The purpose of this policy is to define core, ancillary, and consulting rating agencies services and to establish the types of services offered by DBRS.
DBRS is in the credit ratings business. DBRS provides independent analysis and rating opinions in respect of a wide variety of financial institutions, corporate entities, government bodies and regarding various structured finance products.
The following list sets out examples of DBRS core rating services and activities:
DBRS will continue to develop new, and expand upon its existing, core rating services.
DBRS considers ancillary services to be rating-related services, which if performed by a credit rating agency should be subject to appropriate operational policies, procedures and other controls, in order to eliminate or manage potential conflicts of interest that may arise and to preserve the integrity of the rating process. DBRS does not presently provide ancillary services.
Ancillary services may include the following:
DBRS does not engage in consulting or advisory services. DBRS considers consulting or advisory services to be services that generally involve providing advice and/or making proposals or recommendations to an issuer, arranger, underwriter or other third parties and would include providing advice in respect of the design of securitization transactions or corporate structures to achieve a particular rating.
DBRS assigns ratings to a wide variety of securities, and apart from certain "Issuer Ratings", the common denominator is the fact that in all cases, the issuer has a financial obligation to the security holder under certain circumstances. This normally occurs through some combination of maintaining interest or dividend payments and paying off the principal at a specified future date.
DBRS uses five distinct rating scales in providing ratings for short-term debt (including commercial paper), long-term debt (including bonds), preferred shares (Canadian scale only), claims paying ability, and income fund stability. Additionally, the DBRS Structured Finance uses a servicer evaluation scale for certain transactions.
DBRS is often faced with securities that are not truly debt or equity, but have varying degrees of both characteristics. In addition to assessing how to treat these securities from a balance sheet perspective, DBRS must also decide which scale to use when assigning ratings. Considerations include the legal status of the instrument (whether it is referred to as preferred), how the investment community perceives the security, whether distributions are dividends or interest, quarterly or semi-annual, tax treatment of those distributions, the relative ranking of the issue in relation to outstanding preferred share issues and their ranking in liquidation.
Preferred share ratings that use the long term debt rating scale will be heavily influenced by the ranking of these instruments relative to other outstanding or potentially outstanding securities. In that respect, rating decisions will use many of the same rating philosophies used in rating subordinated debt and other more deeply subordinated debt issues, such as hybrids.
It should be noted that the choice of rating scale used and the degree to which DBRS views the instrument as debt or equity in the capital structure are not the same issue. Those preferred instruments that are afforded a debt rating could still have varying degrees of equity allocated to them in the analysis.
For further information please refer to the DBRS methodology - Treatment of Preferred Shares and Hybrids.
While DBRS will often assign a rating to a specific security, many of its ratings are assigned by classes of securities. In general, the DBRS rating process focuses first upon the overall strength of the issuer, answering the question, "What is the correct rating that should be assigned to the most senior unsecured debt of this entity?" Once this has been established, DBRS then considers the specific ranking and covenants of the issuer's outstanding securities. In the case of a new issue, DBRS will typically specify the name of the security in our press release, and our reports often note the securities within the general text (i.e. "Senior Debentures, Class A, Series 1,2,4 and 8"). Many ratings are assigned to an overall general obligation, but also apply to all the securities that make up that obligation . This reflects the fact that ratings for the individual series within a general class are typically the same and that where there are exceptions that occur, these would be noted by DBRS.
Whenever possible, DBRS assigns ratings to specific debt obligations or groups of obligations of an issuer. There are cases though where DBRS chooses to assign an "Issuer Rating" that does not apply to individual securities. Reasons for this would include:
Generally, Issuer Ratings apply to all senior unsecured obligations of an applicable issuer, except when an issuer has a significant or unique level of secured debt. Issuer Ratings include a broader range of obligations than would typically be captured with the use of more specific ratings that are assigned to one security or one general ranking of a designated group of securities. Unless specifically defined to exclude such, the Issuer Rating would include any off-balance sheet obligations or contracts that ranked equally to the on-balance sheet senior unsecured obligations of the issuer. This is typically the primary difference between an Issuer Rating and the typical case where DBRS assigns ratings to specific securities or groups of securities.
