DBRS Morningstar Confirms A10 Capital’s MOR CS2 Primary-Servicer Ranking and MOR CS3 Special-Servicer Ranking

DBRS, Inc. (DBRS Morningstar) confirmed its MOR CS2 commercial mortgage primary-servicer ranking and MOR CS3 commercial mortgage special-servicer ranking for A10 Capital, LLC (A10 or the Company). The trend for both rankings remains Stable.

The primary-servicer ranking recognizes the Company’s expertise with bridge-loan financings on transitional properties as well as other loans requiring intensive asset management. A10 also provides timely and thorough reporting for its collateralized loan obligations (CLOs) and other rated transactions. As a special servicer, A10 has proactive asset management and experienced personnel but has had minimal need over its 14-year history to work out distressed assets.

Although A10, as a smaller-scale operation, has some key-employee risk, it demonstrates stability based on its well-experienced management team, employees’ tenure, and moderating turnover in 2020.

The Company’s surveillance and asset-management practices include a comprehensive loan risk-rating program, weekly portfolio review meetings, effective borrower compliance monitoring, and semi-annual loan performance reports. A relatively low loans-per-employee ratio aligns with the high-touch demands of the portfolio.

A10 has an initiative underway to enhance its technology platform. The Company currently uses McCracken’s Strategy in tandem with Salesforce as its core applications. However, it is converting to a banking/servicing system, which will be built on the Salesforce platform via a customized interface and designed to streamline servicing and asset-management processes. A10 expects the new application to address all essential loan-administration functions and especially CLO-type requirements, include a borrower web portal, and better integrate other applications for reporting, analytics, and file management. Concurrently, A10 has been strengthening its technology security and testing protocols. Data backup routines, which include a cloud-computing service provider, are acceptable.

The Company’s sound control practices include a credit committee approval process and an audit regimen encompassing quarterly servicing reviews conducted by a third-party audit firm, annual agreed-upon procedures reports, and lender-commissioned audits. Along with its technology conversion, A10 is developing updated and fuller procedural guides as well.

A10 had no active specially serviced loans at the onset of the Coronavirus Disease (COVID-19) pandemic. However, it managed a surge in borrower relief requests during the initial months of the pandemic and now has a few loans requiring special servicing. Asset managers, who handle portfolio surveillance and credit-related matters for all serviced loans, collectively have solid backgrounds for special servicing. An in-house legal team and other senior managers provide additional support for special servicing. A10’s diligence as a servicer also infers a similarly proactive and controlled approach for resolving troubled loans.

As of December 31, 2020, A10’s servicing and asset-management portfolio contained 343 loan positions with an aggregate unpaid principal balance (UPB) of approximately $1.79 billion, of which 96 loans with a $502.9 million UPB were serviced for third parties. By comparison, at YE2019, A10’s servicing and asset-management portfolio contained 316 loan positions with an aggregate $1.57 billion UPB. As of YE2020, the dominant property types by loan count were retail at 33%, office at 24%, and multifamily at 14%. Other property types were industrial, self-storage, lodging, and single-family rental. Approximately 52% of the portfolio by loan count was held in four securitized transactions (two permanent-asset/commercial mortgage-backed security–type and two bridge-asset/CLO-type financings).

A10 is the named special servicer for every loan it originates and services. As of YE2020, the active special-servicing portfolio had eight loans (based on borrower relationships and related note positions) collateralized by 15 properties with a total UPB of $128.5 million. A10 originated and owned five of these loans ($97.8 million UPB) and specially serviced the other three loans ($30.7 million UPB) on behalf of third parties.

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 U.S. dollars unless otherwise noted.

The principal methodology is North American Commercial Mortgage Servicer Rankings (October 20, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

For more information on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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