DBRS Morningstar Requests Comments on Obligations Backed by Market-Value Collateral Securitizations Appendices

DBRS Morningstar is requesting comments on the proposed material updates to the following methodologies (RFC Methodologies) to be used to determine credit ratings of U.S. Precious Metals, U.S. Tax Credit securitizations and other asset classes which have collateral with market-value dependencies (MV Collateral):
-- Rating U.S. Structured Finance Transactions methodology—Obligations Backed by Market-Value Collateral Securitizations (MV New Issue Appendix);
-- Operational Risk Assessment for U.S. ABS Originators methodology—U.S. Precious Metals (U.S. Precious Metals Originators Exhibit);
-- Operational Risk Assessment for U.S. ABS Servicers methodology—U.S. Precious Metals (U.S. Precious Metals Servicers Exhibit);
-- Operational Risk Assessment for U.S. ABS Originators methodology—U.S. Tax Credit (U.S. Tax Credit Originators Exhibit);
-- Operational Risk Assessment for U.S. ABS Servicers methodology—U.S. Tax Credit (U.S. Tax Credit Servicers Exhibit); and
-- Master U.S. ABS Surveillance methodology—Obligations Backed by Market-Value Collateral (MV 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 U.S. Precious Metals and U.S. Tax Credit asset classes. DBRS Morningstar, upon the finalization of the RFC Methodologies, will refer to the U.S. Precious Metals, U.S. Tax Credit, and other asset classes which have MV Collateral as Obligations Backed by Market-Value Collateral. Please refer to the end of the press release for Additional Disclosures.

MV NEW ISSUE APPENDIX
Please refer to the MV 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 to the U.S. Precious Metals and U.S. Tax Credit asset classes with MV Collateral following the finalization of the RFC Methodologies. The MV 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 U.S. Precious Metals and U.S. Tax Credit asset classes which have MV Collateral.

Under the proposed MV New Issue Appendix, DBRS Morningstar incorporates key methodology updates that include an analytical approach used to determine an expected probability of default based on the historical market-value decline of collateral, within a defined time exposure, the incorporation of DBRS Morningstar Idealized Default Probability Table, and consideration of credit for borrower recourse actions.

U.S. PRECIOUS METALS ORIGINATORS EXHIBIT, U.S. PRECIOUS METALS SERVICERS EXHIBIT, U.S. TAX CREDITS ORIGINATORS EXHIBIT, AND U.S. TAX CREDITS SERVICERS EXHIBIT
Please refer to the respective U.S. Precious Metals Originators and Servicers Exhibits and the U.S. Tax Credit Originators and Servicers Exhibits to the Operational Risk Assessment for U.S. ABS Originators and the Operational Risk Assessment for U.S. ABS Servicers methodologies that formalize the sample list of questions DBRS Morningstar expects to use in the operational risk reviews of originators and servicers operating in the U.S. Precious Metals and U.S. Tax Credit asset classes, upon the finalization of the RFC Methodologies.

MV SURVEILLANCE APPENDIX
Please refer to the MV 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 U.S. Precious Metals and U.S. Tax Credit asset classes which have MV Collateral following the close of the finalization of the RFC Methodologies.

DBRS Morningstar deems the updates to the RFC Methodologies to be material as the MV New Issue and MV Surveillance Appendices set forth updated approaches with the addition of formalized new U.S. Precious Metals Originators and Servicers Exhibits and U.S. Tax Credit Originators and Servicers Exhibits. DBRS Morningstar will apply the MV New Issue and MV Surveillance Appendices in addition to the U.S. Precious Metals Originators and Servicers Exhibits and U.S. Tax Credit Originators and Servicers Exhibits to outstanding credit ratings through the surveillance process.

DBRS Morningstar currently rates two classes of notes across one publicly rated U.S. Precious Metals transaction with MV Collateral. DBRS Morningstar expects downgrades if the methodology is finalized in its current proposal. DBRS Morningstar currently has no outstanding public ratings on U.S. Tax Credit transactions with MV Collateral. DBRS Morningstar expects outstanding classes to have a combination of confirmations and upgrades if the methodology is finalized in its current proposal. Potentially impacted public credit ratings include:
-- AM Capital Funding, LLC Series 2018-1, Secured Senior Term Notes Class A, AA (sf)
-- AM Capital Funding, LLC Series 2018-1, Secured Subordinated Term Notes Class B, BBB (sf)

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 June 26, 2020, in the case of the U.S. Precious Metals asset class and effective June 10, 2020, in the case of the U.S. Tax Credit asset class, 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 releases for more details: https://www.dbrsmorningstar.com/research/363128 and https://www.dbrsmorningstar.com/research/362091). In connection with the finalization of the RFC Methodologies, the Integration Notice will be updated to remove the reference to the U.S. Precious Metals and U.S. Tax Credit asset classes 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.