DBRS Publishes Updated Derivatives Criteria for Canadian Structured Finance

DBRS has today published an updated version of its “Derivatives Criteria for Canadian Structured Finance” (the Derivatives Criteria), which supersedes DBRS’s “Hedge Counterparty Criteria for Canadian Structured Finance Transactions” dated September 2012. The Derivatives Criteria applies to Canadian structured finance transactions and ratings in conjunction with the relevant asset-class methodology and the “Legal Criteria for Structured Finance.” Publication of the updated Derivatives 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.

The primary substantive changes to the updated Derivatives Criteria relate to the calculation of the amount of collateral to be posted and the applicable valuation percentages for any such collateral if remedial action is selected after a hedge counterparty involved in a securitization transaction is downgraded. With the updated Derivatives Criteria, DBRS harmonizes its expectations for collateralization arrangements used for hedges involved in securitization transactions with the approach set out in the “Derivative Criteria for European Structured Finance Transactions.”

No substantive changes are made with respect to DBRS’s expectations for collateralization arrangements for credit default swaps or other derivatives whose primary purpose is to provide protection against the default of one or more entities.

The remainder of the changes to the Derivatives Criteria is editorial in nature.

DBRS has determined that the updated Derivatives Criteria will not result in any impact on existing Canadian structured finance ratings.

If you have any questions regarding the updated Derivatives Criteria, please feel free to contact Jamie Feehely, Kevin Chiang, Tim O’Neil, Banu Ozlem Unal or Debbie Caruso.

The publication providing DBRS's processes and criteria is available by contacting us at info@dbrs.com.