Morningstar Credit Ratings, LLC Assigns 'MOR CS2' Commercial Mortgage Special Servicer Ranking for AEGON USA Realty Advisors, LLC

NEW YORK, April 16, 2014 /PRNewswire/ -- Morningstar Credit Ratings, LLC today assigned its 'MOR CS2' commercial mortgage special servicer ranking for AEGON USA Realty Advisors, LLC (AURA). The assigned special servicer ranking is based on the following factors:

  • Highly experienced special servicing and asset management teams: AURA's management teams are highly experienced in handling complex distressed assets. Morningstar also has a favorable view of AURA's history of managing properties as an equity owner.
  • Stable operation: AURA has not experienced any employee turnover since 2010, and its personnel have an average tenure of 19 years.
  • Limited track record resolving CMBS assets and reporting to CMBS investors: While AURA has substantial experience managing specially serviced assets for its affiliated clients and third parties, the company has a limited history of managing commercial mortgage-backed securities (CMBS) assets. AURA also needs more time as a CMBS special servicer before Morningstar can fully ascertain the overall quality of its corresponding reporting. Despite AURA's limited experience with CMBS assets, Morningstar believes that AURA will be very capable of providing timely and accurate reporting for CMBS investors.
  • Overall successful recoveries involving larger balance assets: During 2013, AURA resolved specially serviced loans primarily through restructurings or modifications involving maturity extensions, followed by full payoffs and completing foreclosures. While AURA did not sell notes or negotiate discounted payoffs during this period, it has successfully resolved loans through these methods in the past. During this same period, AURA sold six real estate-owned (REO) assets, averaging nearly $10 million in size, and with an average net proceeds-to-value of 108 percent.
  • Well-experienced REO asset management involving complex debt and equity investments: AURA also invests in commercial real estate (CRE) properties as an equity investor and has a dedicated team of highly experienced asset managers to manage those properties. The company also has broad experience taking title to debt investments. AURA has a property management audit program and conducted two property manager audits in 2013. Although AURA has traditionally incorporated a strategy of holding and repositioning REO assets to enhance the recoveries that have often exceeded the origination unpaid principal balance (UPB), Morningstar believes that it has the requisite experience to manage REO assets in CMBS that are subject to real estate mortgage investment conduit (REMIC) rules that limit the holding period for REO assets.
  • Sound asset management practices and internal audit function: AURA has sound practices and procedures for its asset management functions. However, AURA could conduct more frequent audits of the special servicing operation to further mitigate operating risk. AURA reported that the special servicing operation undergoes audits every two years because it does not consider the special servicing and asset management areas to be high-risk areas. In Morningstar's view, special servicers that undergo annual, independent audits demonstrate best practices. AURA will undergo annual Regulation AB attestations beginning in 2015 because it recently became a named special servicer on CMBS assets having those requirements.
  • Transparent asset resolution practices and sound conflict of interest management: AURA has a transparent process for reporting asset resolutions. It is affiliated with the controlling bondholder class, AEGON USA Investment Management, on the CMBS transaction LBUBS2004-C8, for which it is the named special servicer. AURA noted that it does not purchase loans out of the CMBS trust or use affiliates for the workout and liquidation of assets.
  • Fully integrated technology platform: AURA's technology platform fully integrates its systems for servicing and asset management functions. AURA also recently developed its proprietary Special Technology Asset Resource application (STAR). The STAR system is integrated with AURA's servicing system and a third-party accounting application, which it uses for REO property-level accounting. In Morningstar's view, STAR should provide a high degree of centralized data management and automated reporting.
  • Sufficient capacity to perform special servicing functions: Based on Morningstar's calculation of AURA's workload ratios, AURA appears to have sufficient staff resources to keep pace with its recent asset transfers. AURA also has dedicated departments for loan and REO asset management, which have worked well for the company based on the volume and characteristics of its portfolio.
  • Effective use of internal legal resources: AURA has significant internal legal resources to assist asset managers with their asset resolutions, which can help mitigate risks, increase operating efficiency, and reduce disposition expenses.

As of Dec. 31, 2013, AURA's active special servicing portfolio had an UPB of approximately $1.4 billion consisting of 166 assets, compared to an UPB of approximately $1.8 billion consisting of 173 assets as of Dec. 31, 2012. During 2013, AURA's asset resolutions were equivalent to approximately 58 percent of the specially serviced loans by loan count and 8 percent of the REO assets by property count that the company held as of Jan.1, 2013. As of the end of 2013, AURA was the named special servicer on seven CMBS transactions representing 56 loans and one commercial real estate collateralized debt obligation (CRE CDO) transaction. AURA's special servicing portfolio as of Dec. 31, 2013 included three CMBS loans, with an aggregate UPB of approximately $16.1 million, and one CMBS REO property, which were all received from another special servicer.

The forecast for the ranking is Stable. As a special servicer, AURA should be able to maintain the practices and expertise to serve as an effective special servicer for CMBS and other investors. 

To access Morningstar's operational risk assessment methodology and all published reports, please visit https://ratingagency.morningstar.com

About Morningstar Credit Ratings, LLC and Morningstar, Inc.
Morningstar Credit Ratings, LLC is a Nationally Recognized Statistical Rating Organization (NRSRO) that specializes in structured credit research and ratings, and offers a wide array of services including new-issue ratings and analysis, operational risk assessments, surveillance services, data, and technology solutions.

Morningstar Credit Ratings' rankings, forecasts, and assessments contained in this press release are evaluations and opinions of non-credit related risks, and therefore, are not credit ratings within the meaning of Section 3 of the Securities Exchange Act of 1934 ("Exchange Act") or credit ratings subject to the Exchange Act requirements and regulations promulgated thereunder with respect to credit ratings issued by NRSROs.

Morningstar Credit Ratings, LLC is a subsidiary of Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 446,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 10 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries and had approximately $159 billion in assets under advisement and management as of Dec. 31, 2013. The company has operations in 27 countries.

Morningstar, Inc. is not an NRSRO and its credit ratings on corporate and municipal issuers are not NRSRO credit ratings.

©2014 Morningstar, Inc.  All rights reserved.

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Media Contact:
Michelle Weiss, +1 267-960-6014 or michelle.weiss@morningstar.com

SOURCE Morningstar, Inc.



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