Morningstar DBRS Requests Comments on Proposed Global Methodology for Rating Companies in Services Industries and Global Methodology for Rating Companies in Manufacturing and Production Industries

Morningstar DBRS is requesting comments on two proposed methodologies:

-- "Global Methodology for Rating Companies in Services Industries"; and
-- "Global Methodology for Rating Companies in Manufacturing and Production Industries."

These methodologies are being published in connection with the Fundamentals Methodological Integration Project (see announcement dated October 30, 2023, for more details: https://dbrs.morningstar.com/research/422623).

Each of the proposed methodologies listed above would, on the close of the Request for Comment period, supersede various current methodologies as outlined below. These two methodologies present the principal criteria under which we assign and monitor credit ratings for a broad range of corporate issuers.

The "Global Methodology for Rating Companies in Services Industries" would supersede the following current methodologies:

-- Global Methodology for Rating Companies in the Airline Industry (published on June 28, 2024)
-- Global Methodology for Rating Companies in the Broadcasting Industry (published on April 15, 2024)
-- Global Methodology for Rating Companies in the Capital Goods Dealership Industry (published on April 15, 2024)
-- Rating Companies in the Canadian Grain Handling Industry (published on September 19, 2024)
-- Global Methodology for Rating Casino Operators and Companies in the Online Gaming Industry (published on September 17, 2024)
-- Global Methodology for Rating Companies in the Communications Industry (published on June 26, 2024)
-- Global Methodology for Rating Companies in the Construction and Property Development Industry (published on June 25, 2024*)
-- Global Methodology for Rating Companies in the Merchandising Industry (published on August 14, 2024)
-- Global Methodology for Rating Companies in the Railway Industry (published on June 28, 2024)
-- Global Methodology for Rating Companies in the Services Industry (published on September 13, 2024)

In addition, the proposed "Global Methodology for Rating Companies in Services Industries" expands the analytical coverage with a new industry supplement focused on the commodity merchant trading and processing industry.

The "Global Methodology for Rating Companies in Manufacturing and Production Industries" would supersede the following current methodologies:

-- Global Methodology for Rating Companies in the Automotive Manufacturing and Supplier Industries (published on October 10, 2024)
-- Global Methodology for Rating Companies in the Construction and Property Development Industry (published on June 25, 2024*)
-- Global Methodology for Rating Companies in the Consumer Products Industry (published on August 14, 2024)
-- Global Methodology for Rating Companies in the Industrial Products Industry (published on April 15, 2024)
-- Global Methodology for Rating Companies in the Pharmaceutical Industry (published on August 9, 2024)

*The "Global Methodology for Rating Companies in the Construction and Property Development Industry" would be superseded by both the "Global Methodology for Rating Companies in Services Industries" (through a construction industry supplement) and the "Global Methodology for Rating Companies in Manufacturing and Production Industries" (through a property and homebuilder development industry supplement).

In addition to expanding our industry coverage, the proposed updates generally focus on providing greater transparency on our credit rating process and are designed to refine analytic frameworks and methodologies across Morningstar DBRS. Over the course of 2025, we will continue our efforts as part of the Fundamentals Methodological Integration Project relating to certain other corporate methodologies.

PROPOSED METHODOLOGY CHANGES
The most notable proposed updates in the "Global Methodology for Rating Companies in Services Industries" and the "Global Methodology for Rating Companies in Manufacturing and Production Industries" include the following:

(1) Industry coverage: We propose to expand our coverage to include commodity merchant trading and processing companies with a new industry supplement to the "Global Methodology for Rating Companies in Services Industries."

(2) Extension of Business Risk Assessment (BRA) and Financial Risk Assessment (FRA) factor ranges: We propose to explicitly present BRA and FRA factor ranges (in the industry supplements) from AAA through to the CCC range, and where appropriate CC/C scores can be assigned.

(3) BRA factor and FRA factor weights: We propose to explicitly present the relative weights of the BRA factors and the FRA factors in the industry supplements.

(4) Overlays: Currently, overlays in corporate methodologies are typically characterized as either industry-specific overlays (which may vary by methodology) or general overlays (which are generally common across all corporate methodologies).

We propose to capture overlays that relate more to BRA factors into a BRA Adjustment and to incorporate it into the determination of a Comprehensive BRA. This proposed Comprehensive BRA would capture both the BRA factors plus any BRA Adjustment. Similarly, we propose to rename overlays that relate more to FRA factors to FRA Adjustments and to incorporate them into the determination of a Comprehensive FRA.

Under the proposed updates, we would also rename certain overlays that do not relate to BRA or FRA assessment factors to Additional Considerations. These would include Parent-Subsidiary Relationships, Third-Party Support, and Sovereign Constraint. We would apply these Additional Considerations after determination of an Intrinsic Assessment, discussed below.

(5) Intrinsic Assessment: We are introducing the new concept of an Intrinsic Assessment, which would be determined by combining the Comprehensive BRA and Comprehensive FRA, resulting in the Intrinsic Assessment Range (expressed as a three-notch range). We typically determine the Intrinsic Assessment from the Intrinsic Assessment Range and apply relevant analytical considerations, as appropriate, to arrive at an issuer credit rating.

MATERIALITY OF CHANGES AND EXPECTED CREDIT RATINGS IMPACT
While there are no significant changes to the analytical approach, we deem the proposed updates to be material. No outstanding credit ratings are expected to change as a result of these proposed updates.

We have also published a Request for Comment on a proposed update to our "Morningstar DBRS Global Corporate Criteria," which can be found at https://dbrs.morningstar.com/research/444332.

Comments should be received on or before January 6, 2025. Please submit your comments to the following email address:
corfincomments@morningstar.com

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

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

For more information on this methodology or on this industry, visit http://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.