DBRS Releases Methodology for Auto Lease Securitization

Dominion Bond Rating Service (“DBRS”) has announced the release of its methodology for rating securitizations of auto lease receivables.

The rating methodology, focused primarily on closed-end leases, details many of the advantages and drawbacks of this form of financing as compared to traditional loan financing from the perspective of the lessee and the lessor.

Additionally, the methodology outlines how DBRS assesses the credit risk during the term of each lease, and DBRS’s lease-by-lease approach to assessing the market risk inherent in the residual value component of each closed-end lease. Stress ranges related to the frequency and severity associated with such losses commensurate with desired ratings levels are provided as well.

Finally, the paper provides guidance as to how DBRS determines the enhancement structure, with an emphasis on cash requirements, as well as a discussion on some legal issues unique to the U.S. market.