DBRS Publishes Final Rating Methodology for U.S. Retail Auto Loan Transactions

DBRS has published its final rating methodology for U.S. retail auto loan asset-backed transactions (ABS). The final methodology does not have any substantive changes from the proposed retail auto loan methodology which was published on November 19, 2009 with a request for comments.

The methodology provides an overview of the key factors which DBRS believes could impact the performance of U.S. retail auto loan ABS and our approach for rating these transactions. These factors include:

•Quality of management and financial condition of sponsoring
entity;
•Originations, underwriting and servicing capabilities;
•Collateral quality of the proposed auto loan pool and performance
of sponsor’s auto loan portfolio;
•Transaction capital structure, proposed ratings and credit
enhancement;
•Cash flow analysis;
•Legal structure and opinions.

As part of the rating process, DBRS performs an operational risk review and assessment of the sponsoring entity’s origination and servicing capabilities to provide insight into the manner in which these processes have impacted past pool performance and to assist in establishing expectations for future performance. For each requested rating, DBRS develops cash flow stress assumptions based upon the proposed transaction structure to test the financial viability of the transaction under various scenarios.

The key variables impacting this analysis may differ somewhat in application based on loan sector: prime or sub-prime. The prime sector is dominated by finance subsidiaries of large automotive manufacturers. In contrast, the sub-prime sector is dominated by independent finance companies.

DBRS criteria and methodologies are publicly available on its website www.dbrs.com under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.