Ready Capital (RC) risk factors, FY2025 10-K

Risks Related to Our Business

1. 01Periods of higher inflation in the U.S. may have an adverse impact on the valuation of our investments
2. 02We anticipate a significant portion of our investments will be in the form of LMM loans that are subject to risks, such as credit risk23% rewritten
3. 03Disruptions in the financial and banking sectors may adversely impact our access to capital and our cost of borrowing, which could adversely affect us, our business or our results of operations48% rewritten
4. 04Our and Waterfall’s due diligence of potential LMM loans and ABS assets may not reveal all of the liabilities associated with and other combined weaknesses in such LMM loans and ABS assets, which could lead to investment losses
5. 05The use of underwriting guideline exceptions in the LMM loan origination process may result in increased delinquencies and defaults
6. 06Deficiencies in appraisal quality in the mortgage loan origination and acquisition process may result in increased principal loss severity
7. 07Changing market conditions may make it more difficult to analyze potential investment opportunities for our portfolio of assets
8. 08Any costs or delays involved in the completion of a foreclosure or liquidation of the underlying property may further reduce proceeds from the property and may increase the loss
9. 09Real estate properties acquired through foreclosure subject us to additional risks associated with owning real estate
10. 10If any of our properties incurs a vacancy, it could be difficult to sell or re-lease
11. 11We will periodically evaluate our real estate investments for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, tenant performance and legal structure
12. 12We could face potential adverse effects from tenant defaults, bankruptcies or insolvencies
13. 13We may be exposed to environmental liabilities with respect to properties to which we take title, which may in turn decrease the value of the underlying properties
14. 14Investments outside the United States that are denominated in foreign currencies subject us to foreign currency risks and to the uncertainty of foreign laws and markets, which may adversely affect our distributions and our REIT status
15. 15Significant movements in foreign currency exchange rates or change in monetary policy could affect our investments and may harm our financial results24% rewritten
16. 16Our loans are dependent on the ability of the commercial property owner to generate net income from operating the property, which may result in the inability of such property owner to repay a loan, as well as the risk of foreclosure
17. 17When a borrower experiences significant financial difficulties impacting the borrower’s ability to repay a loan, we may in certain situations grant concessions for a period of time to such borrowers that we would not otherwise consider
18. 18Future pandemics and epidemics may adversely affect our borrowers, the real estate industry and global markets, and our business and operations, financial condition, results of operations, liquidity and capital resources
19. 19While we seek to diversify our portfolio of assets, we are not required to observe specific diversification criteria
20. 20The increasing number of proposed United States federal, state and local laws may affect certain mortgage-related assets in which we intend to invest and could materially increase our cost of doing business
21. 21Failure to obtain or maintain required approvals and/or state licenses necessary to operate our mortgage-related activities may adversely impact our investment strategy
22. 22Our operations and activities include loans to small, privately owned businesses to purchase real estate used in their operations or by investors seeking to acquire small multi-family, office, retail, mixed use or warehouse properties
23. 23Some of the mortgage loans we will originate or acquire are loans made to self-employed borrowers who have a higher risk of delinquency and default, which could have a material and adverse effect on our business, results of operations and financial condition
24. 24We are a seller/servicer approved to sell mortgage loans to Freddie Mac and failure to maintain our status as an approved seller/servicer could harm our business
25. 25A diminished role and other changes in the role of Freddie Mac in the mortgage market may adversely affect our business
26. 26Our acquisitions and the integration of acquired businesses subject us to various risks and may not result in all of the cost savings and benefits anticipated, which could adversely affect our financial condition or results of operations
27. 27We are subject to the unique risks related to integrating a construction lending platform into our existing operations and the origination and ownership of construction loans84% rewritten
28. 28Construction loans are subject to additional risks as compared to loans secured by existing structures or landNew
29. 29If Waterfall underestimates the credit analysis and the expected risk-adjusted return relative to other comparable investment opportunities, we may experience losses
30. 30Waterfall utilizes analytical models and data in connection with the valuation of our LMM loans and LMM ABS, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks
31. 31The failure of a third-party servicer or the failure of our own internal servicing system to effectively service our portfolio of mortgage loans would materially and adversely affect us
32. 32The bankruptcy of a third-party servicer would adversely affect our business, results of operations and financial condition
33. 33New entrants in the market for LMM loan acquisitions and originations could adversely impact our ability to acquire LMM loans at attractive prices and originate LMM loans at attractive risk-adjusted returns
34. 34We cannot predict the unintended consequences and market distortions that may stem from far-ranging interventions in the financial system and oversight of financial markets
35. 35Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners’ financial condition and liquidity and disputes between us and our joint venture partners
36. 36Any of the above may subject us to liabilities in excess of those contemplated and adversely affect the value of our joint venture investments
37. 37Because such valuations are subjective, the fair value of certain of our assets may fluctuate over short periods of time and our determinations of fair value may differ materially from the values that would have been used if a ready market for these assets existed
38. 38Our investments may include subordinated tranches of ABS which are subordinate in right of payment to more senior securities
39. 39In certain cases we may not control the special servicing of the mortgage loans included in the securities in which we may invest in, and in such cases, the special servicer may take actions that could adversely affect our interests
40. 40Any credit ratings assigned to our LMM loans and ABS assets will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded
41. 41The receivables underlying the ABS we may acquire are subject to credit risks, liquidity risks, interest rate risks, market risks, operations risks, structural risks and legal risks, which could result in losses to us
42. 42Downgrades of the U.S. government’s sovereign credit rating and uncertain political and financial market conditions may affect the terms or stability of securities issued or guaranteed by the U.S. federal government, which may increase our future borrowing costs and adversely affect our portfolio
43. 43Some of our LMM loans will have interest rate features that adjust over time, and any interest rate caps on these loans may reduce our income or cause it to suffer a loss during periods of rising interest rates
44. 44Because we hold and may originate additional fixed-rate assets, an increase in interest rates on our borrowings may adversely affect our book value
45. 45Because the assets we will hold and expect to acquire may experience periods of illiquidity, we may lose profits or be prevented from earning capital gains if we cannot sell LMM loans and ABS assets at an opportune time35% rewritten
46. 46Our non-U.S. assets may subject us to the uncertainty of foreign laws and markets and currency rate exposure
47. 47Maintenance of our 1940 Act exception imposes limits on our operations58% rewritten
48. 48If the SEC, or its staff, were to disagree with our treatment of one of more companies as majority-owned subsidiaries, we would need to adjust our strategy and our assets in order to continue to pass the 40% test. Any such adjustment in our strategy could have a material adverse effect on usNew
49. 49Consequently, any modification of our business plan could have a material adverse effect on us
50. 50Rapid changes in the values of our target assets may make it more difficult for us to maintain our qualification as a REIT or our exclusion from the 1940 Act
51. 51The working capital advances we provide to small businesses may become uncollectible, and large amounts of uncollectible advances may adversely affect our performance
52. 52Providing working capital advances to small businesses through the purchase of its future revenue depends on our ability to fund our working capital advances and collect payment on and service the working capital advances

