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Rating Action:

Moody's assigns a Ba2 rating to Starwood Property Trust's Term Loan B, affirms other ratings, and revises outlook to stable from positive

28 Jun 2019

New York, June 28, 2019 -- Moody's Investors Service ("Moody's") assigned a Ba2 rating to the senior secured Term Loan B issued by Starwood Property Mortgage, LLC, an indirect, wholly-owned subsidiary of Starwood Property Trust, Inc. (Starwood). Moody's also affirmed Starwood's Ba2 corporate family rating, Ba1 senior secured term loan rating, and Ba3 senior unsecured rating. Moody's revised Starwood's outlook to stable from positive.

Moody's has withdrawn the outlook on Starwood Property Trust, Inc.'s Senior Unsecured debt rating for its own business reasons. Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com

Assignments:

..Issuer: Starwood Property Mortgage, LLC

....Senior Secured Bank Credit Facility, Assigned Ba2

Affirmations:

..Issuer: Starwood Property Trust, Inc.

.... Corporate Family Rating, Affirmed Ba2

.... Senior Secured Bank Credit Facility, Affirmed Ba1

.... Senior Unsecured Regular Bond/Debenture, Affirmed Ba3

Outlook Actions:

..Issuer: Starwood Property Trust, Inc.

....Outlook, Stable from Positive

RATINGS RATIONALE

Moody's assigned the Ba2 rating to the proposed term loan based on Starwood's Ba2 corporate family credit profile, the priority and proportion of the loan in Starwood's debt capital structure, and the composition and strength of the collateral coverage and affiliate guarantees. The term loan is secured by a pledge of equity interests in certain Starwood subsidiaries that hold loans, property and other assets pledged to creditors providing asset-level financing. The loan is also guaranteed jointly and severally by certain of these and other Starwood subsidiaries. Proceeds of the term loan will be used to repay Starwood's outstanding senior secured term loan issued in December 2016 and for other corporate purposes.

Moody's affirmed Starwood's Ba2 corporate family rating in consideration of the company's strong franchise in commercial real estate lending and investing, as well as its capable credit, liquidity and capital risk management. Starwood capital position and profitability, adjusting for consolidated variable interest entities (VIE), are credit strengths. Starwood's affiliation with Starwood Capital Group (SCG) through external manager SPT Management, LLC is an additional credit strength. Starwood benefits from SCG's experienced management oversight and SCG's considerable expertise in commercial real estate and energy investment and asset management. A credit constraint is Starwood's high reliance on secured debt, which results in a high percentage of encumbered assets that Moody's believes constrains financial flexibility. However, Moody's expects that Starwood will continue to effectively manage liquidity and capital levels, contributing to strong prospects for operational and franchise stability during the late stages of the credit cycle.

Moody's revised Starwood's outlook to stable after considering the composition of the company's funding structure. Starwood maintains diverse funding sources with multiple credit counterparties, but the company's transition to increased unsecured funding has been slower to occur than Moody's originally anticipated. This reflects the secured financing the company established for its infrastructure lending business, increased funding through commercial mortgage repurchase facilities, and higher secured funding balances associated with the company's growing residential lending portfolio. Moody's expects that Starwood's ratio of secured debt to tangible assets will remain above the upgrade criterion of 45% over the intermediate term, though it is likely to decline from the March 31 measure of 56% in response to liability and portfolio management actions.

Starwood's stable outlook is based on Moody's expectation that Starwood will continue to effectively manage its liquidity, maintain moderate leverage, and generate strong profitability across its business segments.

Moody's could upgrade Starwood's ratings if the company 1) further diversifies its funding sources to include additional senior unsecured debt, resulting in a ratio of secured debt to tangible assets declining to not more than 45%; 2) maintains strong, stable profitability and low credit losses; and 3) maintains a ratio of adjusted debt to adjusted tangible equity of not more than 2.5x.

Moody's could downgrade the ratings if the company encounters material liquidity challenges, its leverage materially increases, growth rapidly accelerates, or its profitability significantly weakens.

The principal methodology used in these ratings was Finance Companies published in December 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Mark L. Wasden
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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