A shelf program is a filing with applicable regulatory bodies to issue debt in the future.
When DBRS assigns a rating to a new shelf program, these ratings are focused on the ranking of debt being rated, with consideration for covenants. A DBRS rating on a shelf program should not be taken to mean that the rating has built in the expectation of the issuer using the entire program once it is established. Similar to ratings on other debt obligations, DBRS has expectations and understandings of the issuer's debt targets. The use of shelf programs cannot be viewed in isolation, but is part of the issuer's overall balance sheet management, including short-term debt usage, new long term issues, share buybacks and off balance sheet actions (including securitizations).
In general, DBRS ratings are focused on providing a measure of the issuer's ability to meet its obligations in a timely manner. However, there are numerous non credit risks that can impact the performance of security instruments, particularly securities that are longer term in nature. These non credit risks are not captured in the rating as they do not normally translate into any increase in the probability of default. Non credit risks include market risk, non-cumulative covenants and hybrid features.
Market Risk
Market risk is present in every investment decision. Some securities carry more market risk than others. Regardless of the level, however, DBRS does not see market risk as part of the credit risk that is the focus of our ratings and as such, DBRS ratings are not impacted by market risk considerations and provide no opinion on such.
Non-Cumulative Risk
The risk with non-cumulative securities is essentially no different than with cumulative securities unless there is a default situation, in which case, the non-cumulative shares have the added risk of missing dividend payments that have no potential of being made up in the future. However, non-cumulative shares do not have a higher risk of default than do equivalently ranking cumulative shares of the same issuer. DBRS ratings are meant to provide a measure of default risk and therefore, ratings for equally ranking cumulative and non cumulative issues of the same issuer will be identical. Investors should be aware of the fact that DBRS ratings do not consider the additional potential risk of loss that exists with non-cumulative issues, if default should occur.
Hybrid Instruments
There are situations where securities carry unique covenants that can add a variety of risks that are not captured in the DBRS rating. Examples of these include the ability to defer payments and the ability to fulfill payment obligations using securities and not cash. By definition, hybrids are instruments that combine certain characteristics of debt and equity, however these characteristics do not normally cause any change in the likelihood of default. Investors should be aware that these covenants could lead to a variety of scenarios that impact performance and other factors, but DBRS does not see these considerations as part of credit risk and as such, DBRS ratings are not impacted by hybrid covenants and provide no opinion on such.
The following policy examines the rationale for DBRS's use of two different scales for rating short- and long-term obligations, the similarities and contrasts involved in the use of the scales, and the resulting relationship that exists. Note that: (i) While short-term debt can encompass a variety of different securities, this policy references the most common, commercial paper (CP), which consists of unsecured promissory notes of less than one year in duration. (ii) When discussing the mapping that exists between short- and long-term ratings for Corporate issuers, the long-term rating is typically the most senior unsecured rating of the entity in question or the issuer rating, such that its legal ranking would be equivalent to CP. (iii) The bulk of the comments made in this policy deal with "corporate" credits. There are nuances in the area of Structured Finance, which are discussed in the last section.
While DBRS makes use of several rating scales to cover a variety of situations, the vast majority of DBRS ratings fall under two primary scales:
All scales also have a "D" classification to signify default as defined by DBRS.
A key starting point is the fact that the rating approach and key considerations used to determine ratings are highly similar for short and long time horizons. This means that there will be a meaningful relationship between short- and long-term ratings.
However, there are some unique aspects in assessing short-term credit risk and DBRS believes that these can be more clearly delineated through the use of an entirely separate short-term rating scale. Specifically, short-term funding exposes issuers and investors to a somewhat different set of risks and considerations than long-term funding. The difference is primarily due to liquidity considerations within the shorter maturity duration. Therefore, when assessing the credit quality and rating of a CP issuer, DBRS places a high reliance on short-term liquidity considerations. Liquidity is a consideration in long-term ratings as well, but its importance is magnified in the case of short-term ratings.
The separate scale used to assign CP ratings also provides an indication that DBRS has considered and is comfortable with the fact that back-up liquidity provides acceptable support for the assigned rating. In the short term, a borrower does not have the flexibility to design and structure new financing options should there be a change in its ability to access the CP market. Therefore, the short-term credit analysis must consider alternative liquidity support for CP programs, as addressed in other DBRS policies.
