DBRS Publishes Updated Legal Criteria for Canadian Structured Finance

DBRS has today published an updated version of its “Legal Criteria for Canadian Structured Finance” (the CSF Legal Criteria), which supersedes the version published in November 2010. The CSF Legal Criteria is applied to Canadian structured finance transactions in conjunction with the relevant asset-class methodology. Publication of the updated CSF Legal Criteria is part of DBRS’s ongoing efforts to provide greater transparency to the ratings process by outlining the various factors that DBRS expects to see in transaction documentation, particularly for transactions rated AAA (sf) or R-1 (high) (sf).

Key features of the updates to the CSF Legal Criteria include the following:

(1) The overall methodology has been streamlined in an attempt to (i) clarify DBRS’s expectations with respect to transaction documentation and (ii) make it more user-friendly and concise.

(2) The rating thresholds for issuer trustees, indenture trustees and custodians have been removed; however, such service providers are expected to satisfy DBRS with respect to their ability to act in such capacities based on sections of the CSF Legal Criteria applicable to them.

(3) DBRS expects to receive at least ten business days’ prior written notice of a replacement issuer trustee, indenture trustee and/or custodian, as the case may be, instead of having to satisfy the “Rating Agency Condition” (as defined in the CSF Legal Criteria) with respect to such replacements.

(4) The rating thresholds for “Eligible Institutions”, “credit enhancers” and “GLS liquidity providers” (each as defined in the CSF Legal Criteria) have been made consistent so that now each such party is expected to meet either the long-term rating of AA (low) or the short-term rating of R-1 (middle).

(5) The concentration limits applied to “Eligible Investments” (as set out in the CSF Legal Criteria) have been removed.

The remainder of the changes to the CSF Legal Criteria are generally editorial.

DBRS does not view the updates to the CSF Legal Criteria as significant and has determined that the updated CSF Legal Criteria will not result in any impact on existing Canadian structured finance ratings.

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