DBRS Morningstar Requests Comments on U.S. Small Business Loan Administration 7(a) Loan Program Confirmation of Originator Fee Certificate (COOF) 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 in the U.S. Small Business Loan Administration (SBA) 7(a) Loan Program Confirmation of Originator Fee Certificate (COOF) Securitizations (SBA 7(a) COOF) asset class:
-- Rating U.S. Structured Finance Transactions methodology—U.S. Small Business Loan Administration (SBA) 7(a) Loan Program Confirmation of Originator Fee Certificate (COOF) Securitizations (SBA 7(a) COOF New Issue Appendix);
-- Operational Risk Assessment for U.S. ABS Originators methodology—U.S. Small Business Loan Administration (SBA) 7(a) Loan Program Confirmation of Originator Fee Certificate (COOF) Securitizations (SBA 7(a) COOF Originators Exhibit);
-- Operational Risk Assessment for U.S. ABS Servicers methodology—U.S. Small Business Loan Administration (SBA) 7(a) Loan Program Confirmation of Originator Fee Certificate (COOF) Securitizations (SBA 7(a) COOF Servicers Exhibit); and
-- Master U.S. ABS Surveillance methodology—U.S. Small Business Loan Administration (SBA) 7(a) Loan Program Confirmation of Originator Fee Certificate (COOF) Securitizations (SBA 7(a) COOF 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 U.S. Small Business Administration 7(a) Loans asset class. DBRS Morningstar, upon the finalization of the RFC Methodologies, will refer to the U.S. Small Business Administration 7(a) Loans asset class as U.S. Small Business Loan Administration (SBA) 7(a) Loan Program Confirmation of Originator Fee Certificate (COOF) Securitizations. Please refer to the end of the press release for Additional Disclosures.

SBA 7(A) COOF NEW ISSUE APPENDIX
Please refer to the SBA 7(a) COOF 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 SBA 7(a) COOF asset class following the finalization of the RFC Methodologies. The SBA 7(a) COOF 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 SBA 7(a) COOF asset class transactions.

Under the proposed SBA 7(a) COOF New Issue Appendix, DBRS Morningstar incorporates key methodology updates that include a static pool analytical approach used to determine an expected base case cumulative default rate, a range of rating-category stress multiples typically applied to the base case cumulative default rates and voluntary prepayment speed stresses by rating category.

SBA 7(A) COOF ORIGINATORS EXHIBIT AND SBA 7(A) COOF SERVICERS EXHIBIT
Please refer to the SBA 7(a) COOF Originator Exhibit to the Operational Risk Assessment for U.S. ABS Originators methodology and SBA 7(a) COOF 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 SBA 7(a) COOF asset class, upon the finalization of the RFC Methodologies.

SBA 7(A) COOF SURVEILLANCE APPENDIX
Please refer to the SBA 7(a) COOF 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 the SBA 7(a) COOF asset class following the finalization of the RFC Methodologies.

DBRS Morningstar deems the updates to the RFC Methodologies to be material as the SBA 7(a) COOF New Issue and SBA 7(a) COOF Surveillance Appendices set forth updated approaches with the addition of a formalized new SBA 7(a) COOF Originators Exhibit and SBA 7(a) COOF Servicers Exhibit. DBRS Morningstar will apply the SBA 7(a) COOF New Issue and SBA 7(a) COOF Surveillance Appendices in addition to the SBA 7(a) COOF Originators and SBA 7(a) COOF Servicers Exhibits to outstanding credit ratings through the surveillance process.

DBRS Morningstar currently has no outstanding public ratings on U.S. Small Business Loan Administration 7(a) Loan Program Confirmation of Originator Fee Certificates (COOF) transactions. While no downgrades are expected as a result of these changes, DBRS Morningstar expects outstanding classes to have a combination of confirmations and upgrades 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 19, 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/358238). In connection with the finalization of the RFC Methodologies, the Integration Notice will be updated to remove the reference to the U.S. Small Business Administration 7(a) Loans 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.