by Fitch.
Additional information is available at 'www.fitchratings.com'.