Benzinga - by Adam Eckert, Benzinga Staff Writer.
Muddy Waters Research is out with a new short position that founder Carson Block discussed Wednesday in an interview on CNBC's "The Exchange."
What Happened: Muddy Waters put out a new short report on Blackstone Mortgage Trust Inc (NASDAQ: BXMT) titled, "Here Comes the Cliff."
Starting in 2024, an estimated $16 billion of interest rate swaps are expected to terminate, according to Muddy Waters.
As a result, the firm anticipates that Blackstone Mortgage will have to significantly cut its dividend and will be exposed to a potential liquidity crisis as large numbers of borrowers will likely be unable to refinance or repay.
"Even assuming rate cuts, BXMT’s losses on its $23.2 billion net book value of loans could reach ~$2.5 billion to ~$4.5 billion. BXMT’s market cap, which is currently $4.0 billion, is at risk of being completely wiped out by these losses," Muddy Waters said in its short report.
Why It Matters: Block announced the short at the Sohn Conference in London on Wednesday. He did an interview with CNBC immediately after and by that time the company had already responded, pushing back against Muddy Waters' claims.
Blackstone Mortgage called the report "self interested and misleading" and highlighted steps it's taken to remain well positioned to navigate the current environment including proactive asset management, a conservative liquidity posture and a patient investing approach, per Reuters.
Block shook his head when he heard the response and told CNBC the company actually telegraphed dividend concerns in a recent earnings presentation.
There was a slide in the presentation that talks about 126% dividend coverage. Block highlighted a footnote at the bottom that shows just 27% is covered by GAAP net income.
"That looks like classic CYA, uh-oh, you know, we need to prepare with this to hopefully mitigate the lawsuits, so it's interesting that they bring that up," the short seller said.
"They're self-interested as well and ... that's led them to gloss over these problems, including by understating the risk in the loans."
Block also suggested that there may be other companies out there that are in similar situations. In 2024 and 2025, there's $1.2 trillion of U.S. commercial real estate debt that's coming due, "so you're going to have a real scramble for cash," he said.
BXMT Price Action: Blackstone Mortgage shares were down 6.09% at $21.11 at the time of publication, according to Benzinga Pro.
Photo: Shutterstock
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