Morningstar DBRS Publishes Final Methodologies for Rating European Consumer and Commercial Asset-Backed Securitisations and Rating European Rental Car Securitisations

Morningstar DBRS finalised the following methodologies:

-- “Rating European Consumer and Commercial Asset-Backed Securitisations”
-- “Rating European Rental Car Securitisations”

The “Rating European Consumer and Commercial Asset-Backed Securitisations” methodology (the ABS Methodology) presents the criteria for which European consumer loan, credit card, auto loan, auto lease, and consumer/commercial lease asset-backed security transaction credit ratings are assigned and/or monitored.

The “Rating European Rental Car Securitisations” methodology (the Rental Car Methodology) presents the criteria for which European rental car securitisation transaction credit ratings are assigned and/or monitored.

These methodologies supersede the prior versions published on 22 October 2023 and 21 December 2022, respectively, and are effective as of 8 January 2024.

Publication of these methodologies follows the conclusion of the request for comment (RFC) periods that began on 8 September 2023 and 24 October 2023, respectively. Morningstar DBRS received no comments during the RFC period.

The changes made to the ABS Methodology introduce 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 changed 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. Morningstar DBRS also revised various sections of the ABS 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.

Morningstar DBRS deems the changes to be material, and it currently rates 15 transactions comprising 30 classes of rated notes whose credit ratings may be affected by the application of the ABS Methodology in its changed form. The impact is likely to be positive or neutral but the positive impact is likely to be limited to upgrades by one or two notches and/or to a reduction of the applicable RV haircut (where applicable) without rating impact. The affected credit ratings are expected to be placed Under Review with Positive Implications.

The changes made to the Rental Car Methodology aim to update references made in this methodology to the revised approach to RV risk as described in the ABS Methodology. The proposed alterations are necessary to maintain the link between the Rental Car Methodology and the text of the ABS Methodology.

Morningstar DBRS deems the changes to be material but it does not currently rate any transactions that reference the Rental Car Methodology, and no outstanding credit ratings are expected to be affected as result of the proposed changes.

All comments received during the request for comment period have been published to the DBRS Morningstar website, 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.

Morningstar DBRS methodologies are publicly available on its website www.dbrs.morningstar.com under Methodologies & Criteria.

For more information on this methodology and or on this industry, visit www.dbrs.morningstar.com or contact us at [email protected].