8-K: Ready Capital Corporation Completes $130 Million Senior Notes Offering

Ready Capital Corporation successfully issued $130 million in 9.00% Senior Notes due 2029, marking a significant step in its capital management strategy.

Summary

• Ready Capital Corporation has completed the issuance of $130 million in aggregate principal amount of 9.00% Senior Notes due 2029.
• The offering includes a $15 million aggregate principal amount from the underwriters' partial exercise of their over-allotment option.
• The Notes were issued under an Underwriting Agreement with major financial institutions including Morgan Stanley, Piper Sandler, RBC Capital Markets, UBS Securities, and Wells Fargo Securities.
• Net proceeds from the sale, after deductions, are approximately $125.4 million.
• These proceeds will be used by the Operating Partnership to originate or acquire target assets, for general corporate purposes, and to temporarily reduce borrowings under loan repurchase agreements or credit facilities.
• The Notes bear an interest rate of 9.00% per annum, payable quarterly, and will mature on December 15, 2029.
• The Company may not redeem the Notes before December 15, 2026, but can do so thereafter at a redemption price of 100% of the principal amount plus accrued interest.
• The Notes are senior unsecured obligations of the Company and rank equally with its existing and future unsecured and unsubordinated debt.
• The Notes have been approved for listing on the New York Stock Exchange under the symbol 'RCD'.

Sentiment

Score: 6

Explanation: The successful capital raise is positive, but the high coupon rate relative to peers and the unsecured nature of the notes indicate some caution.

Positives

• Successful completion of a significant capital raise, strengthening the Company's financial position.
• The 9.00% interest rate is fixed, providing certainty on interest expenses until maturity.
• The use of proceeds aligns with the Company's investment strategy, potentially enhancing future returns.
• Listing on the NYSE provides liquidity and visibility for the Notes.

Negatives

• The Notes are unsecured, ranking junior to secured debt in the event of bankruptcy or liquidation.
• The Notes are structurally junior to the debt and liabilities of the Company's subsidiaries.
• The interest rate of 9.00% could be considered high compared to prevailing market rates for similar instruments, potentially reflecting higher perceived risk.

Risks

• The Company's ability to make payments on the Notes depends on its future operating performance, which is subject to economic, financial, competitive, and other factors.
• Changes in interest rates could adversely affect the value of the Notes.
• The Notes are subject to prepayment risk if the Company chooses to redeem them after December 15, 2026.
• There is a risk that an active trading market for the Notes may not develop or be sustained.
• The Company's leverage could increase due to the issuance of the Notes, potentially impacting its creditworthiness.
• The Company is subject to risks associated with its real estate investments, including interest rate fluctuations, economic downturns, and changes in regulations.

Future Outlook

The Operating Partnership intends to use the net proceeds to originate or acquire target assets consistent with the Company's investment strategy, for general corporate purposes, and to temporarily reduce borrowings outstanding under loan repurchase agreements or credit facilities. Prior to these anticipated uses, the Operating Partnership may invest the net proceeds in interest-bearing, short-term investments.

Industry Context

This debt issuance is a common way for REITs to raise capital for investment and operational purposes. The terms of the offering reflect current market conditions for real estate-related debt.

Comparison to Industry Standards

• The 9.00% coupon rate on Ready Capital's Senior Notes is notably higher than the rates observed in recent offerings by other REITs. For instance, Annaly Capital Management (NLY) issued $850 million of 7.25% Senior Notes due 2029 in August 2024, and AGNC Investment Corp. (AGNC) issued $750 million of 7.00% Senior Notes due 2028 in June 2024.
• The higher coupon rate for Ready Capital's offering may reflect a higher perceived risk profile compared to these larger, more established mortgage REITs.
• Ready Capital's focus on small to medium-sized commercial real estate loans may be perceived as riskier than the agency mortgage-backed securities that dominate the portfolios of Annaly and AGNC.
• The smaller size of Ready Capital's offering ($130 million) compared to Annaly's ($850 million) and AGNC's ($750 million) may also contribute to the higher coupon rate, as smaller offerings can sometimes be less liquid and therefore command a higher yield.

Stakeholder Impact

• Shareholders may benefit from the Company's strategic use of the proceeds to enhance its investment portfolio and potentially increase returns.
• Employees may be impacted by the Company's investment decisions and overall financial performance.
• Creditors will need to assess the Company's increased leverage and its ability to service its debt obligations.
• Suppliers and customers may be indirectly affected by the Company's business activities funded by the proceeds.

Next Steps

• The Company will contribute the net proceeds from the sale of the Notes to the Operating Partnership.
• The Operating Partnership will use the net proceeds to originate or acquire target assets, for general corporate purposes, and to temporarily reduce borrowings.
• Trading of the Notes on the NYSE is expected to commence within 30 days after December 10, 2024.

Key Dates

Keywords

Ready Capital Corporation, Senior Notes, Capital Raise, Fixed Income, Real Estate Investment Trust, REIT, Underwriting Agreement, NYSE, RCD, Waterfall Asset Management, Sutherland Partners, Debt Issuance, Corporate Finance