Rating Action: Moody’s assigns Ba2 backed long-term senior secured rating to Greystone Select Financial’s Term Loan B; outlook stableGlobal Credit Research – 26 Apr 2021New York, April 26, 2021 — Moody’s Investors Service (Moody’s) has assigned a Ba2 backed long-term senior secured rating to Greystone Select Financial, LLC’s (Greystone) proposed Term Loan B. Moody’s has also affirmed the company’s Ba2 long-term corporate family rating. Greystone’s outlook is stable.Assignments:..Issuer: Greystone Select Financial, LLC….Backed Senior Secured Term Loan B, Assigned Ba2Affirmations:..Issuer: Greystone Select Financial, LLC….Corporate Family Rating, Affirmed Ba2Outlook Actions:..Issuer: Greystone Select Financial, LLC….Outlook, Remains StableRATINGS RATIONALEThe backed Ba2 long-term senior secured rating assigned to Greystone’s $325 million proposed Term Loan B reflects the loan’s senior secured position in the company’s overall capital structure, as well as the collateral coverage. Moody’s expects that the collateral provides sufficient coverage of the Term Loan B to reduce its risk of loss compared to more subordinate forms of debt capital.Greystone’s Ba2 corporate family rating reflects the benefits to creditors from the company’s solid franchise position in agency-sponsored and government-sponsored enterprise (GSE) multifamily lending and servicing, which has resulted in a history of profitable operating performance; its sound credit risk management practices, demonstrated by a long track record of low losses through multiple credit cycles; the composition of its lending portfolio, which Moody’s views as less volatile than certain peer commercial real estate lenders; and its commitment to improve capitalization and reduce leverage. The rating also reflects the credit challenges from Greystone’s weaker-than-peer capitalization, its funding profile that is almost entirely dependent on confidence-sensitive secured funding, which results in high refinancing risk, and its concentration in the agency and GSE multifamily commercial real estate business.Greystone benefitted from significantly higher industry origination volumes in 2020 than in prior years, particularly in the second half of the year, which led to an increase in its total net debt / total equity leverage ratio as of 31 December 2020. However, the company’s total net leverage ratio declined in the first quarter of 2021. Although Greystone’s leverage ratio will likely remain volatile given its business model, Moody’s expects its leverage to decline and its capitalization to improve over the next several years as the company continues to generate solid and consistent earnings given its revenue diversity and its focus on high-quality, first lien lending primarily in the multifamily space. The company’s growing servicing book provides some protection for earnings against potentially lower agency volumes.Management’s stated leverage policy is to deleverage the company over the next 24 months to its sustained corporate leverage range in order to achieve its longer term financial operating and leverage ratios. Greystone also has a flexible dividend policy to help manage leverage ratios. Management projects total net debt / total equity to decline to less than 3.0x by the end of 2022 based on historical margins and origination volumes.Certain factors unique to Greystone mitigate its funding concentration, namely that sale commitments for its loans held for sale occur prior to funding at the time the rate on the loan is set, along with the quality of its agency and GSE eligible multifamily loans. In addition, the warehouse lines funding agency and GSE loans are non-mark-to-market and provide a 100% advance rate because all the loans financed on the lines have purchase commitments.Greystone’s outlook is stable, reflecting the strength of the company’s portfolio composition and its manageable exposure to mark-to-credit provisions in its funding structure that position the company to endure potential deterioration in asset performance and real estate values, profitability and capital position relating to the coronavirus pandemic.Moody’s assesses governance risk as high for finance companies but it does not have any specific concerns on Greystone’s governance arrangements.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody’s could upgrade Greystone’s ratings if the company: 1) reduces its reliance on confidence-sensitive secured funding and increases unencumbered assets allowing accessing to alternative funding sources; 2) improves its debt maturity laddering; 3) maintains strong asset quality through the current credit cycle; 4) demonstrates predictable earnings and profitability that compares favorably with rated peers; 5) improves its tangible common equity to tangible managed assets ratio to above 20%; and 6) achieves greater diversity of commercial real estate finance offerings without increasing its risk profile.Moody’s could downgrade Greystone’s ratings if the company: 1) reduces and maintains its tangible common equity to tangible managed assets below 15%; 2) experiences deterioration in asset quality that causes a meaningful increase in losses; 3) shows evidence of weakening underwriting standards; or 4) reduces its liquidity cushion, making it more vulnerable to market shocks.The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://ift.tt/39CxYFV. 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