Sector developments and company hires

GSE advancing obligations aligned
The US FHFA has aligned Fannie Mae's and Freddie Mac's policies regarding servicer obligations to advance scheduled monthly principal and interest payments for single-family mortgage loans. Once a servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance scheduled payments. When a mortgage loan is in an MBS pool, Fannie Mae servicers with a scheduled payment remittance are responsible for advancing the principal and interest payment regardless of borrower payments. Freddie Mac servicers, who are generally responsible for advancing scheduled interest, are only obligated to advance four months of missed borrower interest payments. The GSEs have also been instructed to maintain loans in Covid-19 payment forbearance plans in MBS pools for at least the duration of the forbearance plan. The move clarifies that mortgage loans with Covid-19 payment forbearance shall be treated like a natural disaster event and will remain in the MBS pool. Additionally, the FHFA has approved the purchase of certain single-family mortgages in forbearance that meet specific eligibility criteria by Fannie Mae and Freddie Mac.

In other news…

Aquisition
Morningstar is set to acquire ESG ratings and research firm Sustainalytics. Morningstar currently owns an approximately 40% ownership stake in Sustainalytics, which it acquired in 2017, and will purchase the remaining approximately 60% of Sustainalytics shares upon closing of the transaction. The transaction consideration includes a cash payment at closing of approximately €55m and additional cash payments in 2021 and 2022 based on a multiple of Sustainalytics' 2020 and 2021 fiscal year revenues. Based on the upfront consideration, Morningstar estimates the enterprise value of Sustainalytics to be €170m. Dutch-domiciled Sustainalytics has more than 650 employees worldwide spanning 16 locations, and all are planned to join the Morningstar family under the existing Sustainalytics leadership team. The closing of the transaction is subject to customary closing conditions and is expected to occur early in 3Q20.

North America
TigerRisk Partners has partnered with private equity firm Flexpoint Ford to enhance its ability to assist clients and provide additional capital and expertise in the current unprecedented market environment. TigerRisk’s management team, including ceo and co-founder Rod Fox and president Rob Bredahl, will remain in their current roles. Current employees will remain significant shareholders in the company. The transaction is subject to customary regulatory approvals and closing conditions. 

Rent holidays requested
KBRA has identified a loan - CityPoint - with a sizeable (20.1% of total contracted rent) coworking office tenant concentration, which serves as collateral for the Salus (ELoC No. 33) CMBS. The customers of coworking office tenants may be more vulnerable to an economic downturn compared to traditional long-term office users, which could impact the coworking tenants’ ability to maintain lease payments, according to the agency. As of December 2019, the property was operating below market occupancy levels – at 82%, compared to 96.3% at securitisation in December 2018 - due to the departure of three tenants. The servicer, Mount Street, recently disclosed that the subject’s two coworking tenants - including Regus (the second-largest tenant, accounting for 16.8% of total contracted rent) - had requested rent holidays. KBRA notes that if the two coworking tenants were to stop paying rent, the loan’s DSC ratio would fall to approximately 1.77x from 2.21x and its debt yield would fall to 6.12% from 7.65%, likely triggering the loan’s cash trap hurdle of 6.75%.