KBRA assigns a preferred stock rating of BBB to BW Real Estate, Inc. (BW Real Estate), a majority-owned REIT subsidiary of Western Alliance Bank ("the bank"), the principal operating subsidiary of Western Alliance Bancorporation (NYSE:WAL, "Western Alliance" or ", the company", )). Beyond the assigned rating, Western Alliance's other ratings, collectively, are unaffected by this action.
Key Credit Considerations
BW Real Estate's preferred stock rating is principally driven by the current long-term ratings of Western Alliance Bank – including long-term deposit and senior unsecured debt ratings of A- and a subordinated debt rating of BBB+, as well as the Conditional Exchange feature of the instrument, which would result in an automatic conversion into preferred stock of the bank upon certain events.
WAL's favorable operating performance (FY24 core ROA of ~1%) as well as balance sheet trends – principally solid core deposit flows and internal core capital generation – since the industry's funding challenges that were magnified in March 2023, have done well to support the company's ratings. With respect to deposit flows, WAL's $66 billion of total deposits at YE24 were up $11 billion from the prior year. Admittedly, while the brokered deposit channel, together with increased use of reciprocals, have no doubt contributed to WAL's strong flows, so too have meaningful core balances from new and existing commercial customers. Beyond the considerably larger, and what we consider to be more durable deposit base that incorporates substantially lower uninsured / uncollateralized balances, WAL's enhanced earning asset liquidity positions the company very well from this vantage point. Furthermore, additional strategic deposit initiatives continued to benefit WAL's core funding profile, following the deposit mix changes to higher cost balances that had been evident for the company (and industry) principally prior to mid-2024. Regarding a refined strategic earning asset focus, beyond the noted enhanced liquidity elements, WAL has effectively reduced select loan exposures determined to be more transactional in nature. While not necessarily unique strategic or financial profile adjustments, we consider it fundamentally important that WAL continues to benefit from a very experienced management team that has demonstrated long-term success executing its attractive business model, with diverse commercial verticals that supplement core middle-market banking; one which has produced favorable risk-adjusted returns over time. Similarly significant to WAL's enhanced creditor profile has been the meaningful growth in the company's core capital measures. Through a combination of solid internal capital generation and RWA optimization, WAL's CET1 measure has increased to 11.3% as of YE24.
Rating Sensitivities
A rating change for BW Real Estate would be driven by a rating change for Western Alliance Bank. While a near-term adjustment in the bank's ratings is not currently anticipated, continued demonstration of solid core earnings power, positive client core deposit trends, and better-than-peer prospective credit loss performance would be viewed favorably. Any meaningful slippage in core funding profile, combined with evidence of reduced core earnings, could pressure ratings.
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Methodologies
- Financial Institutions: Bank & Bank Holding Company Global Rating Methodology
- ESG Global Rating Methodology
Disclosures
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan's Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.
Doc ID: 1008701
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Analytical Contacts
Ian Jaffe, Senior Managing Director (Lead Analyst)
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Steven Yates, Senior Director
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Ashley Phillips, Managing Director (Rating Committee Chair)
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