Fitch Affirms Midland Loan Services' Commercial Mortgage Servicer Ratings

NEW YORK--()--Fitch Ratings affirms the commercial mortgage-backed securities (CMBS) servicer ratings for Midland Loan Services (Midland), a division of PNC Bank, National Association, as follows:

--Primary servicer rating at 'CPS1';

--Master servicer rating at 'CMS1';

--Special servicer rating at 'CSS1'.

The affirmation of the master and primary servicer ratings reflect Midland's commercial loan servicing experience, particularly with its diverse servicing portfolio which has grown 12% by balance since year-end 2013 to approximately 29,000 loans totaling $341.6 billion. The rating also reflects the company's experienced and tenured management team and staff with minimal turnover, strong internal control environment with dedicated internal compliance and audit functions, as well as its ongoing commitment to technology.

The affirmation of special servicer rating reflects the company's strong special servicing operations and the experience and tenure of asset managers responsible for working out defaulted commercial mortgage loans, as well as the presence of policies and procedures to mitigate potential conflicts of interest with third-party clients. Fitch also noted that while Midland's named special servicing portfolio has continued to grow, it has not made any recent enhancements to its core special servicing technology. Fitch believes Midland's aging asset management and workflow tool used for special servicing is less robust than other highly rated servicers and no longer demonstrates the highest standards of technology for servicers working out large volumes of defaulted assets. This concern is partially mitigated by the current low volume of defaults and the expectation that Midland will complete enhancements in the next 12 months.

Each of the ratings incorporates Fitch's long-term Issuer Default Rating for PNC Bank N.A. of 'A+' with a Stable Rating Outlook as of Oct. 7, 2014.

In addition to its core CMBS servicing portfolio of $150.1 billion as of March 31, 2015, Midland services $90.5 billion of commercial real estate loans on behalf of institutional clients, $74.7 billion of multifamily agency loans, $24.5 billion of specialty finance servicing, $40.5 billion for government agencies, and $9.4 billion of single family rental securitizations.

Midland's special servicing portfolio consists exclusively of third party appointments from controlling class holders as neither Midland nor its parent company purchase controlling class positions in CMBS transactions. As a third party servicer, Midland's special servicing portfolio changes due to control shifts in legacy CMBS transactions as losses are incurred. While the company has replaced legacy transactions losses with appointments for new issue transactions, these transactions have minimal defaults resulting in a significant decline in the company's active CMBS special servicing portfolio to $629 million as of March 2015 from $4 billion as of year-end 2011.

As of March 31, 2015, Midland's U.S. commercial mortgage loan servicing portfolio consisted of 29,174 loans totaling approximately $341.6 billion. As of the same date, Midland's U.S. CMBS primary servicing portfolio totaled $131.7 billion and non-CMBS totaled $188.5 billion for an additional 18,044 nonsecuritized loans. Also, as of March 31, 2015, Midland was named master servicer for 8,234 loans in 202 transactions totaling $122.5 billion and responsible for the oversight of 34 primary servicers. In addition, as of March 31, 2015, Midland was named special servicer on 171 U.S. CMBS transactions totaling $107.9 billion, and was actively specially servicing 58 CMBS loans totaling $490.8 million and was responsible for 15 CMBS real estate owned assets totaling $138.1 million. CMBS represents the vast majority of Midland's named special servicing portfolio.

Fitch's servicer rating methodology is described in Fitch's reports 'U.S. Commercial Mortgage Servicer Rating Criteria', dated Feb. 14, 2014 and 'Rating Criteria for Structured Finance Servicers' dated April 23, 2015, which are available on Fitch's web site www.fitchratings.com.

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

Additional Disclosures

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Contacts

Fitch Ratings
Primary Analyst
Adam Fox
Senior Director
+1-212-908-0869
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
James Bauer
Director
+1-212-908-0343
or
Committee Chairperson
Britt Johnson
Senior Director
+1-312-606-2341
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 St.
New York, NY 10004
or
Secondary Analyst
James Bauer
Director
+1-212-908-0343
or
Committee Chairperson
Britt Johnson
Senior Director
+1-312-606-2341
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com