November 28, 2018

Morningstar Credit Ratings Publishes New Methodology for Rating U.S. CMBS Conduit/Fusion Deals

NEW YORK, Nov. 28, 2018 /PRNewswire/ -- Morningstar Credit Ratings, LLC, today published its revised methodology for rating U.S. commercial mortgage-backed securities (CMBS) conduit/fusion deals which was updated primarily to incorporate recent commercial mortgage performance data.

The new methodology details the framework the company's analysts apply when rating and surveilling CMBS conduit and fusion transactions. It replaces the existing U.S. CMBS Subordination Model publication. Morningstar announced its proposed U.S. CMBS ratings methodology on Oct. 29, 2018, along with a Request for Comment (RFC). No comments were received during the comment period, which ended on Nov. 12, 2018.

"We are deeply committed to bringing about greater transparency and consistency to how we analyze conduit/fusion deals," said Kurt Pollem, head of CMBS at Morningstar Credit Ratings. "We wanted our conduit model to match the clarity of our single-asset/single-borrower (SASB) model published in June. Our new criteria is written in a clear and concise way that is easy for the market to understand."

Additional revisions to the criteria include a more transparent method for accounting for pool diversity through the use of a blended Herfindahl score and a revised approach to assessing maturity default risk, among other key enhancements and improvements.

Conduit transactions are securitizations of a diverse pool of mortgages that are typically collateralized by a mix of commercial and multifamily real estate. Fusion deals typically combine a conduit pool with several large, high-quality loans or senior notes that may have investment-grade credit characteristics.
Morningstar has 20 letter ratings ranging from AAA to D including plus and minus gradations to express its opinion about the credit quality of a CMBS certificate based on Morningstar's policies and procedures. Morningstar's CMBS Conduit/Fusion ratings methodology is available under the Ratings/Surveillance section of its website at www.morningstarcreditratings.com  

About Morningstar Credit Ratings, LLC and Morningstar, Inc. 

Morningstar Credit Ratings, LLC is a nationally recognized statistical rating organization (NRSRO) offering a wide array of services including new-issue ratings and analysis, operational risk assessments, surveillance services, data, and technology solutions. Morningstar Credit Ratings, LLC is a subsidiary of Morningstar, Inc. (Nasdaq: MORN). For more information visit www.morningstarcreditratings.com. Follow us on Twitter @MstarCrdRatings.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $207 billion in assets under advisement and management as of Sept. 30, 2018. The company has operations in 27 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc.

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