Investing.com -- Moody's (NYSE: MCO ) Ratings has lowered the ratings of Claros Mortgage Trust, Inc. (CMTG) to B2 from B1 on February 21, 2025. This includes the corporate family rating (CFR) and senior secured bank credit facility ratings. After the downgrade, Moody's placed the ratings under review for a potential further downgrade.

This decision comes after CMTG's Q4 2024 earnings report, where the company disclosed a net loss of $100.7 million for the quarter and $221.3 million for the year. The quarterly loss was primarily due to an $80 million loss on real estate owned held for sale and a $30 million provision for credit losses, indicating a further decline in asset quality.

Despite these losses, CMTG's B2 CFR reflects the credit advantages of the company's strong capitalization, which is favorable compared to other publicly rated commercial mortgage REITs. However, CMTG has faced challenges with loan performance in recent periods, resulting in GAAP losses in the last four quarters. This led to a suspension of its dividend in Q4 2024. CMTG's proportion of 4 and 5 risk-rated loans, its two weakest internal risk rating categories, is the highest among its peers.

CMTG has actively managed its liquidity, lowering unfunded commitments to $498 million in Q4 2024 from $1.9 billion in Q4 2022. After accounting for existing financings and commitments not expected to fund, this figure dropped to $158 million from $685 million over the same period. Despite these efforts, the firm's liquidity is limited, with only $102 million in available liquidity. CMTG has managed liquidity through asset sales, the suspension of the dividend, and other proactive measures, but the lack of flexibility remains a credit challenge. The company's debt maturity profile includes a $717.8 million secured term loan maturing in August 2026.

During the review period, Moody's will focus on the quality of CMTG's loan portfolio and the likelihood of further significant losses, as well as the firm's capacity to absorb such losses.

While a rating upgrade is unlikely during the review for downgrade, in the long term, CMTG's ratings could be upgraded if the company improves its asset quality, such as by reducing non-accrual loans and maintaining low charge-offs, while maintaining strong capitalization and demonstrating improved earnings.

CMTG's ratings could face further downgrades if loan performance is expected to worsen, or if liquidity remains constrained. The ratings could also be downgraded if CMTG fails to comfortably refinance its outstanding term loan ahead of its final maturity.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.