RPT-Fitch affirms Lohnbach's German special servicer rating at 'CSS2-'

Thu Jan 23, 2014 7:59am EST

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Jan 23 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Lohnbach Investment Partners GmbHa€™s (Lohnbach) German Commercial Special Servicer Rating at a€˜CSS2-a€™. The rating reflects Lohnbacha€™s robust approach to asset management. Lohnbach focuses exclusively on the German market and on assets mainly in secondary and tertiary locations with high capital expenditure requirements. Lohnbacha€™s prudent due diligence and thorough business plans are reflected by stable loan recovery performance. In addition, Lohnbach has further broadened its servicing experience in the past 12 months with the on-boarding of a new portfolio for the first time since 2008 and the recent work-out of assets by actively using real estate owned structures.

Lohnbach has used an external consultancy to co-source its internal audit function for more than four years. Fitch considers this resourcing model good practice given the relatively small size of Lohnbacha€™s operations. This is further underlined by no major findings, which highlights strong controls in place.

The staff turnover of 29% across all levels of the organisation during 2012/13 is above peers. This is also reflected in lower average company tenure among staff than peers. According to Lohnbach, the company mitigates this by hiring more junior staff and offering career progression. Furthermore, Lohnbach has shifted more resources to the acquisition team, recognising the need to board new assets.

Lohnbacha€™s financials continued to improve in 2012. The company made a small profit for the first time within the past four years despite an increase in costs. This was mainly achieved by increasing income from advisory services. The company does not have an Issuer Default Rating or a rated financial parent. However, Lohnbacha€™s overall assets under management have declined since 2008 and new loans under management are required in the medium to long term to keep the business operation sustainable. This is only partially mitigated with the take on of one new portfolio into servicing in June 2013 and the servicing of a new asset at the beginning of the year. In addition, Lohnbach has confirmed that funding is available to obtain servicing mandates for new portfolios through 2014.

On 30 June 2013, Lohnbacha€™s total servicing portfolio included four securitised NPL transactions comprising 12 loans with a gross book value of EUR433m (year-end 2011: 28 loans, EUR577m). The portfolio is secured by open market value (OMV) primarily by commercial properties and to a small degree by residential properties including office (65.7%), healthcare (16.6%), retail (13.2%), residential (2.1%) and other commercial (2.5%).

Fitch employed its global servicer rating criteria in analysing the servicer's operations and financial condition, including a comparison against similar German servicers as part of the review process.

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