There is a strong relationship between short- and long-term ratings because the key rating considerations are almost identical. At first glance, risks such as management succession, extended lawsuits, possible regulatory changes, potential new competition, possible future labour issues and challenges related to technology change would appear to be longer-term issues that should have little bearing on an entity's ability to roll over its short-term maturing CP. In actual fact, however, the emergence or development of any longer-term risk can have an immediate impact on an entity's ability to repay or roll over its CP. Most borrowers, including the most creditworthy, would be hard pressed to repay CP obligations purely from internally generated cash flow. This creates a reliance on continued access to capital markets, with CP being the most sensitive to investor concern, which could arise from market or company-specific issues. As such, CP ratings are by no means simply an evaluation of an entity's internal liquidity metrics that are available to repay short-term maturing debt. All credit factors must be considered when assigning CP ratings.
As noted before, however, DBRS believes that it is appropriate to place a higher reliance on liquidity for CP ratings, creating one meaningful difference in the evaluation of short-term and long-term obligations. Longer-term analysis also considers liquidity, but in the longer term, ratings are determined more by the level and stability of cash flow expected through a full economic cycle. This involves an investigation of all factors that could impact future cash flow of the company in question. The details of the trust indenture are another consideration for longer-term ratings.
As such, while short- and long-term ratings have meaningful similarities because they essentially reflect the same credit considerations, the reality is that some factors are weighted differently in determining short- versus long-term ratings. This creates both a rationale and an added value in utilizing a separate scale for CP ratings.
The conclusion of the aforementioned points is that while short-term ratings will not be totally explained by the long-term ratings assigned to an entity, there will be a strong relationship between the short- and long-term ratings for any given credit, barring any differences caused by consideration for factors such as covenants or guarantees. In other words, while it is possible for an entity with strong liquidity to achieve a short-term rating that is superior relative to its long-term rating, it is not possible for this "gap" to vary significantly from the longer-term DBRS opinion on the issuer. For example, a company with a long-term rating of A (low), which is defined to be at the lower end of "satisfactory", would be precluded from achieving a "superior" short-term rating of R-1 (middle).
Referencing the above Mapping Table, there is a standard relationship between short- and long-term ratings when exceptional liquidity strength or liquidity concerns are not factors. With respect to the "exceptions" (or "mapping exceptions") as noted in the Table, the most likely exceptions occur when AA, A (high) and BBB (high) rated entities are able to achieve respective R-1 (high), R-1 (middle) and R-1 (low) CP ratings due to the existence and expected continuation of superior liquidity strength. For example, AA rated banks and governments are candidates for R-1 (high) ratings.
While not noted in the mapping table, there may be unique circumstances that lead to rating mappings that are not covered even with the "exception mappings" as noted. For example, DBRS has had cases where "A" rated entities have achieved R-1 (middle) CP ratings, where BBB rated entities have achieved R-1 (low) ratings, and where an entity with a long term non investment grade rating was able to achieve a short term investment grade rating. However, these and possibly other mappings not noted on the table are very rare correlation exceptions that typically relate to very unique circumstances. While DBRS reserves the right to make these exceptions when deemed to be the correct rating judgement, such occurrences are and will continue to be extremely infrequent.
In the experience of DBRS, mapping exceptions of a positive nature for the short-term rating tend to occur mainly within the following Corporate sector areas:
Outside of the aforementioned areas, mapping exceptions for other Corporate credits are less frequent than in the banking or government areas, but possible. Where exceptions do occur, the rated entity must be able to demonstrate liquidity strength due to some combination of the following considerations: high and stable cash flow; relatively low debt levels; a relatively low level of dependence on short-term debt; a well dispersed long-term debt maturity schedule; high levels of liquid assets that are expected to be maintained; other assets that have ready ability to be quickly securitized; a conservative management philosophy towards liquidity and debt; the ability to secure funds from a higher-rated parent or affiliate; manageable business risk; and a base long-term rating that is considered to be strong within its rating category. In the case of corporations with stable cash flow, low debt levels and other potential alternative sources of funds, the corporation may have the ability to enjoy a relatively stronger short-term rating, such that a BBB (high) long-term rating may translate into an R-1 (low) rating. However, corporations generally do not have the liquidity characteristics of financial institutions; hence, AA rated corporations will rarely have the ability to achieve an R-1 (high) rating. This also partly reflects the tough definition DBRS has for its highest-rated CP rating category.
