Merchants Capital Executes Credit Risk Transfer on $543+ Million Multifamily Bridge Loans

Rhea-AI Summary

Merchants Capital (Nasdaq: MBIN) has executed a $543.5 million Credit Risk Transfer (CRT) secured by 41 performing multifamily bridge loans. This marks the company's second multifamily CRT and third overall, bringing their total securitizations to nearly $4 billion. The transaction, structured as a Credit Default Swap (CDS), includes $76 million in credit protection from a large institutional investor.

The portfolio comprises 53 properties with 7,040 units across 14 states, primarily concentrated in Indiana, South Carolina, and Illinois. This CRT supports Merchants Capital's production, which reached nearly $7 billion in 2023. Evan Gibson, EVP of Capital Markets, highlighted the platform's growth and efficiency in providing capital relief, enabling additional loan growth for the company.

Positive

• Executed a $543.5 million Credit Risk Transfer (CRT) on multifamily bridge loans
• Secured $76 million in credit protection from a large institutional investor
• Completed nearly $4 billion in securitizations through Capital Markets platform
• Achieved production of nearly $7 billion in 2023

Negative

• None.

Insights

Financial Analyst

Merchants Capital's execution of a $543.5 million Credit Risk Transfer (CRT) on multifamily bridge loans is a significant move that demonstrates the company's strategic approach to risk management and capital efficiency. This transaction, structured as a Credit Default Swap (CDS), effectively transfers $76 million of first-loss risk to a large institutional investor, allowing Merchants Capital to free up capital for further lending activities.

The scale of this CRT, covering 41 performing loans across 53 properties in 14 states, showcases Merchants Capital's substantial footprint in the multifamily lending space. With 7,040 units involved, this portfolio represents a diverse geographic spread, potentially mitigating concentration risk.

What's particularly noteworthy is that this marks Merchants Capital's second multifamily CRT and third overall CRT, indicating a growing comfort and expertise with this financial instrument. The company's Capital Markets platform has now executed nearly $4 billion in securitizations, which is impressive given Merchants Capital's $7 billion production in 2023.

This transaction likely improves Merchants Capital's risk profile and regulatory capital position, potentially leading to enhanced lending capacity and profitability. For investors in Merchants Bancorp (Nasdaq: MBIN), this could signal improved financial stability and the potential for sustained growth in the company's lending operations.

However, it's important to note that while CRTs can be effective risk management tools, they also introduce counterparty risk. The performance of this CRT will depend on the creditworthiness of the institutional investor providing the $76 million in credit protection. Additionally, the underlying performance of the multifamily properties will be important to the long-term success of this strategy.

Real Estate Market Analyst

The execution of this $543.5 million Credit Risk Transfer by Merchants Capital offers valuable insights into the current state of the multifamily real estate market. The fact that a large institutional investor was willing to take on $76 million in first-loss risk suggests a relatively positive outlook for the multifamily sector, despite recent economic uncertainties.

The portfolio's composition is particularly telling. With 7,040 units spread across 14 states, there's a clear focus on diversification. The largest concentrations in Indiana, South Carolina and Illinois indicate Merchants Capital's strategic targeting of markets that may offer a balance of stability and growth potential. These states likely present a mix of established urban centers and emerging secondary markets, which could provide resilience in various economic scenarios.

The use of bridge loans in this portfolio is also significant. Bridge loans are typically used for properties in transition, such as those undergoing renovations or repositioning. This suggests that Merchants Capital is betting on value-add opportunities in the multifamily space, potentially capitalizing on the ongoing demand for quality rental housing.

However, it's important to consider the potential risks. The multifamily market has shown signs of softening in some areas, particularly in luxury segments. The success of these bridge loans will depend on the borrowers' ability to execute their business plans effectively and the continued strength of the rental market in the targeted locations.

Overall, this transaction reflects confidence in the multifamily sector's fundamentals but also underscores the importance of risk management in the current real estate climate. For investors, it signals Merchants Capital's proactive approach to navigating market dynamics while pursuing growth opportunities.

CARMEL, Ind., Aug. 1, 2024 /PRNewswire/ -- (Nasdaq: MBIN) Leading financial services provider Merchants Capital today announced the execution of a $543.5 million Credit Risk Transfer (CRT), secured by 41 performing multifamily bridge loans. This is the second multifamily CRT and the third overall completed by Merchants' Capital Markets platform, which has executed nearly $4 billion in securitizations.  

