NEW YORK, June 25, 2014 /PRNewswire/ -- Morningstar Credit Ratings, LLC today affirmed its 'MOR CS1' commercial mortgage primary, master, and special servicer rankings for KeyBank, N.A. (KeyBank), a wholly owned bank subsidiary of KeyCorp. KeyBank, as a servicer and special servicer, operated as KeyCorp Real Estate Capital Markets, Inc. until it merged that entity into the bank in late 2013. The affirmed rankings are based on the following factors:
Primary and Master Servicing
- Proven capabilities to effectively integrate large portfolios: During 2013, KeyBank acquired Bank of America's commercial mortgage servicing business. It also acquired nearly all of Berkadia Commercial Mortgage, LLC's (Berkadia) special servicing rights, became the named servicer for a number of newly issued commercial mortgage-backed securities (CMBS), and expanded its work for government services clients. KeyBank managed this rapid portfolio expansion, along with the associated technology conversion challenges, in a highly effective manner while concurrently meeting the ongoing servicing requirements for its existing clients. Integral to supporting this growth, KeyBank expanded and extended its shared servicing agreement with Berkadia.
- Investor reporting expertise: Morningstar has a favorable view of KeyBank's capabilities to provide accurate, complete, and timely reporting to CMBS and other investor clients. Its reporting capabilities fully address both CMBS and non-CMBS client requirements.
- Proactive and controlled asset administration: Morningstar has a positive opinion of KeyBank's asset administration capabilities to handle a range of large and complex transactions. KeyBank continues to have a successful performance record as a CMBS master servicer with respect to pooling and servicing agreement compliance, cash management and related monthly reporting, sub-servicer oversight practices, and meeting its service-level agreements. Morningstar believes that KeyBank effectively oversees the Berkadia shared servicing relationship with proactive oversight controls.
- Excellent technology: KeyBank's technology tools and centralized data management enable the company to service a diverse and large servicing portfolio efficiently. In particular, Morningstar believes KeyBank's proprietary, integrated asset management and reporting application, RECWeb, is highly effective for automated workflow management.
- Strong management and professional depth: Morningstar believes KeyBank's overall operation is stable and it retains highly experienced management and professional staff. Morningstar believes that the company operates with a well-designed organizational structure that efficiently addresses its myriad servicing requirements.
- Robust internal audit program: In Morningstar's view, KeyBank has a thorough internal audit program that examines a broad range of loan administration and portfolio management processes. The last audit reports issued during 2013 did not cite any material findings related to operational controls and practices. The parent bank's audit report also assigned its highest rating to the loan servicing operation. KeyBank supplements its audit function with performance monitoring activities administered by a dedicated compliance unit.
- Effective portfolio management: KeyBank's practices for proactive asset-level management and portfolio oversight include a number of reporting tools managed through the RECWeb application to monitor collateral performance, track loan covenant compliance and trigger events, and manage borrower consent requests.
- Strengthened professional depth: To address increased special servicing and borrower consent work, KeyBank expanded its special servicing professional depth by hiring a number of highly experienced asset managers from Berkadia.
- Excellent asset resolution record: KeyBank continues to be a highly effective special servicer with a successful performance record. While much of KeyBank's special servicing work continues to involve smaller-balance and multifamily assets, Morningstar's affirmed ranking recognizes the company's extended asset resolution achievement record for CMBS and other investors, which has included many larger-scale loans of varying complexity and property types and problematic government client-held assets.
- Well-controlled, diligent asset management: Morningstar considers KeyBank to have diligent and controlled asset analysis and management practices. The company also strengthened its real estate owned property management oversight this year by establishing an ongoing property management company audit program.
- Expanding client base: Since 2013, third-party investors have awarded KeyBank a number of new asset management assignments including special servicer appointments on Freddie Mac transactions and as the replacement special servicer on legacy CMBS transactions. Morningstar views these appointments as testaments of investor confidence in KeyBank's capabilities.
- Effective technology for special servicing: KeyBank's RECWeb application also serves as a highly effective and thorough asset management and reporting tool for specially serviced assets.
- No discernible conflict of interest: Morningstar views KeyBank as a special servicer that operates without the potential conflicts of interest inherent in transactions in which the special servicer has a close affiliation with the CMBS first-loss position investor. KeyBank's business model is to act as an independent, third-party special servicer without any investment in subordinate CMBS. In addition, KeyBank does not have or use affiliates to purchase or sell assets within securitization trusts.
As of Dec. 31, 2013, KeyBank's total primary and master serviced portfolio was approximately $170.0 billion by unpaid principal balance (UPB) and 16,716 by loan count, and it was the primary and/or master servicer on 288 CMBS transactions. CMBS loans accounted for approximately 65 percent and 52 percent of the total primary and master serviced portfolio based on UPB and loan count, respectively. As of Dec. 31, 2013, it was the named special servicer on 99 CMBS transactions with a total approximate UPB of $42.4 billion comprising 3,308 loans. The active special servicing portfolio was approximately $3.1 billion by UPB and 560 by asset count, including 131 CMBS assets with an approximate UPB of $2.3 billion.
The forecast for all three rankings is Stable. Morningstar expects KeyBank to continue serving as a highly effective primary, master, and special servicer.
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