Ladder's Latest Earnings Call: Dissecting Contradictions in Leverage, Loan Growth, and Investment Strategy

Investment-Grade Rating and Bond Issuance:
- Ladder Capital Corp achieved investment-grade ratings from Moody's (Baa3) and Fitch (BBB-), representing a culmination of a 13-year effort.
- This milestone was supported by prudent balance sheet management, disciplined leverage approach, and a diversified business model focused on commercial real estate.
- The company issued a $500 million 5-year investment-grade unsecured bond issuance with a 5.5% fixed rate coupon, benefiting from strong investor demand and tight spreads.
- This issuance was met with an order book surpassing $3.5 billion, reflecting investor confidence in Ladder's platform and financial health.

Cost of Funds Reduction and Capital Structure Optimization:
- Ladder's cost of funds has been significantly reduced following its investment-grade ratings, refinance exercises, and new issuances.
- The company's unsecured debt composition increased to 74% of its total debt, reflecting a shift towards longer-term, fixed-rate financing.
- This change in capital structure allowed Ladder to access more attractive funding terms, potentially enabling it to fund entirely on unsecured corporate debt in the future.
- The reduction in cost of funds is expected to improve earnings, with an anticipated annual savings of $30 million or more on its corporate bond portfolio.

Loan Origination and Portfolio Dynamics:
- Ladder made over $1 billion in investments during Q2 and early July, including $600 million in AAA-rated securities with a weighted average unlevered yield of 6.1%.
- The company's loan portfolio maintained a weighted average yield of approximately 9%, reflecting tight spreads despite high interest rates in the broader market.
- Loan origination activity in Q3 has exceeded Q2 levels, with a focus on secured multifamily properties, amid continued strong demand in this sector.
- Ladder also sold a $64 million conduit loan, highlighting its flexibility in participating in various lending segments when market conditions warrant.

Securities Portfolio Rotation and Liquidity Expansion:
- The securities portfolio grew to $2 billion, up 82% from the end of the previous year, with a shift from T-bills to AAA securities.
- The company maintained unencumbered assets, including 99% of the securities portfolio, providing a source of liquidity and enhancing financial flexibility.
- Ladder's liquidity position stands at $1 billion, including a fully undrawn $850 million unsecured revolver, which was reduced to SOFR plus 125 basis points post-upgrade.
- This liquidity buffer positions Ladder to capitalize on investment opportunities while preserving financial stability amidst market volatility.