The transaction, which closed in March, was structured as a Credit Default Swap (CDS), with $76 million in credit protection purchased from a large institutional investor as a first-loss risk transfer. Bridge loans from 53 properties are included in the portfolio, with a total of 7,040 units from 14 states, the largest concentrations located in Indiana, South Carolina and Illinois.

"The Capital Markets team continues to add value, demonstrate innovation and fuel lending across Merchants Capital," said Evan Gibson, Executive Vice President, Capital Markets at Merchants Capital. "We are very pleased with the growth of our platform and efficiency in providing capital relief, which provides Merchants Capital with capacity for additional loan growth."

The transactions led by Merchants' Capital Markets platform, including this CRT, support Merchants Capital's production, which totaled nearly $7 billion in 2023.

To learn more about Merchants Capital and its services, visit www.merchantscapital.com or find Merchants Capital on Facebook, X, LinkedIn and Instagram.

ABOUT MERCHANTS BANCORP
Ranked as a top performing U.S. public bank by S&P Global Market Intelligence, Merchants Bancorp is a diversified bank holding company headquartered in Carmel, Indiana operating multiple segments, including Multifamily Mortgage Banking that primarily offers multifamily housing and healthcare facility financing and servicing (through this segment it also serves as a syndicator of low-income housing tax credit and debt funds); Mortgage Warehousing that offers mortgage warehouse financing, commercial loans, and deposit services; and Banking that offers retail and correspondent residential mortgage banking, agricultural lending, and traditional community banking.  Merchants Bancorp, with $18.2 billion in assets and $14.9 billion in deposits as of June 30, 2024, conducts its business primarily through its direct and indirect subsidiaries, Merchants Bank of Indiana, Merchants Capital Corp., Merchants Capital Investments, LLC, Merchants Capital Servicing, LLC, Merchants Asset Management, LLC, and Merchants Mortgage, a division of Merchants Bank of Indiana. For more information and financial data, please visit Merchants' Investor Relations page at investors.merchantsbancorp.com.

ABOUT MERCHANTS CAPITAL

With more than 30 years of success built on putting people first, Merchants Capital is a proven leader in financing for multifamily housing nationwide. Our licenses with Fannie Mae, Freddie Mac and HUD/FHA, in addition to our bank's balance sheet products, allow us to offer custom solutions with agility and ease of execution, expanding access to housing in meaningful and impactful ways. Recognized as a top five affordable lender, Merchants Capital pairs our comprehensive debt offerings with in-house tax credit equity to provide a one-stop-shop for developers and owners. To learn more about Merchants Capital, visit www.merchantscapital.com.

Forward-Looking Statements 
This press release contains forward-looking statements which reflect Merchants Bancorp's current views with respect to, among other things, future events and financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "goal," "target," "outlook," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control, such as the potential impacts of the COVID-19 pandemic. Accordingly, management cautions that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although the Merchants Bancorp believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.  A number of important factors could cause actual results to differ materially from those indicated in these forward-looking statements, including the impacts of the COVID-19 pandemic, such as the severity, magnitude, duration and businesses' and governments' responses thereto, on the Merchants Bancorp's operations and personnel, and on activity and demand across its businesses, and other factors identified in "Risk Factors" or "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Merchants Bancorp's Annual Report on Form 10-K and other periodic filings with the Securities and Exchange Commission.  Any forward-looking statements presented herein are made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise. 

View original content to download multimedia:https://www.prnewswire.com/news-releases/merchants-capital-executes-credit-risk-transfer-on-543-million-multifamily-bridge-loans-302212528.html

SOURCE Merchants Bancorp

FAQ

What is the value of the Credit Risk Transfer (CRT) executed by Merchants Capital?

Merchants Capital executed a Credit Risk Transfer (CRT) valued at $543.5 million, secured by 41 performing multifamily bridge loans.

How many properties and units are included in the MBIN CRT portfolio?

The CRT portfolio includes 53 properties with a total of 7,040 units across 14 states.

What was Merchants Capital's (MBIN) production value in 2023?

Merchants Capital's production totaled nearly $7 billion in 2023.

How much credit protection did Merchants Capital (MBIN) secure in this CRT transaction?

Merchants Capital secured $76 million in credit protection from a large institutional investor as a first-loss risk transfer in this CRT transaction.