GMAC Commercial Mortgage Corp. recently christened a new asset class when it became the first to securitize its CMBS servicing advance fees.
The $119 million offering is comprised of $112 million in class A notes rated Aaa' by Moody's Investors Service and $7 million in unrated class B notes. Newman Associates, a division of GMACCM parent GMAC Commercial Holding Capital Markets, is the underwriter.
Although the deal closed in December 2003, the notes became available to investors in the market just last week.
"Initially, GMAC retained ownership of the notes," said Moody's senior analyst Brian Furlong. "They had another facility which purchased the notes so this is the first time they are being sold to outside parties."
Furlong deemed it likely that other large master servicers in the CMBS market would pursue this type of transaction in the future. Wachovia Securities, Midland Loan Services Inc. and CapMark Services L.P. are probable candidates.
"Typically it's the master servicers that accrue a balance of advances that's this large," he said. "Special servicers have some advances, and trustees may as well from time to time, but those generally don't amount to much. You don't usually bother with a securitization unless you have a certain balance because you have to amortize the front-end costs."
The deal is backed by more than 3,000 servicer advances on 495 commercial mortgage loan or REO property assets in 69 CMBS trusts. The advances were all made between 1999 and 2004. The hospitality sector makes up the largest portion of the underlying property types, accounting for 34%, or $39 million in advances. Retail follows with 27% and $31 million in advances. Other property types include multifamily, office, healthcare, industrial and mixed use.
According to a Moody's presale report, the risk of loss to a CMBS trust relating to a nonrecoverable advance is slim provided there is a sufficiently high subordination level and a diverse pool of underlying loans.
"The trust employs what should be an effective combination of provisions designed to avoid excessive concentrations within CMBS trusts that have weak credit characteristics as evidenced either by a low rating on senior certificates, or a high ratio of advances to pool balance," the report said.
In addition, most trusts either rated by Moody's or serviced by GMACCM have what amounts to a 99% or greater subordination level for advances that are declared nonrecoverable, analysts wrote. The rating agency reviewed those GMACCM CMBS servicer advances with a nonrecoverability rating and found it likely that those advances will be paid in full by the related trust.
Some of the key requirements for seller representations and warranties outlined by Moody's are that the advance does not relate to a loan whose outstanding principal balance is more than 20% of the aggregate outstanding principal balance of all mortgage loans in the underlying trust; the highest-rated principal paying security issued by the trust has not been subject to a downgrade by any of the major rating agencies; the underlying trust includes at least five mortgage loans; and the aggregate principal balance of the servicer advances relating to any single underlying trust does not exceed the class B balance.