It is also possible, although less likely, for liquidity concerns to result in a CP rating that is below the typical long-term rating relationship. For example and as noted in the table, the case of an entity with an A (low) issuer rating that receives a CP rating of R-2 (high). These exceptions would occur if DBRS had meaningful concerns with either the liquidity support or the liquidity strength of an issuer. One example of where such a mapping exception could occur would be the case where an issuer did not meet DBRS standards with respect to having acceptable back-up liquidity for its CP program.
Lastly, as noted in the Mapping Table, it is not impossible for an issuer with an unsecured senior long-term rating in the BB (high) non-investment grade area to achieve a CP rating from DBRS at the lowest end of "adequate", within the category of R-3. Consistent with other mapping exception situations, the driving rationale for such a situation would be the existence of liquidity strength that provides a buffer for any short-term challenges. For a mapping exception to "cross the investment-grade line" however, there would also be a high focus on ensuring that liquidity strength included an acceptable free cash flow position and that there were no major refinancing risks. In addition, DBRS would need a level of comfort that the issuer in question would have a relatively low level of event risk and despite its non-investment grade long-term status, that the probability of default in the short term would be remote, much lower than any expectation related to the typical level for long-term obligations of credits in the BB (high) rating category.
Correlation mapping for Structured Finance transactions is similar to Corporate sector credits in the broadest sense, and in virtually all cases, the Mapping Table would hold for Structured Finance. However, there are some differences that should be noted:
There are fewer "exceptions" for Structured Finance rating mappings than the breadth allowed for in the Mapping Table. This reflects the fact that ratings are based on "structured" entities, which reduces the level of impact that above-average liquidity strength can have for the short-term rating without being equally considered in the long-term rating. In addition, the short-term ratings outlook for Corporate issuers may include management, business or other factors that are not applicable to Structured Finance issuers. Specifically, this means that:
For Structured Finance, the Mapping Table is not intended to establish criteria for swap, counterparty, liquidity or credit enhancement obligations.
On DBRS rating scales, default rating status is represented by 'D' and generally defined as: A security rated 'D' implies the issuer has not met a legally scheduled payment, the issuer has made it clear that it will miss such a payment in the near future, or in certain cases, that there has been a distressed exchange. In some cases, DBRS may not assign a 'D' rating under a bankruptcy announcement scenario, as allowances for grace periods may exist in the underlying legal documentation. Once assigned, the 'D' rating will continue as long as the missed payment continues to be in arrears, and until such time as the rating is discontinued or reinstated by DBRS.
With respect to preferred share securities, the non payment of a dividend will only be considered as a "default" if the non payment constitutes default per the legal documents. As such, the non payment of a dividend does not necessarily give rise to the assignment of a 'D' rating.
There may be cases where DBRS takes the action of assigning a default rating status ('D') to a security or class of securities of an issuer, but other securities or classes of securities of the same issuer are not considered to be in default as the issuer continues to meet its obligations in respect of those securities or classes of securities in a timely manner. Where DBRS assigns an issuer rating default status, it will discontinue any related recovery rating.
The following flow chart illustrates the basic factors used by DBRS to determine when to downgrade a security to default status, or 'D'. However, DBRS may downgrade a security to 'D' at any time when it determines that it would be appropriate, such as when DBRS is satisfied that a bankruptcy filing or any other action that would result in a default is imminent. Further, DBRS may consider additional factors to those set out in the flow chart when reviewing any security for the purposes of a possible downgrade to default status.
In addition to confirming or changing ratings, other rating actions include:
(a) Discontinued Ratings
When an entity retires all, or virtually all, of its outstanding debt within a particular category and has no plans to reissue in the near future (e.g., commercial paper, long-term debt, or preferred shares), DBRS may discontinue its rating. Other circumstances where DBRS may also discontinue ratings include situations where the rated debt is no longer in the public market, where a defeasance structure removes the credit risk of the issuer as a consideration, where the debt comes to be held by a few large institutions that do not require ongoing DBRS ratings, or where DBRS elects to discontinue its public rating coverage of a particular entity or security.
