DBRS Adjusts Notching Criteria for Debt on the Investment-Grade/Non-Investment-Grade Cusp

In the revised DBRS methodology for rating leveraged finance published today, the criteria for notching the instrument ratings of non-investment-grade issuers above the issuer’s underlying issuer (i.e., default) rating has been changed to reflect the likely recovery prospects of the specific debt instrument. Under its revised guidelines, any debt instrument of an issuer whose issuer rating is non-investment grade – that is, BB (high) and below – must have a recovery rating of at least RR2 in order to be notched up to BBB (low), the first investment-grade rating.

The effect of this refinement in methodology is to restrict the notching up of specific instrument ratings of non-investment-grade issuers to the best-protected credits, limiting their notching up to BBB (low), the first rung on the investment-grade scale. In doing this, DBRS is attempting to balance the need to differentiate between well- and poorly structured credit instruments, while also recognizing the traditional difference in investment outlook and risk appetite between investment-grade and non-investment-grade debtholders. This change in methodology has had no impact on any presently outstanding DBRS ratings. Please see the revised DBRS leveraged finance methodology for more detail, available at www.dbrs.com.

The methodology providing DBRS's processes and criteria is available by contacting us at info@dbrs.com.