DBRS Releases Updated Methodology for Rating Canadian Auto Loan Securitizations

DBRS has today released an updated methodology for rating Canadian auto loan asset-backed securities (ABS) transactions. The methodology was last updated in January 2009.

“Since the last time the methodology was updated,” says Tim O’Neil, Vice President, “there have been a number of market developments that have affected the auto loan securitization market in Canada, including increased regulatory oversight, a decrease in the number of auto finance companies accessing the securitization market and new products that combine lease-type features with traditional loan financing.”

Oversight by Canadian and U.S. regulators has affected all stakeholders, with additional disclosure and reporting requirements being placed on issuers, underwriters and credit rating agencies in an effort to increase transparency in ABS transactions.

“Against this backdrop,” adds Mr. O’Neil, “DBRS has updated its auto loan methodology and has made only minor changes as the performance and robustness of the approach to rating securitizations backed by auto finance portfolios has continued to support rating stability, even through the lowest points of the recent economic cycle.”

The methodology focuses on three key areas of DBRS analysis – seller/sponsor review, portfolio-level review and pool-level review – and discusses additional structural considerations such as minimum rating criteria, the treatment of excess spread and evaluation of credit enhancement proposals.

The publication of this methodology is part of DBRS’s continued effort to provide market participants with insights into the rationale behind DBRS’s rating opinions. DBRS has taken no rating actions as a result of this updated methodology.