DBRS Morningstar Requests Comments on U.S. Railroad Right-of-Way ABS Appendices

DBRS Morningstar is requesting comments on the proposed material updates to the following methodologies (RFC Methodologies) to be used to determine credit ratings in the Railroad Right-of-Way ABS (ROW) asset class:
-- Rating U.S. Structured Finance Transactions methodology—Railroad Right-of-Way ABS (ROW New Issue Appendix);
-- Operational Risk Assessment for U.S. Originators methodology—Railroad Right-of-Way ABS (ROW Originators Exhibit);
-- Operational Risk Assessment for U.S. Servicers methodology—Railroad Right-of-Way ABS (ROW Servicers Exhibit); and
-- Master U.S. ABS Surveillance methodology—Railroad Right-of-Way ABS (ROW Surveillance Appendix).

Upon the close of the Request for Comment period, the above-referenced RFC Methodologies may supersede the U.S. ABS General Ratings Methodology (December 2018) (General Ratings Methodology) in respect of the Railroad Right-of-Way Licenses asset class. DBRS Morningstar, upon the finalization of the RFC Methodologies, will refer to the U.S. Railroad Right-of-Way Licenses asset class as Railroad Right-of-Way ABS. Please refer to the end of the press release for Additional Disclosures.

ROW NEW ISSUE APPENDIX
Please refer to the ROW New Issue Appendix to the Rating U.S. Structured Finance Transactions methodology, which presents the principal asset class methodology that DBRS Morningstar intends to apply to assign new credit ratings in the ROW asset class following the finalization of the RFC Methodologies. The ROW New Issue Appendix provides a discussion of the key analytical and credit considerations, collateral quality and metrics, legal and regulatory considerations, and cash flow analysis applicable to DBRS Morningstar’s analysis of ROW asset class transactions.

Under the proposed ROW New Issue Appendix, DBRS Morningstar incorporates key methodology updates that include usage of a cumulative measurement for expected contract cessations (terminations and operational/safety repurchases), a typical range of rating-level stress multiples applied to the expected cumulative cessation rate, and an adjustment to the method for developing fee growth assumptions.

ROW ORIGINATORS EXHIBIT AND ROW SERVICERS EXHIBIT
Please refer to the ROW Originators Exhibit to the Operational Risk Assessment for U.S. ABS Originators methodology and ROW Servicers Exhibit to the Operational Risk Assessment for U.S. ABS Servicers methodology that formalize the sample list of questions DBRS Morningstar expects to use in the operational risk reviews of originators and servicers operating in the ROW asset class, upon the finalization of the RFC Methodologies.

ROW SURVEILLANCE APPENDIX
Please refer to the ROW Surveillance Appendix to the Master U.S. ABS Surveillance methodology which presents the criteria that DBRS Morningstar intends to apply in connection with the surveillance of new DBRS Morningstar credit ratings in ROW asset class following the finalization of the RFC Methodologies.

DBRS Morningstar deems the updates to the RFC Methodologies to be material as the ROW New Issue and ROW Surveillance Appendices set forth updated approaches with the addition of a formalized new ROW Originators Exhibit and ROW Servicers Exhibit. DBRS Morningstar will apply the ROW New Issue and ROW Surveillance Appendices in addition to the ROW Originators and ROW Servicers Exhibits to outstanding credit ratings through the surveillance process.

DBRS Morningstar currently has no outstanding public ratings on U.S. Railroad Right of Way transactions. DBRS Morningstar expects no impact to outstanding ratings, if the methodology is finalized in its current proposal.

ADDITIONAL DISCLOSURES
As disclosed in the Notice Regarding the Analytical Integration of DBRS and Morningstar Credit Ratings (Integration Notice) accompanying the General Ratings Methodology, DBRS Morningstar has applied the General Ratings Methodology, effective March 31, 2020, in connection with assigning of new DBRS Morningstar credit ratings, and monitoring outstanding DBRS Morningstar credit ratings, in this asset class (see the following press release for more details: https://www.dbrsmorningstar.com/research/359069). In connection with the finalization of the RFC Methodologies, the Integration Notice will be updated to remove the reference to the U.S. Railroad Right-of-Way Licenses asset class, and the General Ratings Methodology will remain in use in respect of the asset classes referenced in the Integration Notice, as updated.

Comments should be received on or before October 28, 2022. Please submit your comments to the following email address:
sfcomments@dbrsmorningstar.com

DBRS Morningstar publishes on its website all comments received, except in cases where confidentiality is requested by the respondent.

Notes:
The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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

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