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Midland Loan Services Rankings As A Commercial Mortgage Loan Servicer In The U.S. And Canada Lowered


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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