In the specific case where an issuer's ratings have been downgraded to "D", DBRS may maintain or discontinue the rating. In rendering this decision DBRS will consider:
In cases where neither of these factors supports continuing coverage, the rating will generally be discontinued.
(b) Ratings "Under Review"
In practice, DBRS maintains continuous surveillance of the entities that it rates and therefore all ratings are always monitored. Accordingly, when a significant event occurs that directly impacts the credit quality of a particular entity or group of entities, DBRS will attempt to provide an immediate rating opinion. However, if there is uncertainty regarding the outcome of the event, and DBRS is unable to provide an objective, forward-looking opinion in a timely fashion, then the rating(s) of the issuer(s) will be placed "Under Review".
DBRS also places ratings "Under Review" in situations where there has been no major announcement or event for the issuer, but in the opinion of DBRS the current rating on the security may no longer be appropriate due to a change in the credit status of the issuing entity for other reasons, such as the ongoing results of the company and/or the outlook for the industry. In most such cases, where additional time is required for further analysis, DBRS will place the rating "Under Review".
A rating that is "Under Review" remains outstanding; however, this status acts as a warning signal indicating that the outstanding rating may no longer be appropriate.
Using "Under Review Positive" or "Under Review Negative" is a more significant action than changing a rating trend to positive or negative as rating changes are considered more likely with the former than the latter.
When a decision is made by DBRS to place a rating "Under Review", DBRS will generally take the following actions:
In those cases where a rating is placed on Under Review status, DBRS views this as a temporary situation; therefore DBRS strives to complete the review and remove the rating from this status as soon as it is appropriate to do so.
In the event that a lengthy Under Review period is anticipated, DBRS may provide such guidance in a press release and may, if appropriate, provide guidance as to the anticipated rating that would emerge under a proposed scenario.
In the event that DBRS decides to discontinue a rating that is Under Review, DBRS endeavours to resolve the Under Review status prior to the discontinuation.
(c) Rating Commentary
A Rating Commentary (in which the following headline may be applied, "DBRS comments on ___ "), is a method by which DBRS may make its opinions known to the market without using the more widely used formal actions.
A Rating Commentary is typically used:
(d) Ratings "Interest in Arrears"
On occasion, there will be structured finance transactions or deals such as commercial mortgage-backed securities ("CMBS") where interest payments are in arrears but the cumulative or on-going shortfall is expected to be ultimately recoverable or paid. Where the interest shortfall is a question of timing in the shorter term, and not of ultimate payment, DBRS notes this with the 'Interest in Arrears' rating action for the class affected. An example where this may occur is where one or more of the loans within the CMBS deal have been subject to an appraisal reduction event, which is a structural feature within CMBS which prompts a servicer to advance a partial payment based on a lower valuation. This event may cause a particular class to have an interest shortfall, however the interest is ultimately recoverable at the time the loan is resolved. In addition this event is not automatically associated with a default of the entire deal. Using this action allows DBRS to recognize that the interest shortfall does not impact the overall credit quality and to maintain an appropriate credit risk rating.
DBRS uses "rating trends" for its ratings in the Corporate sector (except for Income Fund Stability Ratings) and its ratings for the CMBS product group within Structured Finance. For additional information regarding rating trends in CMBS, please refer to DBRS policy "Use of Rating Trends in CMBS".
Rating trends provide guidance in respect of DBRS's opinion regarding the outlook for the rating in question, with rating trends falling into one of three categories - "Positive", "Stable" or "Negative". The rating trend indicates the direction in which DBRS considers the rating is headed should present tendencies continue, or in some cases, unless challenges are addressed. In general, the DBRS view is based primarily on an evaluation of the issuing entity or guarantor itself, but may also include consideration of the outlook for the industry or industries in which the issuing entity operates.
DBRS assigns a rating trend for each security of an issuing entity as opposed to specifying one rating trend for the issuing entity itself. Given that the duration and ranking of securities can influence the weighting of the strengths, weaknesses and challenges that affect the entity, it is not unusual for securities of the same entity to have different Trends. However, the simultaneous occurrence of both a Negative and a Positive Trend for securities issued by the same entity is rare.
