DBRS Morningstar Requests Comments on Proposed Updates to Canadian and European Derivatives Criteria for Structured Finance

DBRS Morningstar is requesting comments on the proposed updates to the “Derivatives Criteria for Canadian Structured Finance” and the “Derivative Criteria for European Structured Finance Transactions” (together, the Methodologies), which may, upon the close of the request for comment period, supersede the versions published on 22 June 2022 and 20 September 2021, respectively. The Methodologies present DBRS Morningstar’s considerations when analysing counterparty risk and its mitigation related to derivatives arrangements that are part of Canadian and European structured finance and covered bond transactions, respectively.

The proposed changes relate to the increase in volatility cushions in the context of collateral posting at the first rating threshold for cross-currency swaps, following a review of historical currency exchange-rate volatilities.

DBRS Morningstar deems the update to be material, but no outstanding ratings are expected to be affected as result of the proposed changes.

There is no rating impact expected for the five Canadian covered bond programs, nine Canadian asset-backed security (ABS) transactions, one European covered bond programme, and four European ABS transactions that DBRS Morningstar rates that include a currency swap considered in the analysis.

The proposed updates to the “Derivative Criteria for European Structured Finance Transactions” also include certain nonmaterial clarifications about the eligibility of replacement counterparties rated below the first rating threshold.

Comments should be received on or before 29 May 2023. Please submit your comments to the following email address: [email protected].

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

Notes:
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” at https://www.dbrsmorningstar.com/research/396929.

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/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 [email protected].