Fitch Ratings maintained the Rating Watch Evolving (RWE) on SCP Servicing, LLC's (Sabal) commercial primary and special servicer ratings following its full annual review.

RATING ACTIONS

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SCP Servicing, LLC

CMBS Primary Servicer

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Rating Watch Maintained

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CMBS Special Servicer

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Rating Watch Maintained

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VIEW ADDITIONAL RATING DETAILS

Key Rating Drivers

The primary servicer rating reflects Sabal's knowledgeable yet small management team, highly experienced servicing staff, well-integrated servicing systems yielding strong reporting abilities for quality control and streamlined loan boarding, and sufficient controls with improving but still limited independent internal reviews. The rating also reflects the company's strong primary servicing experience including a concentration in loans secured by multifamily properties and robust asset administration capabilities.

The special servicer rating reflects the small size of the special servicing group including three asset managers and the demonstrated ability to draw upon internal resources for additional staffing depth, the company's workout history including resolving FDIC commercial real estate portfolios and securitized NPL transactions, sufficient technology to handle a large volume of defaulted loans, and sufficient internal controls primarily relying upon exception reporting and credit committee reviews.

The RWE status reflects the October 2021 announcement that Regions Bank (Regions) entered into a definitive agreement to acquire the lending and servicing operations of Sabal Capital Partners, LLC (SCP) with an expected closing by YE 2021; the acquisition does not include Sabal's investment management business. The RWE reflects the potential impact of the acquisition to several key rating drivers in Fitch's analysis, which may positively or negatively affect Fitch's assessment. Fitch expects to resolve the status in 2022 following additional clarity on the integration of Sabal into Regions, ownership support of servicing, and business plan. The RWE status doesn't reflect Sabal's strong primary and special servicing capabilities.

Sabal is the servicing arm and wholly owned subsidiary of SCP, which, in turn, is wholly owned by Sabal Capital Holdings, LLC (SCH). SCH is majority owned by funds managed by Stone Point Capital LLC (Stone Point) as well as senior management of SCP. Sabal retains all primary servicing for loans originated by affiliates, and special servicing assignments are mainly for securitized transactions where an affiliate is the controlling class representative (CCR).

Historically, SCP and its predecessor companies have mainly acquired and serviced portfolios of distressed and performing assets, including FDIC CRE portfolios and securitized nonperforming loan (NPL) transactions. Today, SCP predominately originates loans guaranteed by the Federal Home Loan Mortgage Corporation (Freddie Mac). However, the company also originates loans guaranteed by the Federal National Mortgage Association (Fannie Mae), for CMBS securitization, and bridge loans for transitional properties. During 2020, SCP completed its first proprietary securitization and in 2021 directly contributed loans to a securitized conduit transaction; funds managed by an affiliate purchased the controlling bonds for each transaction and named Sabal special servicer.

Through affiliates registered as investment advisory firms, the platform's fund business invests in B-pieces of Freddie Mac SBL loan securitizations and CMBS transactions as well as the company's bridge loans.

Sabal maintains one of the smallest special servicing staff sizes across Fitch rated servicers, which is appropriate relative to the company's current and expected portfolio over the short term. As of June 30, 2021, 25 employees were dedicated to servicing, up from 21 last review. Excluding the head of servicing, 21 staff were involved in primary servicing and three were responsible for special servicing. Turnover across the servicing groups remains generally stable; primary servicing overall turnover rose to 15% from none in the past 12 months, and special servicing overall turnover was 29%, consistent with the last review. Sabal continues to maintain strong management experience across primary and special servicing; however, Fitch notes that key-person risk remains present given the size of the groups.

Sabal's dedication to customizing servicing systems to provide robust quality control and reporting features is a strength. The SNAP application provides Sabal with a document management system containing robust OCR technology streamlining loan boarding and a website for borrowers with one of the highest usage rates among Fitch rated servicers. There haven't been material changes to servicing systems recently as technology improvements focused on cybersecurity and expanding SNAP underwriting capabilities for new lending products.

Sabal's compliance group recently began formal quarterly reviews of primary servicing operations. While Fitch views positively that compliance reviews of servicing operations have begun, they have limited demonstrated proficiency and do not currently include special servicing operations given the low volume of defaults. However, Sabal's emphasis on technology-driven quality controls is appropriate for its size and the servicing group's quality control program partially mitigates Fitch's concern.

As of June 30, 2021, Sabal was primary servicing 1,642 loans totaling $4.7 billion, of which 1,380 loans were securitized totaling $4.0 billion and 262 were non-securitized loans totaling $757.6 million. As of the same date, Sabal was the named special servicer on 920 securitized loans totaling $2.7 billion in 20 transactions, which were mainly Freddie Mac SBL transactions, as well as two conduit CMBS transactions providing exposure to other property types beside multifamily. Sabal was also the named special servicer on 29 nonsecuritized loans totaling $150.4 million and was actively special servicing 16 securitized loans totaling $54 million and one REO asset totaling $1 million and one nonsecuritized loan totaling $1 million. While the majority of loans in special servicing was secured by multifamily properties, Sabal was actively special servicing two hotels and one mixed-use property.

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

APPLICABLE CRITERIA

Criteria for Rating North American Commercial Mortgage Servicers (pub. 22 Jan 2020)

Criteria for Rating Loan Servicers (pub. 08 Feb 2020)

ADDITIONAL DISCLOSURES

Solicitation Status

Endorsement Policy

ENDORSEMENT STATUS

SCP Servicing, LLC 	-

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