Business Context and Reporting Period
This Form 8-K, dated May 23, 2023, is a Current Report filed by Ready Capital Corporation (Ready Capital) regarding its proposed merger with Broadmark Realty Capital Inc. (Broadmark). The filing serves to provide supplemental disclosures to the joint proxy statement/prospectus in response to litigation filed by stockholders challenging the merger. The Special Meeting of Ready Capital stockholders to vote on the merger is scheduled for May 30, 2023.
Key Financial Metrics and Valuation Data
The filing does not report Ready Capital's current period revenue, profit, or cash flow. Instead, it discloses valuation metrics and financial assumptions used by financial advisors (J.P. Morgan and Wells Fargo Securities) to support the merger consideration.
- Implied Equity Value (J.P. Morgan Analysis):
- Broadmark Standalone: Approximately $610 million.
- Ready Capital Standalone: Approximately $1.405 billion.
- Pro Forma Combined Company (Broadmark Shareholders): $720 million (representing 18.0% accretion).
- Transaction Economics:
- Estimated Run-Rate Cost Synergies: $3 million.
- Estimated Transaction Expenses: $22 million.
- Valuation Multiples (Public Trading):
- Ready Capital P/TBV: 0.86x; 2023E Dividend Yield: 12.8%.
- Broadmark P/TBV: 0.60x; 2023E Dividend Yield: 10.0%.
- Analyst Price Targets (FactSet):
- Broadmark: $3.75 to $5.00.
- Ready Capital: $13.00 to $16.00.
Material Changes and Litigation
The primary material event is the filing of six complaints by Broadmark stockholders and one by a Ready Capital stockholder in the U.S. District Court for the Southern District of New York. These complaints allege violations of Sections 14(a) and 20(a) of the Exchange Act regarding the merger proxy statement and seek to enjoin the merger.
- Resolution of One Complaint: The Ready Capital stockholder complaint (Whitehead v. Ready Capital Corporation) was voluntarily dismissed on May 16, 2023.
- Supplemental Disclosures: To address the remaining litigation and moot disclosure claims, Ready Capital and Broadmark voluntarily supplemented the proxy statement with additional data regarding financial advisor analyses, including specific terminal value multiples, cost of equity ranges, and precedent transaction data.
- Merger Status: The supplemental disclosures do not change the merger consideration or the timing of the Special Meeting. The Board continues to unanimously recommend a "FOR" vote.
Guidance, Outlook, and Risks
The filing contains forward-looking statements regarding the merger's completion and financial projections used in valuation models.
- Valuation Assumptions:
- Terminal Multiples: J.P. Morgan used a range of 0.50x to 0.95x for 2026 estimated tangible book value. Wells Fargo used 0.75x to 0.90x for Broadmark and 0.75x to 0.95x for Ready Capital.
- Cost of Equity: Ranges of 13.50% to 14.50% (Broadmark) and 13.00% to 14.00% (Ready Capital) were utilized.
- Discount Rates: Ranges of 10.00% to 14.50% were applied in dividend discount analyses.
- Risks and Contingencies:
- Failure to consummate the merger within the expected timeframe or at all.
- Outcome of pending legal proceedings.
- Disruption of management attention and business operations.
- Changes in interest rates, yield curves, and prepayment rates.
- Integration risks and availability of financing.
Investor Verification Checklist
- Verify the status of the six pending complaints against Broadmark and the potential for an injunction on the merger.
- Review the full joint proxy statement/prospectus to understand the complete merger consideration and exchange ratio.
- Assess the sensitivity of the merger's value creation ($110 million accretion) to the estimated $3 million in synergies and $22 million in transaction expenses.
- Confirm the Special Meeting voting date (May 30, 2023) and remote voting procedures.
- Examine the "Risk Factors" sections of the most recent 10-K filings for both companies regarding interest rate and credit market risks.