DBRS Morningstar Requests Comments on U.S. Venture Debt 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. Venture Debt asset class:
-- Rating U.S. Structured Finance Transactions methodology—U.S. Venture Debt (U.S. Venture Debt New Issue Appendix);
-- Operational Risk Assessment for U.S. ABS Originators methodology—U.S. Venture Debt Originator (U.S. Venture Debt Originators Exhibit);
-- Operational Risk Assessment for U.S. ABS Servicers methodology—U.S. Venture Debt Servicer (U.S. Venture Debt Servicers Exhibit); and
-- Master U.S. ABS Surveillance methodology—U.S. Venture Debt (U.S. Venture Debt 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. Venture Debt asset class. Please refer to the end of the press release for Additional Disclosures.

U.S. VENTURE DEBT NEW ISSUE APPENDIX
Please refer to the U.S. Venture Debt 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 U.S. Venture Debt asset class following the finalization of the RFC Methodologies. The U.S. Venture Debt 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. Venture Debt asset class transactions.

Under the proposed U.S. Venture Debt New Issue Appendix, DBRS Morningstar incorporates key methodology updates that include a description of the static pool approach and historical performance review used when developing DBRS Morningstar’s expected base case cumulative default rate (PD Curve) and assumptions for recoveries and prepayments. Also, DBRS Morningstar may use either the obligor's credit ratings or other opinions (if available) or the PD Curve, which is derived based on the analysis of historical data, as an input to the DBRS CLO Asset Model to determine the stressed default rate.

U.S. VENTURE DEBT ORIGINATOR EXHIBIT AND U.S. VENTURE DEBT SERVICER EXHIBIT
Please refer to the U.S. Venture Debt Originator Exhibit to the Operational Risk Assessment for U.S. ABS Originators methodology and U.S. Venture Debt Servicer 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 U.S. Venture Debt asset class, upon the finalization of the RFC Methodologies.

U.S. VENTURE DEBT SURVEILLANCE APPENDIX
Please refer to the U.S. Venture Debt 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. Venture Debt asset class following the finalization of the RFC Methodologies.

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

DBRS Morningstar currently rates one class of notes across one publicly rated U.S. Venture Debt transaction. DBRS Morningstar expects no impact to outstanding ratings, if the methodology is finalized in its current proposal. Potentially impacted public credit ratings include:
-- Horizon Funding Trust 2019-1, Asset-Backed Notes, A (high) (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 16, 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/362601). In connection with the finalization of the RFC Methodologies, the Integration Notice will be updated to remove the reference to the U.S. Venture Debt 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.