DBRS Morningstar Requests Comments on Proposed Methodology for Rating European Consumer and Commercial Asset-Backed Securitisations

DBRS Morningstar is requesting comments on the proposed updates to “Rating European Consumer and Commercial Asset-Backed Securitisations” (the Methodology), which may, upon the close of the Request for Comment period, supersede the version published on 19 October 2022. This methodology presents the criteria for which European consumer loan, credit card, auto loan, auto lease, and consumer/commercial lease asset-backed security transaction ratings are assigned and/or monitored.

The proposed changes relate to a revision of the approach to residual value (RV) risk, a revision of the application of stresses to salary-assignment loans (SALs), and various editorial changes to improve the presentation and exposure of concepts.

The revision of the approach to RV risk revises the multiple-based approach to specify the contribution of contract remaining term and improve the accuracy of the determination of the stresses, in particular of the applicable RV haircut.

The revision of the application of stresses to SALs clarifies that stresses would take a period of time to unfold, sometimes allowing the transaction to deleverage. However, the magnitude of the stresses and the overall framework remain unaltered.

DBRS Morningstar also revised various sections of this Methodology to improve the presentation of concept and exposure ideas, in particular sections relating to lease contracts and RV to ease the reading in light of the proposed changes.

DBRS Morningstar currently rates 21 transactions (49 ratings) making reference to RV and 15 transactions (24 ratings) comprising SALs and it deems the update to be material, and a significant number of the outstanding ratings are expected to be positively affected as result of the proposed changes.

Comments should be received on or before 9 October 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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (4 July 2023).

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 [email protected].