It is the DBRS philosophy to rate "through an economic cycle"; therefore it is often the rating trend that will reflect the initial pressures or benefits of a changing environment rather than an immediate change in the rating itself. Nevertheless, a Positive or Negative Trend is not an indication that a rating change is imminent. Rather, a Positive or Negative Trend represents an indication that there is a greater likelihood that the rating could change in the future than would be the case if a Stable Trend was assigned to the security.
Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. However, in some instances, new factors emerge which may cause the Positive or Negative Trend to be maintained, even as the original factors become clarified or resolved. DBRS generally notes any changes to the basis for the Positive or Negative Trend.
CMBS is the only Structured Finance asset class that regularly uses trends, due to its ongoing surveillance approach. Similar to the Corporate sector, each DBRS rating category is appended with one of three rating trends - "Positive", "Stable", or "Negative". The rating trend helps to provide an understanding of DBRS's opinion regarding the outlook for the rating; although a positive or negative trend does not necessarily indicate that a rating change is imminent.
CMBS has an inherent positive trend when there is amortization and asset appreciation; however no pool is static. Property net cash flows increase or decrease at different rates and as a result of this, and other market factors, assets generally appreciate at different rates; although not all assets will appreciate. Rating trends allow DBRS to identify a general credit shift in the absence of critical information and to remain proactive when positive or negative factors impacting the asset pool are insufficient to warrant a change in the rating, but it can be determined that the pool has improved or worsened. Negative events may be offset by positive events, resulting in stable trends.
Ratings reflect the risk of the first dollar loss (or default) for the rated class; therefore DBRS generally uses a Positive trend when the majority or part of a class is considered to be in the rating category immediately above the rating category for the class, but the entire class is not in that rating category. DBRS upgrades the rated class once the entire class warrants the rating.
Examples of when DBRS uses Positive trends include when substantial pay-down from amortization or repayment of loans occurs and when a loan defeases with Government of Canada securities. These events are recognized as positive credit changes, though the changes are not large enough to support the upgrade of the entire class.
A Negative trend indicates that negative events may have occurred or that unfavourable changes in respect of the asset pool are likely to occur in the near future, such as an adverse selection, a significant percentage of the pool being noted as loans that have a higher propensity for default, or the acquisition of new specially serviced loans without loss estimates.
A Stable trend indicates DBRS's view that the rating is secure and that according to on-going surveillance and performance updates, the trend is stable.
When a rating is placed "Under Review", DBRS indicates its status as "Under Review with Positive, Negative, or Developing Implications", as the case may be. The difference between a Positive trend and an Under Review with Positive Implications, for example, is primarily the timing of any related rating change. An Under Review with Positive Implications is generally used when a rating upgrade is imminent. However, as discussed above, a Positive trend may identify positive credit changes within the asset pool, but be insufficient to warrant a rating upgrade.
For further information regarding rating trends generally, please refer to DBRS policy "Rating Trends", and regarding Under Review rating status, please refer to the DBRS policy "Under Review".
When issuers are in the process of completing new issuances of securities, DBRS may be requested to provide its preliminary rating opinion to be used by the issuers in the preliminary prospectus and for discussions with investors or other third parties. DBRS provides its preliminary rating opinions by press release as a "provisional rating", which may be accompanied by a pre-sale report. Provisional ratings and pre-sale reports are provided for a wide variety of corporate and public finance issues and in respect of structured finance transactions.
DBRS will assign a provisional rating to a security pending the satisfaction of certain conditions and in the event that the conditions are met, a final rating will be assigned. The conditions typically relate to the review of the final documentation, but may also include the closing of a plan of arrangement or the completion of a purchase or merger. A provisional rating is not a final rating in respect of the security, it may change or be discontinued, and the final rating issued in respect of the security may be different from the provisional rating.
A private rating is prepared for a restricted audience, where the rating, any supporting report, and knowledge of the rating, is limited in accordance with the terms of the arrangement with the issuer or third party who requested the rating. Private ratings are not disseminated to the public.
