NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases a special report on the Indictment of Robert C. Morgan Affiliates and the Potential Impact on Related Loans in KBRA-Rated CMBS.
On May 22, 2018, a federal grand jury returned a 62-count indictment charging four people with conspiracy to commit wire fraud and bank fraud in connection with the ongoing federal investigation into companies controlled by Robert C. Morgan. The indictment follows numerous reports by The Buffalo News and other news outlets detailing a raid on the headquarters of Morgan Communities by FBI agents on May 14, 2018. According to the indictment, the defendants conspired to fraudulently obtain over $167.5 million of loans relating to seven properties located in New York and Pennsylvania.
KBRA identified two KBRA-rated CMBS transactions with exposure to properties specifically referenced in the indictment: Ellicott Apartments (0.7% of pool) in COMM 2013-CCRE9 and Avon Commons (0.4% of pool) in FREMF 2015-K44. In each of the transactions, Robert C. Morgan is a sponsor and a guarantor of the related loan.
KBRA examined the related loan and CMBS securitization documents for the Ellicott Apartments and Avon Commons loans. Based on this review, KBRA believes that, if the allegations set forth in the indictment are found to be true, such finding could trigger an event of default under each of their respective loan documents and recourse to the respective guarantors.
However, based upon a review of the securitization-level documents, and our understanding of the facts and circumstances at this time, we do not believe that the indictment or actions alleged therein would constitute a breach of any representation or warranty by the loan seller in connection with the sale of the loans to the trust.
Due to our findings, and in consideration of the size of the related loans, KBRA does not contemplate any watch placements or rating actions at this time but will continue to monitor the situation.
To view the report, click here.
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KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.