Risks Related to Our Company

1. 53Any disruption in the availability and/or functionality of our technology infrastructure and systems could adversely impact our business
2. 54The use of AI by us, our Manager, our borrowers or third-party service providers could expose us to operational, legal, regulatory, financial and competitive risksNew
3. 55We are highly dependent on information systems and communication systems; systems failures and other operational disruptions could significantly affect our business, which may, in turn, negatively affect our operating results and our ability to pay dividends to our stockholders
4. 56Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions. Changes in such rules, accounting interpretations or our assumptions could adversely impact our ability to timely and accurately prepare our consolidated financial statements
5. 57Provisions for credit losses are difficult to estimate
6. 58We may be unable to integrate prior or future acquisitions successfully and realize the anticipated synergies and other expected benefits of such acquisitions on the anticipated timeframe or at all
7. 59We may seek to sell one of our business segments in an effort to maximize shareholder value, which may adversely affect our Company, our reputation, our results of operations and financial position or our stock price24% rewritten

Risks Related to Our Relationship with Waterfall

1. 60We depend on Waterfall and its key personnel for our success. We may not find a suitable replacement for Waterfall if the management agreement is terminated, or if key personnel leave the employment of Waterfall or otherwise become unavailable to us
2. 61There are various conflicts of interest in our relationship with Waterfall which could result in decisions that are not in the best interests of our stockholders
3. 62Waterfall manages a series of funds and a limited number of separate accounts, which focus on a range of ABS and other credit strategies. None of these other funds or separate accounts focus on LMM loans as their primary business strategy
4. 63The termination of the management agreement may be difficult and require payment of a substantial termination fee or other amounts, including in the case of termination for unsatisfactory performance, which may adversely affect our inclination to end our relationship with Waterfall
5. 64The Class A special unit entitling Waterfall to an incentive distribution may induce Waterfall to make certain investments that may not be favorable to us, including speculative investments
6. 65Our Board will not approve each investment and financing decision made by Waterfall unless required by our investment guidelines

Risks Related to Our SBL Business

1. 66We may encounter risks associated with originating or acquiring SBA and other government guaranteed loans
2. 67In addition, we originate and service USDA guaranteed loan products through our subsidiary, ReadyCap CommercialNew
3. 68A government shutdown or curtailment of the government-guaranteed loan programs could cut off an important segment of our business, and may adversely affect our SBA loan program acquisitions, our SBA and USDA loan program originations and our results of operations

