DBRS Morningstar Publishes Final Global Methodology for Rating Secured Debt Issued by Funds

DBRS Morningstar finalized its “Global Methodology for Rating Secured Debt Issued by Funds” (the Methodology) after closure of a public request for comment (RFC) period that ended May 26, 2021. This methodology presents the criteria for which the ratings of debt issued by funds are assigned and/or monitored.

The Methodology summarizes the DBRS Morningstar analytical framework applied when rating direct lending funds. The demand for direct lending funds and other vehicles that invest in middle market loans has increased, as banks have pared back lending to the sector after the global financial crisis. Funds will often originate middle market corporate loans directly or purchase the loans through a syndication. Fund investments can also include leveraged loans, secured corporate debt, and unsecured corporate debt. Cash flows to service the fund's debt come from coupon interest and fee income, scheduled principal payments, prepayments, and, to a lesser extent, asset sales.

DBRS Morningstar typically focuses on direct lending funds that have no redemption rights. The primary protection for the fund's lenders comes from (1) a lien on the fund's assets and (2) overcollateralization of the fund's debt.

This is a new methodology. DBRS Morningstar has determined that no ratings are expected to change as a result of the publication of the Methodology.

All comments received during the request for comment period have been published to the DBRS Morningstar website, except in cases where confidentiality is requested by the respondent.

Notes:
DBRS Morningstar methodologies are publicly available on its website www.dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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