OVERVIEW
- Midland Loan Services' 2019 Regulation AB attestation report cited a recurring material instance of noncompliance and its latest SOC-1 report contained a qualified opinion.
- As a result, we lowered our overall rankings on Midland as a U.S. commercial loan primary, master, and special servicer, as well as our rankings on Midland as a Canadian commercial loan primary and master servicer, to ABOVE AVERAGE from STRONG. Our ABOVE AVERAGE ranking on the company as a Canadian commercial mortgage loan special servicer was affirmed.
- The outlook on all rankings is stable and the financial position is SUFFICIENT.
NEW YORK (S&P Global Ratings) April 1, 2020--S&P Global Ratings said today that it lowered its rankings on Midland Loan Services as a U.S. commercial mortgage loan primary, master, and special servicer to ABOVE AVERAGE from STRONG. We also lowered our rankings on Midland as a Canadian commercial mortgage loan primary and master servicer to ABOVE AVERAGE from STRONG. Our ABOVE AVERAGE ranking on the company as a Canadian commercial mortgage loan special servicer was affirmed. The lowered rankings follow the issuance of Midland's 2019 Regulation AB (Reg AB) attestation report, which cited a recurring material instance of noncompliance relating to Schedule AL (asset level) reporting. Management indicated, as it also did following the 2018 Reg AB report, that as an interim measure, it has improved its procedures relating to this while it is working on an automated solution for this process. Nonetheless, a repeat finding in a Reg AB report is highly unusual, particularly for the highest-ranked commercial servicers. The lowered rankings consider the qualified opinion Midland received on its 2019 Service Organization Controls Report (SOC-1) report, owing to findings associated with the failure to demonstrate that it met its control objectives within certain loan administration functions. Of its 19 distinct control objectives, exceptions that gave rise to the qualified opinion were reported within four of them. Positively, the majority of the audit findings were self-identified by management, and all findings were remediated prior to year-end 2019. In our view, the above-referenced items taken as a whole are inconsistent with a STRONG overall servicer ranking. Consequently, we have lowered the rankings to ABOVE AVERAGE. As the findings associated with the ranking actions did not encompass special servicing operations, the special servicing loan administration subranking for Midland as a U.S. servicer was affirmed at STRONG. The complete ranking and subranking actions are as follows: MIDLAND-U.S. Overall Mgmt & org Loan admin To From To From To From Primary ABOVE AVG STRONG ABOVE AVG STRONG ABOVE AVG STRONG Master ABOVE AVG STRONG ABOVE AVG STRONG ABOVE AVG STRONG Special ABOVE AVG STRONG ABOVE AVG STRONG STRONG STRONG MIDLAND-CANADA Overall Mgmt & org Loan admin To From To From To From Primary ABOVE AVG STRONG ABOVE AVG STRONG ABOVE AVG STRONG Master ABOVE AVG STRONG ABOVE AVG STRONG ABOVE AVG STRONG Special ABOVE AVG ABOVE AVG ABOVE AVG STRONG ABOVE AVG ABOVE AVG The outlook on all rankings is stable. We believe the company will be challenged in 2020 by an acceleration of defaulted loans, arising from the economic difficulties faced by borrowers emanating from the COVID-19 pandemic. Nonetheless, given Midland's track record of managing a substantial loan portfolio with complex servicing structures, we expect it will remain a highly effective servicer for all of the portfolios it services.
RELATED RESEARCH
- Select Servicer List, Feb. 6, 2020
- Full Analysis: The PNC Financial Services Group Inc., Dec. 17, 2019
- Servicer Evaluation: Midland Loan Services--Canada, July 1, 2019
- Servicer Evaluation: Midland Loan Services--U.S., July 1, 2019
- Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019
Servicer Analyst: | Steven Altman, New York (1) 212-438-5042; steven.altman@spglobal.com |
Secondary Contact: | Geoffrey C Danek, Centennial (1) 303-721-4689; Geoffrey.Danek@spglobal.com |
Analytical Manager: | Robert J Radziul, New York (1) 212-438-1051; robert.radziul@spglobal.com |
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