Risks Related to Financing and Hedging

1. 69We use leverage as part of our investment strategy, but we do not have a formal policy limiting the amount of debt we may incur. Our Board may change our leverage policy without stockholder consent
2. 70We have substantial debt maturing in 2026, including approximately $550 million of senior secured notes and corporate debt, which could have a negative impact on our liquidity, results of operations, and book valueNew
3. 71We may not be able to successfully complete additional securitization transactions, which could limit potential future sources of financing and could inhibit the growth of our business63% rewritten
4. 72Our potential securitization activities could expose us to litigation, adversely affecting our business and financial resultsNew
5. 73We may be required to repurchase mortgage loans or indemnify investors if we breach representations and warranties, which could harm our earnings
6. 74Likewise, we may be required to repurchase or substitute loans if we breach a representation or warranty in connection with our securitizations, if any
7. 75Certain financing arrangements restrict our operations and expose us to additional risk
8. 76The repurchase agreements that we will use to finance our assets will restrict us from leveraging our assets as fully as desired and may require us to provide additional collateral
9. 77Our rights under our repurchase agreements may be subject to the effects of bankruptcy laws in the event of the bankruptcy or insolvency of our Company or our lenders under the repurchase agreements, which may allow our lenders to repudiate our repurchase agreements
10. 78The change of control provisions in our senior secured notes, corporate debt and the related indentures could deter, delay or prevent an otherwise beneficial merger, acquisition, tender offer or other takeover attempt involving our Company
11. 79We may enter into hedging transactions that could expose us to contingent liabilities in the future and adversely impact our financial condition
12. 80Our use of derivatives may expose us to counterparty and other risks
13. 81Regulation as a commodity pool operator could subject us to additional regulation and compliance requirements, which could materially adversely affect our business and financial condition

Risks Related to Taxation as a REIT

1. 82Our failure to qualify as a REIT, or the failure of our predecessor to qualify as a REIT, would subject us to U.S
2. 83The percentage of our assets represented by TRSs and the amount of our income that we can receive in the form of TRS dividends and interest are subject to statutory limitations that could jeopardize our REIT qualification and could limit our ability to acquire or force us to liquidate otherwise attractive investments
3. 84Complying with REIT requirements may force us to liquidate or forego otherwise attractive investments, which could reduce returns on our assets and adversely affect returns to our stockholders
4. 85Distributions from us or gain on the sale of our common stock may be treated as unrelated business taxable income, or “UBTI”, to U.S. tax-exempt holders of common stock
5. 86The REIT distribution requirements could adversely affect our ability to execute our business plan and may require us to incur debt, sell assets or take other actions to make such distributions
6. 87We may be required to report taxable income with respect to certain of our investments in excess of the economic income we ultimately realize from them
7. 88Our ownership of and relationship with any TRS which we may form or acquire will be limited, and a failure to comply with the limits would jeopardize our REIT qualification and our transactions with our TRSs may result in the application of a 100% excise tax if such transactions are not conducted on arm’s-length terms
8. 89The ownership limits that apply to REITs, as prescribed by the Code and by our charter, may inhibit market activity in shares of our common stock and restrict our business combination opportunities
9. 90Certain financing activities may subject us to U.S. federal income tax and increase the tax liability of our stockholders
10. 91The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, which would be treated as prohibited transactions for U.S. federal income tax purposes
11. 92Characterization of our repurchase agreements entered into to finance our investments as sales for tax purposes rather than as secured lending transactions would adversely affect our ability to qualify as a REIT
12. 93The failure of excess MSRs held by us to qualify as real estate assets, or the failure of the income from excess MSRs to qualify as interest from mortgages, could adversely affect our ability to qualify as a REIT
13. 94If we were to make a taxable distribution of shares of our stock, stockholders may be required to sell such shares or sell other assets owned by them in order to pay any tax imposed on such distribution
14. 95Complying with REIT requirements may limit our ability to hedge effectively
15. 96Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow
16. 97At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended, possibly with retroactive effect. We cannot predict when or if any new U.S
17. 98The tax basis that we use to compute taxable income with respect to certain interests in loans that were held by our operating partnership at the time of the REIT formation transaction could be subject to challenge
18. 99Potential changes to the U.S. tax laws could adversely impact us
19. 100There may be tax consequences to any modifications to our hedging transactions and other contracts to replace references to LIBOR

Risks Related to Our Organization and Structure

1. 101Conflicts of interest could arise as a result of our REIT structure
2. 102Certain provisions of Maryland law could inhibit changes in control and prevent our stockholders from realizing a premium over the then-prevailing market price of our common stock
3. 103Our ability to issue additional shares of common and preferred stock may prevent a change in our control
4. 104Our rights and your rights to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests
5. 105Our amended and restated bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for some litigation, which could limit the ability of stockholders to obtain a favorable judicial forum for disputes with our Company

General Risk Factors

1. 106Future offerings of debt or equity securities, which may rank senior to our common stock, may adversely affect the market price of our common stock
2. 107If we decide to issue additional debt securities in the future, which may rank senior to our common stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility
3. 108We cannot assure our ability to pay distributions in the future
4. 109Interest rate fluctuations may adversely affect the level of our net income and the value of our assets and common stock
5. 110As has been widely publicized, the SEC, the FASB and other regulatory bodies that establish the accounting rules applicable to us have proposed or enacted a wide array of changes to accounting rules over the last several years
6. 111Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price
7. 112Inability to access funding could have a material adverse effect on our results of operations, financial condition and business. We rely on short-term financing and thus are especially exposed to changes in the availability of financing
8. 113An increase in our borrowing costs relative to the interest we receive on our leveraged assets may adversely affect our profitability and our cash available for distribution to our stockholders