Morningstar DBRS Assigns Commercial Mortgage Servicer Rankings to Trimont LLC

DBRS, Inc. (Morningstar DBRS) assigned its MOR CS2 commercial mortgage primary servicer and special servicer rankings and its MOR CS3 commercial mortgage master servicer ranking to Trimont LLC (Trimont or the Company). Trimont is privately held by investment funds controlled by Värde Partners. The trends for the primary and special servicer rankings are Stable and the trend for the master servicer ranking is Positive.

On August 19, 2024, Trimont agreed to acquire the third-party non-agency commercial mortgage servicing business (WFCMS) of Wells Fargo Bank, N.A. (Wells Fargo). The acquisition includes WFCMS' corresponding mortgage servicing contracts, existing and future advancing obligations, technology applications, and U.S.- and India-based employees. The portfolios encompass all master, primary, and special servicing of loans in commercial mortgage-backed securities (CMBS) and commercial real estate collateralized loan obligation (CRE CLO) transactions, the master servicing and special servicing of loans in Freddie Mac-sponsored securitizations, and the primary servicing of third-party warehoused loans. Trimont expects to close the transaction in March 2025.

Trimont is using a lift-and-shift strategy in which the WFCMS operation is to be transferred nearly intact and continue to function largely in the same manner as it did pre-acquisition. WFCMS' senior leadership team also will be taking generally analogous positions at Trimont, including WFCMS' senior-most executive to head the combined U.S. servicing business. Wells Fargo will provide technology, office space, and other operational support for WFCMS through a 12- to 18-month transition services agreement (TSA). Trimont is assuming only certain corporate-level functions for WFCMS, such as training, corporate accounting, legal, audit and compliance, and vendor management, which are Wells Fargo enterprise level and not part of the TSA. Post-closing, Trimont expects to have approximately 1,052 total employees for its U.S. servicing business, including approximately 337 U.S.-based and 350 offshore employees from WFCMS.

The assigned rankings greatly consider Trimont's reasonable and well-developed transition plan combined with the overriding magnitude of the acquisition and the as-yet indeterminate timeframe of the ensuing integration phase. The assigned rankings also reflect these other factors:

Primary and Master Servicing
-- The collective strong management and professional depth of the two servicers. Average experience levels are higher at WFCMS, especially for loan credit management functions. Employee turnover on both sides has been relatively moderate. Trimont also has a robust training function.
-- The two platforms' diligent portfolio management practices and lengthy performance records. WFCMS also brings extensive CMBS and Freddie Mac servicing expertise and a well-experienced data analytics team.
-- For servicing and special servicing, Trimont's multifaceted compliance and audit functions and thorough vendor management practices. Trimont also is expanding its compliance and audit teams, which will include some personnel transferring from Wells Fargo/WFCMS. In the near term, until WFCMS is fully integrated into Trimont's regimen, the extent of auditing activities covering WFCMS should be sufficient. Over the transition period, the Company plans to continue developing its audit program for WFCMS.
-- The two operations' strong technology. Post-closing, both will continue to use their existing technology suites, which include two servicing systems from the same vendor and two different purchased special servicing applications. The two operations each have prudent protocols for data security, data backup, and testing that will eventually be consolidated under Trimont.
-- WFCMS' lengthy performance history as a highly experienced master servicer demonstrating thorough subservicer oversight, diligent and controlled advancing procedures, and reporting expertise for a high volume of CMBS transactions.
-- As a new master servicer, Trimont has no performance history in fulfilling its acquired advancing obligations, which it is addressing mostly through a Wells Fargo credit facility.

Special Servicing
-- Trimont's and WFCMS' well-experienced asset management teams. The WFCMS team has had no management and low employee turnover in the past few years, although the Trimont team had elevated employee turnover in 2023-24, which included its former head of special servicing. Both teams have reasonable workload levels.
-- Trimont's and WFCMS' successful asset resolution records. Trimont, which manages CMBS and non-securitized specially serviced assets, has historically handled more volume and real estate owned (REO) assets than WFCMS, whose special servicing work has mostly involved large-loan/single borrower-single asset (SASB) transactions.
-- Both teams demonstrate controlled and diligent asset management and resolution practices and solid experience with CMBS special servicing-related reporting and compliance.

Trimont's acquisition strategy and the TSA should help to maintain operational continuity. Morningstar DBRS will closely monitor Trimont's performance, especially in fulfilling its new master servicer responsibilities. Additionally, Morningstar DBRS will monitor employee retention and Trimont's progress to create a unified servicing platform.

As of September 30, 2024, Trimont's primary servicing portfolio, excluding its construction loan portfolio, contained 1,374 loans with an aggregate unpaid principal balance (UPB) of $54.66 billion. Except for two CMBS loans in one transaction and 88 CRE CLO loans in seven transactions, Trimont's servicing clients consisted of institutional investors, including debt funds, banks, and insurance companies.

Trimont was the named special servicer on 268 loans with a total UPB of approximately $19.42 billion involving 31 structured transactions (20 CMBS, one SASB asset-backed transaction, three Freddie Mac-sponsored securitizations, and seven CRE CLO transactions). It was affiliated with the controlling classholder in seven of these total transactions. Its active special servicing portfolio contained 70 loan positions (47 loans consolidated by related notes and common collateral) and 37 REO properties with a combined UPB of $3.62 billion.

As of September 30, 2024, WFCMS' total primary and master servicing portfolio scheduled for transfer to Trimont contained 19,913 loans with an aggregate UPB of $471.87 billion. CMBS loans, involving 707 transactions, comprised approximately 66% by UPB and 67% by loan count of the total servicing volume. Other components of the servicing portfolio included 45 CRE CLO transactions and 142 Freddie Mac-sponsored securitizations.

WFCMS' named special servicer portfolio scheduled for transfer to Trimont contained 2,534 loans with a total UPB of approximately $84.27 billion involving 150 structured transactions. This consisted of 65 CMBS transactions, 75 Freddie Mac-sponsored securitizations, nine CRE CLO transactions, and one CRE collateralized debt obligation transaction. WFCMS is not affiliated with the controlling classholder in any transactions. The active special servicing portfolio contained 13 securitized loans with an aggregate UPB of approximately $2.61 billion.

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

Morningstar DBRS 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 (August 23, 2024), https://dbrs.morningstar.com/research/438283.

For more information on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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