DBRS Publishes Updated Methodology for Rating Parent/Holding Companies and Their Subsidiaries

In the updated methodology published today, DBRS explains that its rating analysis for parent/holding companies often has implications for the ratings of the subsidiaries that are held by the parent organization. The majority of companies rated by DBRS are, in fact, holding companies and, in most instances, the operating companies are wholly owned and all debt is issued at the parent level. This updated methodology has had no impact on any presently outstanding DBRS ratings.

“There are many examples of complex combinations where differences between holding companies and their operating subsidiaries must be taken into consideration,” says Kent Wideman, Chief Credit Officer. “It is also critical to understand the relationship between the parent company and its subsidiaries.”

Another key consideration for DBRS is structural subordination, whereby parent company debt can be seen as ranking junior to debt held at the operating company level (although this is not exactly an accurate legal representation of the situation) since the operating entity is closer to the cash flow it generates. While parent companies can have advantages over their operating companies, there are often disadvantages present as well. The methodology published today covers some of the more important factors in both areas and also provides some case samples of different parent/holding company structures.