Fitch Affirms Hatfield Philips International at 'CPS2'/'CSS2'
The rating affirmations reflect HPI's growing experience in servicing non-performing loans (NPLs) since 2012. Despite this short history of servicing NPLs, the new mandates won recently demonstrate its abilities and growing reputation within this sector. The organisational structure has been aligned to build up a dedicated NPL servicing function as this area of the business grows.
Fitch views positively that HPI is continuing to take on portfolios of un-securitised NPLs, which has arrested the declining trend of assets under management over the two years prior to 31 December 2014. The decrease in assets under management was largely driven by the workout of legacy CMBS portfolios.
In addition, HPI further diversified its business model in 2014 with the offering of transaction advisory services to complement its legacy CMBS and burgeoning NPL advisory business lines. Fitch recognises that this expansion of activities is positive for the servicer's long-term sustainability and could also lead to new primary servicing mandates.
The ratings also take into account HPI's workout approach, which continues to benefit from a dedicated in-house real-estate team. However, the Head of Real Estate has not been replaced since the position was vacated in July 2015. The function now reports into the Legal Counsel. Any loss of real estate knowledge from such departure is mitigated by an experienced asset management team with an average of over 10 years industry experience closely involved in each workout case.
The ratings reflect HPI's stable financial condition. Neither HPI nor its ultimate owner Starwood Property Trust Inc. (STWD) has a credit rating with Fitch. However, Fitch has assessed both entities, and found STWD's financial condition stable between December 2013 and 2014. With the ownership by STWD in place for a further year Fitch is comfortable of its continuous support, including co-funding opportunities for NPL transactions.
In 2014 HPI took a number of steps to address its staff turnover, which continues to be higher than peers. This is achieved by hiring an experienced head of HR, aligning and standardising job titles throughout the company, and introducing a formalised induction training within the performance review process.
At 30 June 2015, HPI's primary servicing portfolio totalled just over GBP10bn (31 December 2014: GBP8bn), including 254 loans and 7,000 commercial properties (with UK assets representing 35% and 47% by value and number of loans, respectively). Of the portfolio 33% by value is securitised.
The active special servicing portfolio accounted for GBP5.2bn and 145 loans. This is an increase of 20% by value and 48% by number during the last six months prior to end-June 2015 with UK assets representing 27% by value and 50% by number.
Fitch employed its global servicer rating criteria in analysing the servicer's operations and financial condition, with the former criteria including a comparison of similar UK commercial servicers as part of the review process. The analysis is based on information provided by HPI.