DBRS Publishes Final Methodology on Rating Canadian Structured Finance Transactions

DBRS published its “Rating Canadian Structured Finance Transactions” methodology (the Methodology). The Methodology updates the criteria on which Canadian structured finance securitizations ratings are based to include its latest Appendix: Legislated Utility Collections” and is effective as of December 6, 2017.

On October 3, 2017, DBRS requested comments on an updated version of its “Rating Canadian Structured Finance Transactions” methodology reflecting the new Appendix: Legislated Utility Collections. The comment period closed on November 3, 2017. No comments were received, so the version published on October 3, 2017, remains in final form.

The update relates to the introduction of a new appendix: Legislated Utility Collections. The appendix outlines DBRS’s approach in the evaluation of Canadian structured finance transactions supported by regulatory assets created pursuant to enacted legislation that permits a relevant utility to levy and collect a special charge from its customer base. Utility customers may include residential, commercial and large industrial users of public services such as water, gas or electricity. In Canada, public utilities are often natural monopolies (government or privately owned) because the infrastructure required to produce and deliver a product such as electricity or water is very expensive to build and maintain. As a result, the monopolies are typically specially regulated by a public utilities commission.

Securitization transactions in this sector may be discrete single-tranche issuances or multi-issuances under a Master Trust structure. The collateral is typically the right to receive current and/or future customer payments levied by the utility provider or its agent, empowered by specific legislation passed by a government authority. The levies or special charges form the collections that are securitized in these transactions

The nature of the levy (special charge) generally includes an additional charge to be added to the utility customers’ periodic (typically monthly) invoice for a specified period. Given the high degree of regulation in utility markets made necessary by the importance of the utility to the jurisdiction’s residents, the ability to collect from the consumers is typically greater than in other consumer asset sectors. DBRS criteria and methodologies are publicly available on its website www.dbrs.com under Methodologies.

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.