Morningstar DBRS Publishes Final Appendix on Rating Collateralized Fund Obligations Backed by Private Capital Under Global Methodology for Rating Debt Issued by Investment Funds

Morningstar DBRS finalized "Appendix III: Collateralized Fund Obligations Backed by Private Capital" to its "Global Methodology for Rating Debt Issued by Investment Funds" (the Methodology).

The Methodology presents the criteria for collateralized fund obligations (CFOs) backed by private capital ratings are assigned and/or monitored.

The Methodology supersedes the prior "Rating U.S. Collateralized Fund Obligations Backed by Private Equity" methodology (the CFO Methodology) published on June 28, 2024, and the associated predictive model, "DBRS Collateralized Fund Obligations Backed by Private Equity Model" dated October 2021, and is effective as of October 14, 2024.

The Methodology presents material changes from the CFO Methodology, including moving the criteria to an appendix of the "Global Methodology for Rating Debt Issued by Investment Funds." Proposed material changes include: (1) a new analytical tool to sample historical fund J-curves (i.e., fund distributions net of capital calls over time) and (2) adjustments to sampled historical J-curves for qualitative factors such as seasoning of the underlying funds, portfolio diversity, leverage in underlying funds, and the quality of underlying fund managers.

The reasons for these changes are updates to the underlying fund performance data, including the addition of Pitchbook Data, Inc. (Pitchbook) fund performance data. Morningstar DBRS uses fund-related data, including but not limited to their respective cash flows and investment holdings, from Pitchbook in the design and development of the Methodology. Morningstar DBRS and Pitchbook are wholly owned subsidiaries of Morningstar, Inc. Morningstar DBRS provides independent credit rating services for financial institutions, corporate and sovereign entities, and structured finance products and instruments. Morningstar DBRS operates separately from Pitchbook.

As a result of the application of the above Methodology, Morningstar DBRS will apply the Methodology to its outstanding credit ratings on CFOs backed by private capital as listed below and, based on a preliminary credit rating impact analysis, expects to upgrade its outstanding credit ratings by one to two notches:

-- MCA Fund III Holding LLC

There were no comments received during the request for comment (RFC) period, which began on September 19, 2024, and ended on October 3, 2024. All comments received during the RFC period have been published to the Morningstar DBRS website, except in cases where confidentiality is requested by the respondent.

Notes:
Morningstar DBRS methodologies are publicly available on its website https://dbrs.morningstar.com under Methodologies & Criteria.

For more information on this methodology, the above-referenced credit(s), or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.