Private ratings may be requested for a variety of reasons including, but not limited to, the following:
The terms of the arrangement tend to be dictated by the requirements of the issuer or third party who requested the rating. For example, the issuer or third party will determine whether a one-time credit opinion is required, with no role for DBRS to monitor the rated entity going forward, or whether the rating relationship will be ongoing, where DBRS will maintain the rating through regular and timely private reviews.
DBRS generally discourages the use of a private rating when a public rating is warranted, such as when a private rating is intended to be widely used.
The rating methodologies and process used to determine a private rating including the analysis, review and rating committee are the same as that used with public ratings. Where a private rating is based on public information, the disclosure "Note: This rating is based on public information" is used.
Coverage of all major companies in an industry benefits the investing public by improving the quality of the ratings report. Peer coverage within an industry also enhances an analyst's ability to rate other companies by enabling an understanding of the major differences and subtle nuances among various companies in the industry.
Where DBRS believes there is a meaningful market or investor interest served by coverage of an issuer and the issuer declines to enter into any discussions, DBRS may elect to initiate ratings coverage without being requested to do so by an issuer, obligor, underwriter, or other interested party (an "Unsolicited Rating"). Unsolicited Ratings will be based solely on public information. Sufficient public information must be available to support the analysis. In these circumstances, DBRS will use the following disclosure in the press release and the accompanying report: "Note: This rating is based on public information."
DBRS will notify the issuer of its intention to initiate ratings coverage on a no-fee basis.
DBRS's approach to ratings and conflicts of interest is the same whether the rating is an Unsolicited Rating based on public information only or a typical rating based on management involvement. DBRS's ratings are in all cases determined by the same rating committee policies and process. DBRS also maintains an extensive array of internal policies and procedures to address potential conflicts of interest which includes: staff do not engage in unfair, coercive, or abusive sales practices and do not allow rating decisions to be influenced by the amount of fees paid or not paid to DBRS in respect of the issuance of ratings1; staff are not permitted to purchase securities of any issuer DBRS rates and business development roles and responsibilities are separate from analytical functions.
DBRS's credibility and market acceptance are its most valuable assets. Inappropriate use of information would undermine DBRS's reputation.
Internal assessments represent opinions regarding the creditworthiness of an issuer or security that does not have a public or private DBRS rating. Within the capital markets, some forms of internal assessments are also referred to as shadow ratings or credit assessments. When determining internal assessments, DBRS may perform its own analysis or may also rely upon public ratings issued and maintained by other Nationally Recognized Statistical Rating Organizations ("NRSROs") or External Credit Assessment Institutions ("ECAIs"). In cases where DBRS's opinion differs from publicly available NRSRO or ECAI ratings or no public NRSRO or ECAI ratings are available, DBRS performs its own credit analysis.
Internal assessments are not to be equated with public or private DBRS ratings as the depth of analysis may differ. They are most often used for internal analytical purposes as a component in the analysis of a corporate or structured finance rating. In addition, the committee process for determining and monitoring internal assessments differs from the process used to assign and monitor public and private DBRS ratings.
Internal assessments are not disclosed to the market. DBRS maintains applicable records on internal assessments as required for business and regulatory purposes.
This policy establishes the criteria for the rating of market-linked securities by DBRS.
"Market-Linked Securities" are instruments where interest and/or principal repayments are obligations of, or obligations guaranteed by financial institutions, where the return of interest or principal is variable and may fluctuate in accordance with equity, currency, commodity, market price index, or to the market value of a particular stock or fund. Such repayments may also be linked to baskets of any of the aforementioned.
DBRS only rates a market-linked security when the offering documentation provides that the holders of the security are entitled to a 100% return of principal.
The DBRS rating assigned to a market-linked security only addresses the likelihood of the issuer to repay the amount in respect of which the holders of the security are entitled. A market-linked security will be sensitive to market, index, currency, commodity or other fluctuations if it is tied to such fluctuations. The DBRS rating on a market-linked security does not address such fluctuations nor does it address the likelihood of receipt of any investment return beyond the ultimate return of principal.
All other DBRS rating policies and procedures apply equally to market-linked securities rated by DBRS.
1 DBRS does not engage in the practice of issuing an Unsolicited Rating and then communicating with the issuer in an attempt to induce payment for the rating.
