News Column

Fitch Upgrades Rialto Capital Advisors Special Servicer Rating

July 28, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings upgrades the commercial mortgage special servicer rating of Rialto Capital Advisors, LLC (RCA) to 'CSS2' from 'CSS2-'.

The upgrade of RCA's special servicer rating reflects Fitch's assessment of the company's servicing abilities, improved control environment, and continued investment in its technology platform relative to a significant increase in named CMBS special servicing. At March 31, 2014, the company was named on 30 CMBS transactions totaling $36.1 billion.

During 2013, RCA's CMBS named special servicing portfolio increased substantially as Rialto named RCA special servicer on CMBS transactions in which its affiliates had control. Rialto continues to invest in CMBS 2.0 B-pieces having purchased 11 in 2013 and six through June 30, 2014.

The rating also reflects RCA's experienced management team, asset management capabilities, and ability to leverage the infrastructure of its parent, Lennar Corporation. While Rialto provides ancillary income to Lennar, it is unclear if the company will remain of strategic importance in the long-run as Rialto has taken steps to establish itself as a standalone company, publishing its own financial statements and raising new capital in the form of senior unsecured notes.

RCA is the operating entity of Rialto that performs all servicing, special servicing, and asset management functions. Rialto provides investment management for its portfolios as well as third-party clients. Rialto manages two private equity funds, Rialto Real Estate Fund I & II, which target opportunistic investments in distressed loans and real estate and subordinate bonds in CMBS 2.0 transactions and expects to begin raising capital for a third fund beginning in the fourth quarter of 2014. Rialto also established a mezzanine platform through Rialto Mezzanine Partners Fund, LP and a separate mezzanine managed account for a global life insurance company and entered the commercial real estate (CRE) loan origination business to originate and securitize non-recourse CRE loans.

As of March 31, 2014, RCA was named special servicer on 2,134 CMBS loans totaling $36.1 billion in 30 transactions. As of the same date, RCA was actively working out four defaulted CMBS loans totaling $59.4 million and one REO asset with an unpaid principal balance (UPB) of $2.3 million. RCA is also named special servicer for 5,996 non-CMBS loans totaling $3 billion UPB and was actively working out 4,168 of the loans with a UPB of $1.7 billion, and 1,828 REO with a UPB of $1.3 billion. Approximately 69% of the non-CMBS loans special serviced by UPB are on undeveloped land or residential properties (84% by loan count).

In accordance with Fitch's policy, an issuer appeal resulted in RCA providing additional information that ultimately led to a rating action different from the original rating committee outcome.

The servicer rating is based on the methodology described in Fitch's reports 'U.S. Commercial Mortgage Servicer Rating Criteria,' dated Feb. 14, 2014, and 'Rating Criteria for Structured Finance Servicers' dated Jan. 30, 2014, available on Fitch's web site www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for U.S. Commercial Mortgage Servicers' (Feb. 14, 2014);

--'Rating Criteria for Structured Finance Servicers' (Jan. 30, 2014).

Applicable Criteria and Related Research:

Rating Criteria for Structured Finance Servicers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=731750

Rating Criteria for U.S. Commercial Mortgage Servicers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735382

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=842074

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Howard Miller

Director

+1-212-908-0737

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Dustin Pike

Associate Director

+1-212-908-7875

or

Committee Chairperson

Adam Fox

Senior Director

+1-212-908-0869

or

Media Relations

Sandro Scenga, New York, +1-212-908-0278

sandro.scenga@fitchratings.com


Source: Fitch Ratings


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