Morningstar Credit Ratings, LLC Affirms 'MOR CS1' Commercial Mortgage Primary and Master Servicer Rankings and 'MOR CS2' Commercial Mortgage Special Servicer Ranking for Berkadia Commercial Mortgage, LLC

NEW YORK, Dec. 23, 2014 /PRNewswire/ -- Morningstar Credit Ratings, LLC today affirmed its 'MOR CS1' commercial mortgage primary and master servicer rankings and 'MOR CS2' commercial mortgage special servicer ranking for Berkadia Commercial Mortgage, LLC. The forecast for all three rankings is Stable. The affirmed commercial mortgage primary, master, and special servicer rankings are based on the following factors:

Primary and Master Servicing:

• Operational expansion: Berkadia's growth in servicing volume between January 2013 and September 2014 predominately came from its fee-for-service business, which has facilitated the expansion of servicing operations globally.
• Enhanced technology platform: Berkadia transitioned its servicing software to a customized version of McCracken's Strategy, version 17.3, from a previous customized version of Strategy, version 12b.
• A mature off-shore facility: Berkadia Services India Private Limited (BSIPL) has operated in India for more than 12 years. It is the longest-serving off-shore facility in India among commercial mortgage servicers with off-shore platforms and capable of handling complex servicing functions.
• Sufficient workload capacity within BSIPL: Berkadia has increased staffing across BSIPL to offset any operational effects of increased attrition. Berkadia closely monitors employee performance and has increased wages in order to retain high-performing employees. Morningstar will monitor Berkadia's workload and attrition rates as the company continues to increase the use of BSIPL staff for servicing tasks.
• Strong management and professional depth: In Morningstar's view, Berkadia continues to operate with highly experienced management and professional staff. In 2014, the company's CEO was appointed chairman, and an interim CEO and president assumed day-to-day senior management responsibilities. In 2013, the company hired a BSIPL site director to oversee the day-to-day operations including servicing and production. The site director has more than 22 years of industry experience and has worked extensively in the United States.
• Investor reporting expertise: Morningstar has a favorable view of Berkadia's responsiveness to information requests, as well as its capabilities to provide accurate and timely reporting. BSIPL employees also efficiently perform quality control on investor reporting functions to ensure accuracy.
• Frequent and extensive audit program: Berkadia's independent internal audit function conducts a quarterly examination of a broad range of loan administration and portfolio management processes, supplemented with performance monitoring activities embedded in the company's daily workflow practices. The latest audit results provided to Morningstar were satisfactory overall.
• In-depth insurance administration and monitoring of collateral performance: In 2014, Berkadia developed and deployed CertInView, a comprehensive insurance tracking tool, to closely monitor insurance coverage and administer insurance compliance. In Morningstar's view, Berkadia's portfolio management, surveillance, and special requests teams demonstrate best practices by closely monitoring the watchlist for asset-level collateral performance, loan covenant compliance, and borrower requests. Furthermore, the special requests team performs extensive reunderwriting for certain complex requests.
• Master servicing expertise: Morningstar has a positive view of Berkadia's oversight of subservicers and its asset administration capabilities for commercial mortgage-backed securities (CMBS) primary and master servicing.
• Continued emphasis on training programs: Berkadia emphasizes employee development by requiring staff to participate in a significant amount of industry-related training designed specifically for the individual. The training program also provides career path guidance for U.S. and BSIPL personnel.

Special Servicing:

• History of successful asset resolution performance: Berkadia experienced a decline in special servicing activity over the past year after it transferred its CMBS special servicing portfolio to KeyBank, but Morningstar believes that Berkadia has a sound track record of asset management and maintains well-controlled asset recovery procedures to address large and complex structures. In Morningstar's view, Berkadia's asset managers are experienced and can manage CMBS assets, and its special servicing technology tools accommodate the company's asset tracking and reporting requirements.
• No discernible conflicts of interest: Morningstar believes Berkadia has effective policies and procedures to manage conflicts of interest. Morningstar generally views Berkadia 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 B-piece investor. Berkadia's business model is to act as an independent, third-party special servicer without any investment in subordinate CMBS.

As of Sept. 30, 2014, Berkadia's primary and master servicing portfolio consisted of 26,672 loans with an unpaid principal balance (UPB) of approximately $241.97 billion, and it was the primary and/or master servicer for 558 CMBS pools. As of Sept. 30, 2014, CMBS loans accounted for approximately 25 percent and 29 percent of Berkadia's total primary and master servicing portfolio, respectively, based on UPB and loan count. 

As of Sept. 30, 2014, Berkadia's active special servicing portfolio consisted of 17 loans with a UPB of approximately $2.7 million, consisting entirely of CMBS assets. Berkadia was also the named special servicer on 10 CMBS transactions comprising 1,147 loans with a UPB of approximately $916.2 million.

The forecast for all three rankings is Stable. Morningstar expects Berkadia to continue serving as an effective commercial mortgage primary, master, and special servicer for CMBS and third-party 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 noncredit 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.

Morningstar, Inc. 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 479,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 13 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 investment advisory subsidiaries and had approximately $169 billion in assets under advisement and management as of Sept. 30, 2014. The company has operations in 27 countries.

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

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SOURCE Morningstar, Inc.

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