Business Context and Reporting Period
This Form 8-K Current Report, filed on January 5, 2015, covers events occurring on December 31, 2014. Ladder Capital Corp (the "Company") entered into a series of material definitive agreements to facilitate its previously announced plan to elect status as a Real Estate Investment Trust (REIT).
Key Financial Metrics and Debt Obligations
The filing details specific debt instruments and guarantees but does not provide consolidated revenue, profit, cash flow, or margin data for the period.
- Senior Notes 2017: $325 million aggregate principal amount of 7.375% Senior Notes due 2017.
- Senior Notes 2021: $300 million aggregate principal amount of 5.875% Senior Notes due 2021.
- Guarantees: Various subsidiaries (collectively "New Guarantors") agreed to guarantee the prompt payment of principal, premium, and interest on the above notes on a senior basis.
- Credit Facilities: New Guarantors also agreed to guarantee obligations under the existing Credit and Guaranty Agreement dated February 11, 2014.
Material Changes Versus Prior Period
The primary material change is the restructuring of the Company's operating partnership and debt guarantees to align with REIT requirements:
- Operating Partnership Restructuring: The Third Amended and Restated Limited Liability Limited Partnership Agreement of Ladder Capital Finance Holdings LLLP (LCFH) allocated all assets and liabilities to two new series: "Series REIT" and "Series TRS."
- Unit Conversion: Existing limited partnership interests (LP Units) were converted into one unit of Series REIT and one unit of Series TRS.
- Exchange Mechanism: The exchange mechanism for Class B common stock was updated. Limited partners may now exchange one Series REIT unit, one Series TRS unit (or LC TRS I LLC interest), and one Class B share for one Class A common share.
- Transfer Restrictions: LCFH transfer restrictions were temporarily changed to standard REIT restrictions pending stockholder approval of the Certificate of Incorporation amendment.
Guidance, Outlook, and Contingencies
Tax Receivable Agreement (TRA) Amendment: The Company amended its Tax Receivable Agreement effective for the 2015 taxable year and beyond.
- Payment Obligation Shift: LC TRS I LLC (a taxable REIT subsidiary) will now pay 85% of the tax benefits realized from basis increases and deemed interest deductions to the TRA Members.
- Company Liability: The Company is no longer directly obliged to make payments under the TRA for 2015 and beyond, except for obligations related to the 2014 taxable year. However, the Company will guarantee the obligations of LC TRS I LLC under the TRA, subject to limitations regarding the maintenance of its REIT status.
Risks and Contingencies: The filing notes that the Company's ability to maintain REIT status is a condition for certain guarantees under the TRA Amendment. The descriptions of the agreements are qualified by the actual terms of the exhibits attached to the filing.
Important Facts for Investor Verification
- Verify the specific terms of the Third Supplemental Indenture (Exhibit 4.1) and First Supplemental Indenture (Exhibit 4.2) regarding the scope of the new guarantees.
- Confirm the status of the stockholder vote required to amend the Certificate of Incorporation and reinstate the original LCFH transfer restrictions.
- Review the Amended and Restated Tax Receivable Agreement (Exhibit 10.4) to understand the specific limitations on the Company's guarantee of LC TRS I LLC's obligations.
- Monitor the successful completion of the REIT election and the subsequent tax implications of the Series REIT/Series TRS split.