Fitch Affirms Torchlight Loan Services' Commercial Mortgage Special Servicer Rating

NEW YORK--()--Fitch Ratings has affirmed the commercial mortgage special servicer rating of Torchlight Loan Services, LLC (Torchlight) at 'CSS2-'.

In affirming the rating Fitch considered the strength of Torchlight's compliance and control infrastructure, asset management technology, the tenure and experience of the senior management team, as well as the company's second relocation of its special servicing function in two years, high asset to asset manager ratio, and smaller staff relative to the company's named special servicing portfolio as rating concerns.

Torchlight will relocate special servicing operations in New York and close its Miami satellite office in 2017. The relocation of special servicing operations, which includes a reduction in force, is the result of a continued decline in the company's active special servicing portfolio. Loan resolutions and minimal new defaults have resulted in a 40% decline (by balance) in the company's active special servicing portfolio since year-end 2014. Torchlight's named CMBS portfolio is heavily weighted in legacy CMBS transactions (64% by count) issued in 2007 or earlier.

Torchlight is the wholly owned special servicer of Torchlight Investors (previously ING Clarion Capital), which was formed in 1995 to provide investment management services to institutional clients seeking exposure to commercial real estate debt markets. While Torchlight performs special servicing predominantly for CMBS trusts in which its parent company's funds are controlling class holders, it is increasingly being appointed as a third-party special servicer with six of its 33 named CMBS transactions coming from three non-affiliate third-party clients.

The company's special servicing credit committee includes four representatives of Torchlight Investors, including the head of acquisition and chief investment officer, as well as three members of the special servicing team and an outside third-party consultant. Having its parent as its largest servicing client and the representation of Torchlight Investors on its servicing committee raises concerns of potential conflicts of interest; however, Fitch noted that Torchlight's business plans reflected the consideration of multiple resolution strategies and pursued the resolution strategy resulting in the highest net present value.

As of June 30, 2016, Torchlight's total CMBS servicing portfolio comprised 1,140 CMBS loans with an unpaid principal balance of $16.8 billion in 33 transactions. As of the same date, the company was actively special servicing 52 loans totaling $842.3 million and managing 29 real estate owned (REO) assets with an underlying loan balance of $281.6 million.

The servicer rating is based on the methodology described in Fitch's reports 'U.S. Commercial Mortgage Servicer Rating Criteria,' dated Feb. 14, 2014, and 'Rating Criteria for Structured Finance Servicers' dated July 1, 2016, available at www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Rating Criteria for Structured Finance Servicers (pub. 01 Jul 2016)

https://www.fitchratings.com/site/re/884140

Rating Criteria for U.S. Commercial Mortgage Servicers (pub. 14 Feb 2014)

https://www.fitchratings.com/site/re/735382

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015693

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
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Adam Fox
Senior Director
+1-212-908-0869
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
James Bauer
Director
+1-212-908-0343
or
Committee Chairperson
Christopher Bushart
Senior Director
+1-212-908-0606
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Adam Fox
Senior Director
+1-212-908-0869
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
James Bauer
Director
+1-212-908-0343
or
Committee Chairperson
Christopher Bushart
Senior Director
+1-212-908-0606
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com