S&P rates LD Holdings B, notes B-

S&P said it assigned its B issuer credit rating to LD Holdings Group LLC. Simultaneously, S&P gave its B- rating to LD’s proposed $400 million of senior unsecured notes due 2025. The recovery rating on the unsecured notes is 5, indicating the expectation of modest recovery (10%) in a default scenario.

“Our issuer credit rating on LD reflects the company’s relatively short record of profitability, volatility in earnings, financial sponsor ownership, and reliance on external warehouse funding facilities. We also consider the company’s exposure to regulatory risk and modest market position in a fragmented mortgage industry – with limited competitive advantages and revenue diversity – to be negative rating factors,” S&P said in a press release.

The difference between the issuer rating and the debt rating on the proposed senior notes reflects LD’s balance sheet, mostly encumbered, with its mortgage servicing right assets pledged as collateral to secured credit facilities,” S&P said.

LD intends to use the proceeds to repay $250 million of a term loan due 2022. The remainder will be used for general corporate purposes.

The outlook is stable. The outlook reflects an expectation of debt to tangible equity below 1.5x, debt to EBITDA well below 5x, and adequate liquidity as LD and the broader industry navigate potential liquidity needs due to increases in coronavirus-related forbearance requests.

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