Investing.com -- Moody’s Ratings has upgraded the senior secured bank credit facility rating of Walker & Dunlop (NYSE: WD ), Inc. to Baa3 from Ba1. This rating change reflects the ratings assigned to the firm’s existing term loan and the firm’s amended senior secured first lien term loan B, as well as the new senior secured first lien revolving credit facility. Moody’s has also assigned a Ba2 rating to Walker & Dunlop’s new senior unsecured notes. The outlook for the company remains stable.
The rating adjustments were announced following Walker & Dunlop’s disclosure of its plan to issue a $450 million 7-year senior secured term loan B, establish a new $50 million 3-year revolving credit facility, and issue new 8-year $400 million senior unsecured notes. The funds raised from these issuances are intended to refinance the company’s existing $778 million term loan due in 2028 and will also be allocated for general corporate purposes.
Moody’s affirmation of Walker & Dunlop’s Ba1 corporate family rating (CFR) reflects the company’s strong market position as an originator and servicer of multifamily agency loans, its resilient profitability, and moderate corporate leverage. The rating also takes into account the anticipated improvement in Walker & Dunlop’s debt capital structure, as the new issuances will increase the proportion of unsecured debt, thereby enhancing the firm’s access to alternative liquidity in times of stress.
The rating also takes into consideration the credit challenges posed by the cyclical nature of the agency-sponsored multifamily market and the company’s exposure to credit risk as a significant servicer under the Federal National Mortgage Association (OTC: FNMA )’s ( Fannie Mae , Aaa negative) Delegated Underwriting and Servicing (DUS) program. Despite a decline in loan originations in a high-interest rate environment, reducing Walker & Dunlop’s profitability, the firm’s earnings remain strong compared to other non-bank commercial real estate lenders during the same period. The company’s large servicing portfolio provides a stable source of revenue, even as agency multifamily volumes fluctuate.
As of December 31, 2024, Walker & Dunlop’s capitalization, as measured by tangible common equity to tangible managed assets (TCE/TMA), was solid at approximately 21.0%. While this ratio may fluctuate periodically with originations, Moody’s expects TCE/TMA to remain above 15%.
The upgrade of the secured rating to Baa3 from Ba1 reflects the relative positions of the new term loan B, secured revolver, and the senior unsecured notes within Walker & Dunlop’s recourse debt capital structure following the repayment of the existing term loan.
The stable outlook is based on Moody’s expectation that Walker & Dunlop will maintain stable capitalization and liquidity and will exhibit improved profitability over the next 12-18 months.
According to Moody’s, an upgrade of the ratings could occur if the company enhances its overall funding profile by increasing the amount of unsecured debt in its capital structure and laddering debt maturities, while maintaining strong profitability and solid capital levels. Conversely, the ratings could be downgraded if profitability remains below 2% for an extended period or if TCE/TMA remains below 15%. Other factors that could lead to a downgrade include a significant increase in asset risk, a deterioration in liquidity and funding profile, or if the firm undertakes a large debt-funded acquisition.
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