DBRS Morningstar Finalises Several European Structured Finance Methodologies

DBRS Morningstar finalised the following methodologies:

-- “Rating European Structured Finance Transactions Methodology” including appendices,
-- “Rating European Trade Receivables Securitisation Transactions”,
-- “Master European Structured Finance Surveillance Methodology”,
-- “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”,
-- “European RMBS Insight Methodology” including addenda,
-- “Common RMBS Rating Methodology”,
-- “Rating European Consumer and Commercial Asset-Backed Securitisations”,
-- “European CMBS Rating and Surveillance Methodology”,
-- “Rating European Nonperforming Loans Securitisations”,
-- “Rating CLOs Backed by Loans to European SMEs”,
-- “Rating CLOs and CDOs of Large Corporate Credit”,
-- “Rating European Auto Wholesale Securitisations”, and
-- “Global Methodology for Rating and Monitoring Covered Bonds”.

The changes are related to the updates to Appendix C: The Impact of Sovereign Ratings on Other DBRS Morningstar Credit Ratings (Appendix C) of the “Global Methodology for Rating Sovereign Governments”. These updates are described in the press release available at www.dbrsmorningstar.com. Appendix C describes the impact of sovereign ratings on other DBRS Morningstar credit ratings, including structured finance. With respect to structured finance, DBRS Morningstar removed the application of a stress scenario regime for sovereigns rated in the “A” category or below. DBRS Morningstar has determined that macroeconomic risk for securitised assets in lower rated countries is in most cases reflected in historical data that is used in the structured finance rating analysis.

For the first three listed methodologies, this change to the “Global Methodology for Rating Sovereign Governments” resulted in a change of the methodology text. The above methodologies supersede the prior versions published on 15 July 2022, 8 November 2022, and 7 February 2023, respectively, and are effective as of 6 October 2023.

For the remaining European structured finance methodologies listed above, the change to the “Global Methodology for Rating Sovereign Governments” result in a changed methodology application. The current versions of these methodologies remain the same.

Overall, the impact of the changes is positive. In European structured finance, up to 40 bonds in 20 transactions could be upgraded by one or two notches as a result. The affected transactions securitise Portuguese, Spanish, and Italian assets, predominantly asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS).

Publication of the methodologies follows the conclusion of the request for comment (RFC) period that began on 24 July 2023. DBRS Morningstar received no comments during the request for comment period. All comments received during the RFC period have been published to the DBRS Morningstar website, except in cases where confidentiality is requested by the respondent.

DBRS Morningstar has an outstanding request for comment for the “Rating European Consumer and Commercial Asset-Backed Securitisations” methodology, which is not affected by this finalization. For more details, please refer to https://www.dbrsmorningstar.com/research/420356/dbrs-morningstar-requests-comments-on-proposed-methodology-for-rating-european-consumer-and-commercial-asset-backed-securitisations.

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/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 these methodologies or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS Morningstar amended this press release on 10 October 2023 to clarify the request for comment status of the “Rating European Consumer and Commercial Asset-Backed Securitisations methodology”.