DBRS Commentary: Sovereign Ratings Provide a Benchmark for other DBRS Credit Ratings

DBRS Inc. (DBRS) has today released a commentary entitled “Sovereign Ratings Provide a Benchmark for other DBRS Credit Ratings.” The commentary discusses how DBRS’s sovereign credit ratings serve as a general benchmark for all other DBRS credit ratings.

DBRS uses a case-by-case approach when rating non-sovereign entities or transactions, and avoids using a static “sovereign ceiling” concept, because this would imply that ratings are capped at the sovereign rating. DBRS does not institute a maximum number of notches between the sovereign rating and non-sovereign ratings.

Financial institution and corporate ratings are typically constrained by the sovereign rating, although both could have a higher credit rating that that of the central government, with the level of operations outside of the country of domicile typically being a key consideration. Structured Finance ratings are addressed on a case-by-case basis and in many instances can be higher than the sovereign rating. In certain cases, country risks, which do not necessarily result in sovereign rating changes, may also affect non-sovereign ratings.

Within the Euro zone, non-sovereign ratings may enjoy a lower degree of influence from sovereign-related stresses, since there is far lower exchange rate risk, less regulatory risk and existing support mechanisms from European institutions.

The applicable methodology is Rating Sovereign Governments, which can be found on our website under Methodologies.

A copy of this commentary is available by clicking on the link below or by contacting us at info@dbrs.com.