DBRS Morningstar Confirms CMLS Financial Ltd.’s Commercial Mortgage Master Servicer and Special Servicer Rankings; Lowers Primary Servicer Ranking

DBRS, Inc. (DBRS Morningstar) confirmed its commercial mortgage master servicer and special servicer rankings for CMLS Financial Ltd. (CMLS or the Company) at MOR CS3 and lowered the Company’s commercial mortgage primary servicer ranking to MOR CS2 from MOR CS1. The trend for all three rankings is Stable. The rankings reflect the first in-depth review of CMLS based on the methodology DBRS Morningstar adopted through the integration of Morningstar Credit Ratings, LLC and DBRS, Inc.

CMLS has a solidly experienced management team, proactive and controlled loan servicing, and an acceptable technology platform to address all core functions, including the Company’s reporting requirements for its two commercial mortgage-backed securities (CMBS) transactions. CMLS’ satisfactory audit regimen centers on annual CSAE 3416 reports, which are a Canadian form of a service organization control (SOC 1) examination, and quality assurance staff in the servicing operation monitoring procedural compliance.

The master servicer ranking reflects CMLS’ experience and successful performance record with CMBS transaction management, trustee reporting, and advancing. The ranking also considers the Company’s moderate activity in that role, which currently includes only one subservicer. However, CMLS’ subservicer tracking and auditing procedures are commensurate with its level of required oversight.

As a special servicer, CMLS has acceptably controlled and attentive practices as well as experienced asset management personnel. The ranking also factors the Company’s continually low portfolio volume and asset recovery activity. Its few loans requiring special servicing have generally all had very successful outcomes and all resolutions for 2020 through June 2021 involved full loan payoffs.

Although DBRS Morningstar lowered CMLS’ primary servicer ranking to align with the methodology, it still views CMLS as one of the more adept commercial mortgage servicers in Canada based on the Company’s effective portfolio management and attention to corporate governance and compliance. The Company also has plans to strengthen its technology with better application integration and automation tools to boost operating efficiencies, enhance its training function, and expand its quality assurance practices. CMLS reported low employee turnover for 2020 through June 2021, which DBRS Morningstar will continue to monitor.

As of June 30, 2021, CMLS’ total primary and master servicing portfolio contained 2,008 loans with an aggregate $18.67 billion unpaid principal balance (UPB). The Company was the primary and/or master servicer on two CMBS transactions. CMBS loans accounted for 3.4% of the total portfolio by UPB and 3.3% by loan count. The balance of the portfolio included loans serviced for banks and financial institutions (38.8% by UPB and 36.4% by loan count) and other third-party investors (57.8% by UPB and 60.3% by loan count). The portfolio is well diversified by property types and geographically across Canada.

As of June 30, 2021, CMLS was the named special servicer on two CMBS transactions with a total UPB of $632.6 million consisting of 67 assets. Its active special servicing portfolio contained four loans with a combined $48.3 million UPB of which none were CMBS loans. By comparison, as of YE2020, the total active special servicing portfolio contained three assets (one CMBS loan) with a combined $32.8 million UPB.

All rankings are subject to surveillance, which could result in rankings being raised, lowered, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar North American commercial mortgage servicer rankings are not credit ratings. Instead, they are designed to evaluate the quality of the parties that service commercial mortgage loans. Although the servicer’s financial condition contributes to the applicable ranking, its relative importance is such that a servicer’s ranking should never be considered as a proxy of its creditworthiness.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is North American Commercial Mortgage Servicer Rankings (September 3, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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